Ireland - VAT Modernisation Consultation

Ireland - VAT Modernisation Consultation

As part of his speech on Budget Day 2024, Minister Michael McGrath announced that the Revenue Commissioners were moving forward with measures to modernise Ireland’s VAT reporting system. The first step of which, an initial public consultation on VAT modernisation, is now underway. This public consultation seeks input from a wide range of stakeholders on their views, concerns and opinions on how Irish VAT reporting can be digitised and what the Irish VAT system should look like going forward. The consultation period will remain open until Friday, 12 January 2024. This presents an opportunity for you to express your views on the approach that you believe Ireland should take.

You can read more from Revenue on the consultation process here and access the response form here.

Focus of the Public Consultation

The main focus of this consultation is to garner views from stakeholders regarding the introduction of real or near real time digital reporting of transactions, supported by electronic invoicing for business to business (‘B2B’) and business to government (‘B2G’) transactions.

Business to consumer (‘B2C’) transactions are not within the scope of this consultation, but further consultations are expected.

Why Now?

In 2022, the European Commission launched its VAT in the Digital Age (“ViDA”) proposal, which includes the introduction of e-invoicing for cross border B2B and B2G transactions, alongside an obligation for suppliers to share transaction level data for those cross-border transactions within two days of the invoice date (near Real Time Reporting). Many other Member States in the EU have already introduced various real time or near real time reporting or e-invoicing requirements, and notably France and Germany have flagged the introduction of e-invoicing in the next 2 -3 years. While there are some similarities between the various regimes, there are significant differences, so the ViDA proposals seek to achieve a degree of commonality across the EU.

With the global trend towards digitisation, it was widely expected that Ireland would also modernise its VAT reporting. The public consultation can be seen as a move towards complying with such ViDA proposals. ViDA proposals are seen as a key tool in the fight against fraud and a means to reduce the ‘VAT Gap’.

In addition, at an Irish level, there is continual move towards modernising the Irish tax system. As most businesses in Ireland would be aware, the Revenue Commissioners undertook a PAYE modernisation exercise in recent years.

Real-Time Digital Reporting/E-Invoicing

Real-time reporting requires businesses to provide data on their relevant transactions as they occur. It involves the exchange of information with a tax authority in a timely manner once transactions have concluded.

E-Invoicing is the electronic exchange of an invoice document between a supplier and a buyer. The concept of e-invoicing is not alien in Ireland, where since 2019, B2G e-invoicing became optional for suppliers. The current consultation suggests that e-invoicing may be extended to both domestic and intra-EU transactions for both B2B and B2G supplies. It is to be hoped that a single invoicing platform will apply to both domestic and cross border transactions.

For Revenue, the move to real time reporting will provide greater granularity of tax data in real or near-real time. This should allow Revenue to

• Align with financial accounting principles and the data as captured by these systems
  
• Improve data management, analysis and reconciliations by taxpayers resulting in improved quality/accuracy of VAT returns
  
• Facilitate enhanced risk analysis by Revenue (using their REAP system) which will be supported by the VAT transactional data which will be readily available
  
• Possibly enable more intuitive rules (artificial intelligence learning) to inform Revenue of potential risks in certain categories of taxpayers, particular sectors, industry trends etc

What might this mean for your business?

While the precise form of Ireland’s approach to VAT modernisation is yet to be determined, it is clear that the changes will have a significant impact on how you meet your VAT compliance obligations, how you send and receive invoices, and will require system and data improvements for most businesses. These areas affect numerous stakeholders within business, so tax functions will need to work with their wider businesses, including their finance and technology teams on this journey.

If the Revenue Commissioners were to adopt e-invoicing and a form of real-time reporting, it would mean that a system would need to be put in place so that VAT-registered persons can provide information to the tax authorities within a certain timeframe after the transaction has been processed (ViDA suggests a timeline of two days from the invoice date). This is obviously a big change to the current VAT reporting system in Ireland and adapting to the changes is likely to mean a significant investment in fast and accurate invoicing processes and reporting capabilities. At the same time, these new digital tools can bring value to businesses by providing valuable insights into a business’s tax position and speed up digitisation of broader business processes, in respect of invoicing, payments and accounting.

On the other hand, the Revenue Commissioners are keen to assert that real-time digital reporting will have benefits for both taxpayers (such as reducing the administrative burden of tax compliance) and tax authorities (such as governing the tax system more efficiently). Drawing on experience from other jurisdictions, while significant work needs to be undertaken initially, benefits to do accrue in the longer term as processes become more streamlined.

Is there a timeline for the implementation of these potential changes?

There is no timeframe for the implementation of these potential changes and the Revenue Commissioners have emphasised that the consultations will be open and transparent. Therefore, we would expect a reasonably sufficient notice period for the implementation and enforcement of a new regime. Irish Revenue are cognisant of difficulties faced by other EU Tax Authorities who have had to delay implementation of similar rules for various reasons over the last few years. In our view, it is likely to be at least two to three years before any meaningful changes are implemented.

Any Questions?

We would urge businesses to use the consultation as an opportunity to present your views to Revenue on the potential changes to the VAT reporting system. We are happy to assist in this regard. If you have any queries or would like to discuss, please contact Vincent McCullagh, Conor Walsh, Alan Kilmartin or Seán Smyth from our indirect tax team and / or Ronan Ferry of our Tax Technology team.