What does e-billing have to do with the VAT gap?

In March 2022, the European Parliament instructed the European Commission to examine the gradual introduction of a comprehensive e-invoicing obligation. The resulting draft directive was published on 8 December 2022 and provides for the mandatory introduction of e-invoicing in Europe, at least for cross-border trade.

What is the situation in Germany?

In the coalitionagreement of November 2021, the traffic light parties announced the introduction of a nationwide, uniform electronic reporting system for invoices. The aim of this reporting system is to reduce VAT fraud in Germany. It is to be introduced "as quickly as possible" - although legislative procedures in Germany can take months to years. Recently, the "Act to Strengthen Growth Opportunities, Investment and Innovation as well as Tax Simplification and Tax Fairness" (in short: Growth Opportunities Act) provided for the introduction of a statutory regulation on the mandatory use of electronic invoices in the B2B sector should be introduced.

What the EU has to do with it

There is movement on the issue from the European side: The EU Parliament has asked the EU Commission to look into real-time reporting and a possible EU-wide requirement for electronic invoicing. Under the heading ViDA ("VAT in the Digital Age"), this has resulted in a draft EU directive and a proposal for a corresponding EU regulation. One of the explicit aims of this EU initiative is to reduce the so-called "VAT gap", i.e. the difference between expected and actual VAT revenues in EU member states. Similar to the German coalition agreement, this has changed the perspective on e-invoicing: From a building block of digitisation to a tool to reduce VAT fraud.

The dimensions of the VAT gap

Looking at the figures, it is clear why there is such a strong motivation to reduce VAT fraud. Italy introduced a mandatory reporting system, including e-invoicing, in 2019, which generated around 3.5 billion euros in additional tax revenue in the first year. As a result, Italy's VAT gap will fall to €30.1 billion in 2019 and €26 billion in 2020. Germany has a VAT gap of €11 billion in 2020. One can imagine the absolute figures that could be achieved with the introduction of a digital declaration system including e-invoicing. For the EU as a whole, the potential is even greater, with a VAT gap of €93 billion in 2020. This explains why a comprehensive e-invoicing obligation as part of a timely digital declaration system is being pushed by both the EU and Germany and is therefore becoming increasingly likely.


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