Consultation on VAT invoicing.

• Author: Rouvinez, Jean-Daniel
• Position: Value added tax

October 7, 2008

On October 7, 2008, TEI President Vincent Alicandri submitted comments to the European Union Commission in respect of a consultation document on existing legislation governing VAT invoicing requirements. TEI's comments were prepared under the aegis of its European Indirect Tax Committee, whose chair is Jean-Daniel Rouvinez of Tetra Pak International. Contributing substantially to the development of TEI's comments was Keith Miller of SABMiller.

Under Article 237 of the VAT Directive, the Commission is required to present a report (including legislative proposals if appropriate) to the Council by the end of 2008 on technological developments in respect of electronic invoicing (hereafter "e-invoicing"). To this end, the Directorate-General Taxation and Customs Union of the European Commission has released a consultation paper focused on four areas of VAT invoicing: (1) the requirement to issue an invoice; (2) the content; (3) e-invoicing; and (4) archiving. Tax Executives Institute welcomes the consultation undertaken by the Commission and is pleased to submit the following comments.

TEI Background

TEI was founded in 1944 to serve the professional needs of business tax professionals. Today, the organization has 54 chapters in North America, Europe, and Asia. As the pre-eminent international association of business tax professionals, TEI has a significant interest in promoting tax policy, as well as in the fair and efficient administration of the tax laws, at all levels of government. Our 7,000 members represent 3,200 of the largest companies in the United States, Canada, Europe, and Asia. In 1999, TEI chartered a chapter in Europe, which today encompasses employees of a wide crosssection of European and multinational companies. TEI members are accountants, lawyers, and other corporate and business employees responsible for the tax affairs of their employers in an executive, administrative, or managerial capacity. The Institute espouses organisational values and goals that include integrity, effectiveness, and efficiency, and dedication to improving the tax system for the benefit of taxpayers and tax administrators alike.

1. Summary of key messages

   The consultation paper acknowledges that the Invoicing Directive (2001/115/ EC) "did not fully meet [the] stated aims of simplifying, modernising and harmonising the conditions laid down for invoicing in respect of VAT...." TEI agrees. Since the rules on all aspects of invoicing are complex, with only limited standardisation across the European Union (EU), businesses often face a loss of VAT recovery (1) where technical breaches of the invoicing rules occur. Moreover, businesses frequently incur penalties even where there is little or no loss of government revenues. TEI believes the invoicing rules should be amended in order to clarify and standardise the rules across the EU and ensure that businesses have legal certainty in respect of their compliance obligations. By doing so, the fundamental principle of fiscal neutrality of the VAT for businesses will be vindicated. TEI offers the following comments to enhance the competitiveness of EU-based businesses.

2. Purpose of an invoice

   The fundamental purpose of an invoice passed between a supplier and a recipient of the supply is to document the transaction that has taken place and to elicit payment for the value of the transaction.

3. Requirement to issue an invoice Where there is no commercial need to issue an invoice, the requirement to issue an invoice under either VAT or local accounting laws should be reconsidered, especially in connection with the following:

   * Supplies to end consumers (who normally have no right of VAT deduction): Suppliers should only be required to issue invoices to consumers in limited and well-defined circumstances (2) (e.g., in connection with retail export schemes);

   * Supplies that are exempt and without a VAT recovery: The value of such supplies will be tracked by the supplier for commercial reasons and for VAT reporting, but there is no VAT for the recipient to recover. Hence, the value of the invoice to the tax authorities in verifying the supplier's or the customer's VAT liabilities is questionable. The requirement to issue an invoice for such supplies solely for VAT purposes should be eliminated.

4. Time of issuing an invoice TEI concurs with recommendation number 4 in Annex 1 of the consultation paper: A harmonised time limit for issuing invoices should be implemented. TEI also agrees that invoices should be issued no later than the 15th day of the month following the month in which the taxable event takes place. Business should, however, be afforded some flexibility with regard to time limits where it can demonstrate commercial reasons why compliance with the rules is impractical. We note that in many Member States the point of time where tax is chargeable can differ from the invoice date. Consequently, TEI encourages the Commission to review the interaction of the rules governing the time for issuing an invoice and the time when tax becomes chargeable and deductible, especially in reverse-charge situations.

5. Fundamental content of an invoice

   In order to facilitate the proper purposes of an invoice, it must clearly set forth:

1. The supplier

2. The recipient of the supply

3. A description of the supply

4. The amount of payment due

5. The date payment is due, and

6. The currency in which payment is due.

6. Contents required for Value Added Tax purposes

   Invoicing plays a key role in the day-to-day functioning of a VAT system. The invoice evidences the VAT that the supplier is obligated to pass to the tax authorities and the VAT the customer is entitled to recover. For certain cross-border transactions, the invoice will set out the obligations placed on the customer to account for VAT due in the customer's country.

   Suppliers can track the amount of VAT due without necessarily recording it on an invoice. For the recipient of a supply to effect recovery of the correct amount of VAT on the supply, the recipient must know:

1. The amount of VAT charged

2. On each item, and

3. The rate of VAT imposed on each item.

7. Country whose VAT has been charged

   The increased globalisation of businesses means that VAT must be charged or recovered in a number of different countries. In order to facilitate VAT recovery (particularly where invoices are processed at a centralised location), TEI recommends that the following requirement be added to the VAT invoicing Directive:

1. The country for which VAT has been charged or is chargeable.

   From a business perspective, the 10 items listed in sections 5 to 7 are the only essential components of an invoice.

8. Tax authority needs

   The other parties with an interest in invoicing are the tax authorities in the Member States where the supplier and recipient are located. The tax authorities rely on the invoice as primary documentation to validate VAT declarations made by both parties to the supply. To facilitate their review and verification of the VAT due, the tax authorities need the same information required by businesses in sections 5 to 7. Regrettably, the tax authorities of the Member States have imposed additional information requirements, such as requiring details about fiscal representatives, the reasons a particular supply may be exempt, etc. The question is whether it is essential that the additional information appear on the invoice?

   In developing recommendations for legislation, the Commission should recognise:

1. The tax authorities' requirements for information should be balanced with the commercial needs of businesses.

2. Under the Lisbon Agreement, the Member States have committed to make the EU more competitive and to reduce the administrative and recordkeeping burdens on businesses.

3. Invoices are not the sole source of information available to the tax authorities...