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Increase in e-invoicing in harmony with VAT process digitisation

Indirect Tax Matters June 2021

In the midst of the Covid 19 crisis, cash-strapped economies across the EU are considering potential income boosts for their budgets. VAT is one of the most important sources of tax revenue for governments, however with statistics evidencing a significant VAT gap projected at circa EUR 164 billion across the EU in 2020, a move towards digitalisation as a means of reducing the lost VAT revenues is currently on the rise.

Several EU countries are taking the lead on modernising their VAT reporting systems in an attempt to prevent VAT evasion/avoidance and increase VAT compliance and, as a consequence, boost their VAT revenues. Alongside the continuing move towards adopting approaches such as Standard Audit File for Tax (SAF-T) and Real time reporting (RTR), electronic invoicing has become a focus for many EU countries.

E-invoicing is not a new process and technology enabling it is widespread with e-invoicing in public procurement scenarios (B2G) already being harmonised across the EU. In 2020, EU Member States should have finalised transposing the so-called ‘e-invoicing Directive’ (2014/55/EU) in their individual legislations, although not all countries have done so just yet.

This Directive applies to electronic invoicing in public procurement. All EU Member State contracting authorities and contracting entities are obliged ‘to receive and process electronic invoices’ which comply with the European standard (EN-16931). The Directive applies to invoices relating to ‘contracts’ above EU thresholds and there is an exemption for contracts declared secret or those accompanied by special security measures.

Encouraged by successful implementation in a B2G scenario across the EU, as well as evidence of significant decrease in the VAT gap experienced by Latin American countries, who have been using e-invoicing for nearly a decade, more EU countries are looking to move to mandatory e-invoicing for business to business (B2B) transactions.


Italy was the first EU Member state to introduce mandatory B2B e-invoicing by adapting an ‘invoice clearance’ model effective from 1 January 2019.

As the current e-invoicing Directive only authorises mandatory e-invoicing in B2G scenarios, Italy had to obtain an agreement from the EU Council for a derogation from the Directive in order to make the B2B e-invoicing mandatory. The derogation was granted for a temporary 5-year period with possible further extension. However, the scope of the derogation was specifically limited to local businesses (with certain exceptions for small businesses) and foreign businesses with an Italian establishment. However Italy are effectively seeking to extend the e-invoicing model to transactions with non-Italian taxpayers from 1 January 2022. Consequently the Esterometro return that currently reports these transactions will be abolished.

The Italian model requires e-invoices to be issued in a specific format and exchanged through the Sistema di Interscambio platform (managed by Italian Revenue Agency). The platform validates the invoice, digitally signs and forwards it to the recipient. The supplier is issued with a report informing whether the transmission has been successful or whether the invoice has failed the system checks and has been rejected.


Led by the Italian example, France has also announced an intention to move to mandatory e-invoicing in a B2B scenario with phased implementation starting January 2023 which is expected to be finalised by the end of 2024. France has already requested the EU Commission to allow a derogation from the e-invoicing Directive and as part of the Budget Law 2021 (on 6 November 2020) the French Parliament approved an amendment regarding the introduction of mandatory e-invoicing for domestic B2B transactions. The regulations clarifying scope, conditions and other details must be issued by September 2021.

Unlike Italy, France is believed to have opted for ‘the Mexican model’ whereby suppliers would be required to send invoices to an appointed e-invoice agent of their choice who would in turn upload them to the tax authority’s Chorus Pro portal (which already supports B2G e-invoicing model) for digital signature. From there, the invoice will be issued to the recipient. The advantage of this model is that the suppliers can create the invoices in existing formats and the e-invoice agents would standardise the format before uploading to the tax authority portal.

Although the proposed model only appears to add the extra layer of an e-invoicing agent, who will ensure the invoices are in required format, it is disadvantageous to suppliers carrying on business across the EU due to a lack of a harmonised approach which results in the requirement to comply with numerous distinct requirements.


In December 2020, the Polish Ministry of Finance announced that Poland also intends to introduce an e-invoicing obligation in a B2B scenario. This would first be introduced voluntarily from October 2021 and then become mandatory from 2023 and will replace the existing VAT reporting system ‘JPK-J’. Before it is introduced, it will require Poland to apply to the EU Commission for a derogation from the requirements as laid out by the e-invoicing Directive as Italy and France have already done.

The proposed Polish model is said to be similar to the Italian one. It would require submission of B2B e-invoices to the Krajowego Systemu e-faktur platform (managed by the National Revenue Administration) where they would be digitally stamped and forwarded to the recipient, with notifications provided on the status of the invoices.


In 2018, Spain extended its central platform Punto General de Entrada de Facturas Electrónicas (FACe) which is used to submit e-invoices in B2G scenarios for use in B2B invoicing - called FACeB2B. This is currently used by sub-contractors and main contractors under B2G contracts on invoice amounts exceeding EUR 5,000, with other Spanish companies able to use the system on a voluntary basis.

The Spanish tax authority has communicated that use of FACeB2B platform will become mandatory within the next few years for B2B e-invoicing transactions. That being said, Spain is yet to receive permission to derogate from the e-invoicing Directive, thus it is not possible to estimate when exactly the mandatory e-invoicing in B2B scenario will come into force in this jurisdiction.


Although no formal steps have yet been taken towards mandatory e-invoicing in B2B scenarios, in February 2021 a proposal was put forward in German Parliament to examine the potential to introduce an invoice clearance model also resembling the one currently in place in Italy.

Due to complex legislative processes and the requirement to obtain a derogation from the e-invoicing Directive, it is not envisaged that any changes would be introduced within the next few years.


Ireland has chosen PEPPOL (Pan European Public Procurement Online) as the method of delivery of e-invoices to the public sector. PEPPOL is an ‘eDelivery’ network for the transmission of public procurement documents and is widely supported across 18 countries in Europe. PEPPOL allows suppliers to ‘connect once and connect to all’ public administrations and businesses across Europe on the network.

Public bodies are responsible for making the necessary provisions to ensure they comply with their obligations arising from the Directive. At this stage is it still not mandatory to submit e-invoices to public bodies in Ireland.

How does this affect companies operating across the EU?

It is clear that the invoice clearance model may bring significant benefits to governments fighting tax avoidance/evasion and may eventually simplify the VAT compliance process. However, after having a look at the proposals and measures put forward in various EU jurisdictions (with many more to follow suit), it becomes evident that many companies operating across the EU may find themselves having to play catch up with fast emerging e-invoicing requirements, which may differ from country to country.

An important question arises, as to how, and whether, the e-invoicing models can be harmonised at EU level. The European Commission has already communicated the intention to present a legislative proposal in 2022 aimed towards modernisation of VAT reporting obligations, including mandatory e-invoicing, and it will be interesting to see how it is proposing to achieve a harmonised approach.

In the meantime, businesses are in a race against time to understand the emerging requirements, evaluate the efficiency of existing internal processes, their technical capability and to adapt necessary solutions in order to remain compliant. This comes hand in hand with juggling the cost and complexity of adapting any new system which is an inevitable part of embracing the digitisation process.

Should you have any queries on this content or would like our advice on e-invoicing requirements and potential solutions, please feel free to contact us.

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