VAT Invoicing Rules in the EU

• The new Directive
• Background
• Electronic invoicing
• Information about transposition into national Law
• Background documents

The Council adopted, on 20 December 2001, a Directive (2001/115/EC) on VAT Invoicing. This Directive, which amended the 6th VAT Directive, had to be implemented into national Law before 1 January 2004. For details on how to apply the new rules in practice see Frequently Asked Questions (FAQ) for traders.

This measure is of significant practical benefit to firms operating within the Internal Market because it ensures that they have only to deal with a single, simplified set of rules on invoicing valid throughout the EU instead of fifteen different sets of legislation. At the same time, the Directive requires EU Member States to recognise the validity of electronic invoices and allow cross-border electronic invoicing and electronic storage. The result will be a significant reduction of firms’ administrative costs, in particular for medium-sized and small firms and an important boost to electronic commerce, currently hampered by obsolete invoicing rules. The simplified rules should also facilitate tax authorities’ efforts to fight fraud.

The Commission proposal was presented in November 2000, as part of the new VAT strategy launched by the Commission in June 2000 to bring about pragmatic improvements in the operation of the VAT system. The VAT strategy was updated in October 2003.

The new Directive establishes

• a list of ten mandatory general items of information that must be included on every invoice, plus four additional items that may be required in specific circumstances,
• simplified arrangements for small companies and small-value invoices,
• the requirement for Member States’ tax authorities to recognise the validity of electronic invoices without any notification or authorisation system, on condition that the authenticity of origin and integrity of data are guaranteed through the use of electronic signatures or Electronic Data Interchange (EDI). Electronic signatures allow someone receiving data over electronic networks to determine the origin of the data and to check that it has not been altered. EDI is a system of secure electronic information transmission used by businesses,
• the possibility in certain circumstances of outsourcing invoicing operations to a third party or to the customer (i.e. self-billing),
• free choice of the place and method of storage of invoices and the acceptance of electronic storage, including on-line storage in a Member State other than the Member State in which the firm in question is located.

Background

The proposal was prompted by complaints to the Commission from traders. Invoices are an essential part of the VAT system since they constitute the evidence on the basis of which the purchaser can deduct VAT that has been charged to him.

Each Member State had different rules concerning the obligatory information to be included on invoices and the form the invoices should take in order for VAT authorities to recognise their validity. With the establishment of the Internal Market firms were increasingly carrying out taxable operations in Member States where they are not established, and were finding that those operations were subject to several sets of VAT legislation. Moreover, many firms operating on an EU-wide scale had started centralising their invoicing operations, entrusting to a single branch the task of issuing invoices on behalf of all other branches established in different Member States. This centralisation of invoicing operations, which can have a clear economic rationale, was made difficult by the existence of fifteen different sets of invoicing rules.

Electronic invoicing

Electronic invoicing, which can cut invoicing costs significantly, is now developing rapidly, notably as a result of the growth of electronic commerce. But in some EU Member States, electronic invoicing was previously prohibited or had to be accompanied by parallel transmission of paper invoices. In others it was permitted subject to varying conditions. Firms established in several Member States required therefore special authorisations in certain countries to apply cross-border invoicing arrangements and had to use a technology specific to each Member State for the creation, transmission and storage of the electronic invoices. They also had to cope with recording different items of information for each country, storing information for a different period in each country and sometimes even making simultaneous electronic and paper transmissions of data.

Information about transposition into national Law

The Directive needs to be implemented into national Law by Member States before 1 January 2004 (as well as by the 10 Acceding Countries before accession).

Information about national rules will be put on the Commission information document called “VAT in the European Union and the Accession countries” as soon as possible.

Background documents

• Short list of most frequent questions (MEMO/04/15)
• List of Frequently Asked Questions (FAQ) for Traders
• Council Directive 2001/115/EC of 20 December 2001 amending Directive 77/388/EEC with a view to simplifying, modernising and harmonising the conditions laid down for invoicing in respect of value added tax
• Commission Recommendation of 19 October 1994 relating to the legal aspects of electronic data interchange (EDI)
• Communication from the Commission to the Council and the European Parliament: A Strategy to improve the operation of the VAT System within the context of the Internal Market. The strategy paper has been updated in October 2003.