Study on the evaluation of invoicing rules of Directive 2006/112/EC
The Value Added Tax (VAT) is a general tax levied on all goods and services bought and sold for use or consumption within the EU. The VAT is calculated on the value added to goods and services by a trader at each stage of the production and distribution chain. Accordingly, the VAT is a multi-stage tax charged at each stage of the supply chain. It is collected through a system of partial payments. It allows taxable persons (businesses identified for VAT purposes) to deduct the amount of VAT that they have paid for business purchases in the preceding (production) stage, from the VAT due. This system ensures that the tax is neutral, regardless of the number of transactions. The principles and structure of VAT are incorporated in EU law. However, the application of the EU framework depends on the national implementation of the Member States (MS), so that local VAT legislation can and does still differ substantially.
In order to receive a credit for VAT paid on inputs, VAT taxable persons are required to possess an invoice from a seller that identifies the purchaser and the tax collected on that sale or transaction. At the end of a reporting period, each taxable person calculates its VAT liability by subtracting the cumulative amount of VAT stated on its purchase invoices from the cumulative amount of VAT stated on its sales invoices. Thus, the invoice is a central feature of the VAT system, playing a threefold role: (i) it enables customers to prove their right for deduction; (ii) it contains the information as to which VAT regime is applicable; and (iii) it enables tax authorities to conduct controls.
On December 2001, in order to ensure the proper functioning of the internal market, the Council adopted the Directive 2001/115/EC1 (the ‘Invoicing Directive’) with the aim of simplifying, modernizing and harmonizing the European VAT invoicing rules. The Directive intended to simplify, modernise and harmonise the requirements for invoicing with regard to VAT and, by this way, contributing to the achievement of different Commission’s objectives, and namely:
- reducing the administrative burden on businesses.
- increasing the use of e-invoicing.
- promoting small and medium-sized businesses (SME).
- helping to tackle fraud. An improvement of invoicing rules was part of the action plan on a coordinated strategy to improve the fight against VAT fraud in the European Union. Indeed, certain forms of VAT frauds, such as underreporting, claims of excessive deductions, and the so-called carrousel scheme use invoices to perpetrate the fraud.
Objectives of the project
The legal basis for the Evaluation is found in Article 237 of Directive 2006/112/EC, which requires the Commission to present an overall assessment report on the impact of invoicing rules to the European Parliament and the Council, based on an independent economic study, and accompanied, where necessary, by an appropriate proposal to amend the relevant rules. Thus the objectives of the Study done by CASE and consortium of partners are to:
- to measure the decrease of the administrative burdens for businesses generated by the different provisions of the Directive and identify the remaining burdensome provisions;
- to assess the degree to which the new rules introduced by the Directive has concretely contributed to the uptake of e-invoicing, based on a detailed review of e-invoicing patterns along several dimensions, and to identify any possible remaining barriers to e-invoicing and e-storage of invoices;
- to assess the role played by the Directive to support EU Member States’ efforts to tackle VAT fraud and improve tax compliance;
- to formulate evidence-based and prioritized recommendations aimed at further harmonizing and simplifying the invoicing rules and having them reflecting technological advances.
Project funding: Directorate General Taxation and Customs Union (DG TAXUD)
Project leader: Economisti Associati srl
Project Partners: CASE, Centre for European Policy Studies (CEPS), EUROPE Ltd , wedoIT – solutions GmbH, ECOPA