ViDA is coming… How can my business prepare?
By Christiaan Van Der Valk, VP of Strategy at Sovos
Kicking off, for some businesses, from 2024, the VAT in the Digital Age (ViDA) reforms are an ever-looming presence for businesses working in or with the EU. Unsurprisingly, with the sheer scale of the changes proposed, we’ve received numerous questions on how the reforms will impact your businesses, how to remain compliant and when to act. So, to ensure business leaders are equipped with the right information to face the reforms head on, I wanted to answer some of the most frequently asked questions we’ve come across to take away some of this uncertainty.
Why was ViDA proposed?
European nations lose hundreds of billions in uncollected VAT every year, with the European Commission estimating that in 2020 alone, 93 billion euros was lost in revenue. This VAT gap was the primary reason the reforms were proposed – to create a stricter and more efficient digital system of indirect tax collection which would prevent cases of non-compliance falling through the net. New mandatory processes such as e-invoicing will give governments greater insights into businesses, weeding out non-compliant practices and helping to reduce this gap.
We’ve also seen tax digitisation as a trend sweeping the globe. As businesses operate in an increasingly digital manner, it makes sense for governments to respond in a similar manner, so it’s no massive surprise the EC have made this move.
When will the ViDA reforms start impacting my business?
Businesses should expect to begin to feel the impact of ViDA between 2024 and 2028, assuming there are no major delays in adoption.
With the aim to remove all restrictions on the introduction of domestic e-invoicing mandates across the EU from 31 December 2023, many businesses will feel an impact from the beginning of 2024. The revenue gains from these kinds of mandates are undoubted, meaning countries that are not already using real-time reporting and e-invoicing are likely to adopt these kinds of measures quickly. So, businesses should expect a wave of mandates across Europe in the next couple of years.
The next important date to keep in mind is in 2028 which is the latest time at which all Member States must enforce mandatory e-invoicing and digital reporting for intra-community transactions (all interactions made between EU states). While the majority of EU transactions do not fall under this category, representing under 20% of all transactions, the mandate will probably prompt members states to take note and plan similar regulations for domestic transactions which businesses should keep in mind.
Will there be any leeway for adjustment?
Many leaders have shown concern that the new EC reforms will follow a similar timeline to other recent digitisation reforms, which have occurred outside Europe by not allowing enough time for businesses to comply. Businesses can rest assured that the authorities in Brussels will provide some leeway to allow businesses to be fully compliant. Saying that, individual EU countries have widely varying track records when it comes to rollout practices, so good intentions from the European Commission do not mean you should take a relaxed approach. Ensuring data quality and that all processes across the business are in sync will take time so it’s crucial for leaders to plan accordingly.
What new tech will we need to invest in, if any?
As new transmission protocols, authentication and document orchestration brought in by the reforms will alter existing reporting processes, your business will almost certainly have to invest in new technology or adjust existing systems to meet new requirements.
ViDA is also predicted to change the varying legacy approaches to e-invoicing and e-reporting in Member States, meaning upstream business processes will have to be adjusted or replaced. ViDA dictates a 100% structured electronic invoicing based on EU standards which will mean semi-automated systems, using scanned or PDF invoices, will be non-compliant.
The number of business-to-government e-invoicing requirements is also increasing alongside extensions of such requirements for invoicing public sector customers to the business-to-business sphere – this is another factor that could impact the kinds of technology required within your business, so lots to keep in mind!
Will implementation be expensive for my business?
The extensive internal changes that will need to be made, combined with the adoption of new tech solutions, will undeniably require your business to shell out some cash. Estimations made by KMPG suggest that 13.5 billion euros will be spent by national administrations and businesses to prepare for these changes. However, the long-term reward should certainly be kept in mind. Updating your business’ technological capabilities will help to modernise processes and drive efficiency, by providing valuable data insights into your business and highlighting areas that need improvement.
For governments, there will also be significant administrative savings, which are currently being paid for by the tax payer, reducing the burden of these costs and benefitting everyone!
It’s no surprise that ViDA is leaving many businesses feeling unsure of where to start. With a new era of indirect tax collection looming, what is most important for business leaders is to get organised as soon as possible, to allow time to make mistakes. As non-compliance penalties are expected to be harsher and handed out more regularly, leaving yourself plenty of contingency will lessen the risk and keep your entire business’ mind at ease. And remember that although it may not be evident now, the long-term reward will soon be felt!