The recent European Commission’s VAT in the Digital Age (ViDA) proposal is a game changer for global businesses and their tax functions.
On 8 December, 2022 the European Commission (EC) published the VAT in the Digital Age proposal (ViDA). The proposal includes measures to modernize the VAT system to avoid fraudulent activities, primarily through digitalization. It also aims to address the VAT problems created by the growth of the platform economy.
ViDA's series of far-reaching VAT measures, which aim to reduce the €93b VAT gap in the EU and to make the VAT system more efficient for businesses, revolve around three pillars: e-invoicing and digital reporting, the single VAT return for trading across the EU, and the platform economy. One of the key proposals is the move to real-time digital reporting based on e-invoicing for businesses that operate cross-border in the EU.
ViDA is "a complete game changer at the European scale," says Gwenaëlle Bernier, International Tax Partner at Ernst & Young Société d'Avocats – France.
ViDA will drive fundamental change within organizations. The tax function will play a critical role, but the interdisciplinary impact is significant, as are the opportunities it creates. It is a powerful potential lever that tax teams should use to improve their processes, data, and quality issues. "One of the great things about e-invoicing is its business-wide impact. It is not just tax-led, nor IT-led. It will touch finance, operation, procurement, IT and tax. It impacts the vast majority of the business because before being a tax process, it's a business process," says Pierre Arman, EY Global Tax SaaS Go-to-Market Leader.
This shift towards digital invoices has been in development by Italy and France for a few years, and it is expected to become the norm in every Member State. This means that all businesses operating in the EU will have to transition to digital invoices.
The advantages of e-invoicing and real-time VAT data for tax authorities are clear. It can assist in closing VAT gaps, prevent unintended errors, enhance risk management capabilities and early detection of fraud schemes. Near real-time availability offers even greater possibilities for quicker and more in-depth analysis of economic developments and forecasts. While businesses can incur high implementation costs, electronic invoicing can, over time, reduce business spending and stimulate the broader digitalization of taxation-related processes.
How ViDA will drive organizational change globally
ViDA and e-invoicing requirements will catalyze the work that many organizations need to do to better integrate tax and other business elements regarding data management and usage.
Larger organizations are using ViDA and the rise of e-invoicing as an opportunity to take a step back to consider a strategy, not just a solution. Technology is a component of that strategy, whether a single provider or several regional platforms. Organizations need a strategy because of the cost of a vendor selection every time there is a change and rushing to implement each solution takes time and effort.
Not all EU businesses and those that trade in the EU are fully aware and prepared for the fundamental change ViDA will bring. "There is definitely awareness and a sense of urgency," says Arman. "Many clients are taking a small step first. For instance, they may be planning to tackle France next year and use that as a blueprint for every other country, whether in Europe, in APAC or the Middle East. That's where your choice of how you will use technology, process and people matters a lot."
There needs to be internal alignment to tackle ViDA and the tax function needs to play a critical role from the outset. Establish a matrix clearly establishing departmental responsibility (which is responsible, which is accountable, which is consulted and which is informed) and a governance model that underpins it. The key is ensuring nothing falls between the cracks. "What we are seeing with e-invoicing is that it often does not fall under tax, but the tax function must be part of those discussions. Otherwise, there will be challenges in implementation," says Maria Hevia Alvarez, EY Global Indirect Tax Deputy Leader.
Tax leaders need to ask: What are the key requirements within ViDA that will impact the business? Tax functions need to ensure they are at least facilitating and kicking off that discussion because, ultimately, they are responsible for informing the company of those new and evolving requirements across its country footprint.
How EY can help
Indirect tax compliance
Every day seems to bring changes in indirect taxation around the world, including new taxes, and new reporting and compliance obligations.
Data quality is critical
"Businesses are probably spending more money than they need to. There is an opportunity here to look at the process and the data. Time will be better spent committing to a larger strategy even if that strategy is only for the next two to three years," according to Ben Woodfield, UK&I Indirect Tax Partner, Ernst & Young LLP.
Data quality is the most critical factor in e-invoicing. Businesses need to have the relevant data capture processes and controls that ensure high data quality in place. That data is going to be subsequently relied upon not just by systems for e-invoicing submission solutions but possibly by subsequent indirect tax processes, such as traditional VAT return preparation processes and other downstream submission systems. "Data quality is where organizations will get caught out. Data is as critical as selecting your technology solution," adds Woodfield.
Businesses also need to be conscious of their ERP system's current functionalities and capabilities with regard to VAT. In the future, they may have to increase functionalities to reach that data quality level.
The global opportunities created by ViDA
Apart from compliance and preparation, there are obvious opportunities to be gained by the tax function and businesses. "Like with any change, you're either going apply a short-term fix and will probably have to rip it off in two or three years and redo it again. Or you're going to say, 'Actually, how about we take that opportunity to enhance what we are doing? Future-proof how we're going to be set up going forward so we can leverage what we do now for the future challenges the digitalization of indirect tax will throw at us?’ says Arman.
ViDA gives the tax and finance functions access to live granular transactional data. They should harness it to create key performance indicators (KPIs) and data analytics for the benefit of their business. To determine, for example, which clients pay on time or the type of product designs that sell best. Again, data quality is vital because when a business transmits data externally, notably to tax authorities, it has to be good. Up until now, many finance departments have been using aggregated data.
Another benefit is the management of cash. Businesses can determine when cash is paid more quickly and by whom and organize their business development based on those figures. Ultimately, the most significant opportunity ViDA provides is a genuine shift to digital.
"It's a huge business and commercial challenge. Quite a lot of investment is going to be required. But if you flip that around and think about the potential upside, I think this is the single biggest potential lever that tax teams can use to improve the processes, data and quality issues they've been facing for years," says Liam Larke, UK&I Indirect Tax Partner, Ernst & Young LLP. "It is an opportunity to completely overhaul how they manage indirect tax reporting within the organization."
Businesses should use ViDA as the backbone of a business case for investment in a particular technology or as a reason to improve upstream finance processes or improve legacy ERP issues. Use a holistic approach, considering how the processes, data and technology all interact.
ViDA provides an opportunity for tax leaders to get the rest of the organization to stand up and realize that they need to make fundamental changes and build tax requirements into every stage of the process. "If you can successfully align that with other finance transformation initiatives, such as an ERP upgrade or implementation, which lots of our clients are also managing at the moment, that can potentially set your business up from a tax reporting perspective for the next 10 to 20 years," adds Larke.
The country-by-country rollout of e-invoicing regulations has significantly different maturity and complexity levels globally, so having one global e-invoicing platform to manage at scale has become more of a necessity. "Indirect tax is data-driven, so it's impossible to do our job without technology," adds Arman.
There is a lot businesses can do to prepare outside of the technology solution. In terms of setting the strategy, thinking about data quality and the processes in their organization that will ultimately support compliance.
e-Invoice is a system in which B2B invoices are authenticated electronically by GSTN for further use on the common GST portal. Under the electronic invoicing system, an identification number will be issued against every invoice by the Invoice Registration Portal (IRP) to be managed by the GST Network (GSTN).What are the benefits of e-invoicing over traditional invoices? ›
Electronic invoicing allows a significant optimization of the resources used for dealing with it, so the business expenses are reduced. The costs incurred when purchasing the electronic invoicing software (electronic transmission costs) is quickly paid off, and it is much less than printed invoices.What is the purpose of electronic invoicing? ›
Electronic invoicing is the exchange of an electronic invoice document between a supplier and a buyer. An electronic invoice (eInvoice) is an invoice that has been issued, transmitted and received in a structured data format which allows for its automatic and electronic processing, as defined in Directive 2014/55/EU.Why is electronic invoicing attractive? ›
Savings in time, shipping and personnel costs
The recipient in turn is relieved from manually processing the received invoice, as the invoice data can be automatically transferred to the ERP/accounting system.
Digital invoice vs electronic invoice
A digital invoice is an invoice that can be viewed and processed digitally. An e-invoice is always a digital file format, just like a PDF or Word file.
In case of Credit Note and Debit Note, no linkage with invoice is built. Taxpayer needs a system/utility to report e-invoice details in JSON format to IRP and receive signed e-invoice in JSON format. Invoice Registration Portal (IRP) is the website for uploading/reporting of invoices by the notified persons.What are the benefits of e-billing to customers? ›
Efficiency. As e-billing automates the billing process once you have used a service from a company, you are able to pay off a bill sooner than if it had been sent to you via the post. This efficiency in electronic billing is valuable as it allows you, and the company sending your bill, greater financial management.What are the benefits of invoicing system? ›
- Invoice processing is great for legal reasons.
- They keep customers happy.
- Keeping things professional.
- Showcasing your brand.
- They keep you organised.
- It helps you to get paid on time.
- Things have gotten easier with invoice systems for small businesses.
Generally speaking, you can send e-invoices in three different ways: Via your ERP system, if this supports the type of e-invoice you wish to send. Via an online invoice template, where you enter the information and send the invoice to your customer manually. Via a service provider who helps you send your invoices.What is the value of the e-invoicing market? ›
Data Bridge Market Research analyses that the electronic-invoicing (e-invoicing) market will exhibit a CAGR of 25.40% for the forecast period of 2022-2029 and is expected to reach the market value of USD 6,014.71 million by 2029.
Online payments can process foreign payments instantly and usually incur a much smaller transaction fee. Since online payments are automated and happen instantly, this also reduces the cost of manual labour, for instance, employing a cashier or employee to chase up late invoice payments.
Examples of E-billing in action
For example, a utility company charges clients for power bills monthly. Instead of bothering with paper bills and snail mail, the utility company can send an eBill. It will allow the clients to speed up the payment process and accomplish the payment online.
In addition to being mandatory for businesses with a turnover above Rs. 10 crore, e-invoicing is also required for companies that are registered with the Central Board of Indirect Taxes and Customs (CBIC). This includes businesses registered under the Indian Customs Electronic Commerce Portal (ICECP).What are the requirements for e-invoicing system? ›
e-Invoice requires you to generate the invoice data in the prescribed format (JSON), either using the ERP/business management software or offline tool provided by the portal. And, then upload it to the IRP which in turn validates and authenticates the invoice data with IRN and QR code.What is the introduction of e-invoicing? ›
Electronic invoicing is a procedure that aims to convert the issuing of paper invoices and notes into an electronic process that allows the exchange and processing of invoices, credit notes & debit notes in a structure electronic format between buyer and seller through an integrated electronic solution.What are the four benefits of e business? ›
- Faster buying process.
- Store and product listing creation.
- Cost reduction.
- Affordable advertising and marketing.
- Flexibility for customers.
- No reach limitations.
- Product and price comparison.
- Faster response to buyer/market demands.
Advantages of e-business
Easy to Set Up: It is easy to set up an electronic business. You can set up an online business even by sitting at home if you have the required software, a device, and the internet. Cheaper than Traditional Business: Electronic business is much cheaper than traditional business.
- CREATE INVOICES QUICKLY. ...
- CREATE AND SAVE CUSTOM TEMPLATES. ...
- AUTOMATE COMMUNICATIONS. ...
- ENSURE ACCURATE INFORMATION. ...
- EVERYTHING IS IN ONE PLACE. ...
- ACCEPT PAYMENT ONLINE. ...
- BUSINESS INTELLIGENCE.
To request timely payment from clients. To keep track of sales. To track inventory for businesses selling products. To forecast future sales using historical data.What is the purpose of invoice processing? ›
Invoice processing is a business function that involves managing incoming invoices from initial receipt through to payment. It's carried out by the accounts payable department and is a critical component of the procure-to-pay process as the final step of any procurement activity.
Invoice Simple is an easy to use invoicing solution that offers several tools to automate the invoice creation process. Once clients are entered in the backend, you can enter inventory or services as templates that can be recalled when creating an invoice.What is the value of invoice? ›
Invoice Value means the price specified in the Invoice issued by the Borrower for the goods supplied, works completed or services rendered to the Buyer, including the value added tax (hereinafter – VAT) and other taxes.How much turnover does it take to generate an e invoice? ›
Under Goods and Services Tax (GST) law, e-invoicing for business-to-business (B2B) transactions was made mandatory for companies with a turnover of over Rs. 500 crore from October 1, 2020, which was then extended to those with a turnover of over ₹100 crore effective January 1, 2021.What is invoice price? ›
Meaning of invoice price
The invoice price is the price paid by the dealer to the manufacturer. This term is usually used in the automobile industry. There is no set procedure to get the invoice price. Rebates and discounts generally reduce the dealer's cost further from the invoice price.
An invoice creates a sales agreement between a business and a client. For small businesses, invoices are used to get paid on time for the services they provide by giving clients a document that outlines the amount owed, the payment terms, the invoice due date, and an itemized listing of services.What are the disadvantages of invoices? ›
- A badly drafted, vaguely worded document can be wrongly interpreted or easily disputed, delaying payment.
- If product sales or the hours of work undertaken are not meticulously noted, an invoice can appear approximate and could be challenged.
You should choose the most convenient payment method for you based on your current circumstances. For example, if cash flow is low, paying by credit card might be the best option. Or if the supplier is invoicing you regularly then a recurring payment option like Direct Debit might save you both some time.Who needs to make an e-invoice? ›
All businesses need to issue e-invoices using the same e-invoice schema laid down by the GSTN. The schema has mandatory and non-mandatory fields. All taxpayers are required to fill in mandatory fields.What are the requirements for e-invoice? ›
e-Invoice requires you to generate the invoice data in the prescribed format (JSON), either using the ERP/business management software or offline tool provided by the portal. And, then upload it to the IRP which in turn validates and authenticates the invoice data with IRN and QR code.What are the benefits of e billing to customers? ›
Efficiency. As e-billing automates the billing process once you have used a service from a company, you are able to pay off a bill sooner than if it had been sent to you via the post. This efficiency in electronic billing is valuable as it allows you, and the company sending your bill, greater financial management.
If you're interested in how to start a medical billing and coding career path, you should know more about the two types of billing in the healthcare field, which are professional billing and institutional billing.What happens if an e invoice is not generated? ›
Penalty for non generation of e invoice – 100% of the tax due or Rs. 10,000, whichever is higher, for every invoice. Penalty for incorrect invoicing – Rs. 25,000 per invoice.Who usually issues an invoice? ›
A formal invoice is a legal document issued by a seller to a buyer. It itemizes the details of a transaction, indicating the products provided or services rendered and at what price.What is the latest e invoice rule? ›
Taxpayers had the option to generate e-invoices in real-time or even after a few days or weeks. However, now there is a new restriction; a seven-day time limit for reporting invoices to the IRP. The time limit will apply to e-invoicing-eligible businesses with a turnover of Rs. 100 crore or more from 1st May 2023.Is EDI and e-invoicing the same thing? ›
For example, we might say that e-invoice is an invoice that is expensed directly in the buyer's accounting system. EDI invoice, on the other hand, is used to send data about products into the buyer's warehouse system (usually for reselling purposes).