authorising the Italian Republic to introduce a special measure derogating from Articles 218 and 232 of Directive 2006/112/EC on the common system of value added tax

EXPLANATORY MEMORANDUM

Pursuant to Article 395(1) of Directive 2006/112/EC of 28 November 2006 on the common system of value added tax (hereafter 'the VAT Directive'), the Council, acting unanimously on a proposal from the Commission, may authorise any Member State to apply special measures for derogation from the provisions of that Directive in order to simplify the procedure for collecting VAT or to prevent certain forms of tax evasion or avoidance.

By letter registered with the Commission on 27 September 2017, the Italian Republic requested authorisation to derogate from Articles 218 and 232 of the VAT Directive to be able to impose mandatory electronic invoicing. In accordance with Article 395(2) of the VAT Directive, the Commission informed the other Member States by letter dated 3 November 2017 and Portugal by letter dated 6 November 2017 of the request made by the Italian Republic. By letter dated 7 November 2017, the Commission notified the Italian Republic that it had all the information necessary to consider the request.

1.CONTEXT OF THE PROPOSAL

•Reasons for and objectives of the proposal

Italy submitted a request for derogation based on Article 395 of the VAT Directive to be authorised to apply a mandatory electronic invoicing to all taxable persons established in the territory of Italy except taxable persons benefiting from the exemption for small enterprises and to channel the invoices through the system Sistema de interscambio (hereafter 'SdI'–) managed by the Italian Revenue Agency.

Italy submits that the electronic invoicing obligation via the SdI allows the tax administration to acquire in real time the information contained in the invoices issued and received by traders. As a result tax authorities can carry out timely and automatic checks of the consistency between VAT declared and paid.

Italy thus considers that the introduction of a generalized electronic invoicing obligation would provide benefits in terms of combatting fraud and evasion, as well as in terms of simplification of tax collection. According to Italy, there would be real benefits from better tax compliance and from increased timeliness and effectiveness of anti-fraud and anti-evasion controls. It would also give a boost to digitization and administrative simplification.

According to information submitted by Italy, the grounds for mandatory electronic invoicing are prepared by the existing voluntary system and the mandatory electronic invoicing for supplies to public authorities thus ensuring a smooth transition to the obligatory electronic invoicing and limiting the impact of the measure on taxable persons and consumers.

Since 2014 taxable persons carrying out commercial transactions with the public authorities in Italy (20% of taxable persons) are under mandatory electronic invoicing. All public administration invoices are channelled through the SdI and are forwarded to the general accounting office for expenditure control purposes and to public authorities. Also an optional system for the electronic transmission of data or for electronic B2B invoicing was introduced starting from 2017. The scheme gives the opportunity to opt for quarterly electronic transmission of data to the tax authorities on all invoices issued in the reference quarter. Alternatively to this periodic data transmission, the suppliers can send and receive electronic invoices through the SdI. As from July 2016, the tax authorities have made available a free web application for generating, transmitting and storing electronic invoices. Consequently, a number of businesses are already under the obligation to issue electronic invoices while other businesses had or will have a chance to get acquainted with it before the introduction of the measure.

Given the broad scope and the novelty of the derogation, it is important to ensure the necessary follow-up within the framework of this derogation and in particular the impact of the measure on combatting VAT fraud and evasion and on taxable persons. Should Italy wish to prolong the derogating measure, it is requested to provide a report on the functioning of the measure together with the prolongation request. This report should provide the assessment of the measure what concerns its effectiveness in fighting VAT fraud and evasion and in simplifying tax collection. The report should also include an evaluation of the measure on taxable persons and in particular what concerns the increase of their administrative burdens and compliance costs.

It is proposed to authorise the derogation as from 1 July 2018 until 31 December 2021.

•Consistency with existing policy provisions in the policy area

Article 218 of the VAT Directive puts paper and electronic invoices on equal footing by providing that Member States shall accept documents or messages on paper or in electronic form as invoices. Following Article 232 of the VAT Directive the use of an electronic invoice shall be subject to acceptance by the recipient. The obligatory electronic invoicing as envisaged by Italy would indeed derogate from these two provisions.

The derogation can be authorised based on Article 395 of the VAT Directive in order to simplify the procedure for collecting VAT or to prevent certain forms of tax evasion or avoidance. Italy requested the derogating measure to fight tax fraud and evasion as well as to simplify the tax collection. Based on the elements provided by Italy, the derogation is consistent with the existing policy provisions.

The derogation for mandatory electronic invoicing would be in line with the Council Recommendation on the 2017 National Reform Programme of Italy recommending that 'Italy take action in 2017 and 2018 to, inter alia, broaden the compulsory use of electronic invoicing and payments'.

2.LEGAL BASIS, SUBSIDIARITY AND PROPORTIONALITY

•Legal basis

Article 395 of the VAT Directive.