Finance Must Prepare for New EU ViDA Regulations

Corporate controllers must assess their master data records, invoicing systems, and plan to close potential gaps to meet new EU regulations with the VAT in the Digital Age (ViDA) reforms. The European Commission is changing the value-added tax (VAT) system and will require companies to digitalize their supplier and customer invoices in order to comply with tax regulations.

The proposed changes to tax compliance obligations should not be underestimated and instead should be prepped to maximize efficiencies of the real-time digital reporting system based on e-invoicing. ViDA will also include new rules for the digital platform economy.

We spoke with Renata Viana, Director Analyst in the Gartner Finance practice, to discuss the impact of new ViDA regulations, including the purpose of ViDA, the changes these new regulations will bring, and the actions that companies should take now in order to prepare.

Journalists who would like to speak with Renata regarding this topic should contact Heather Sabharwal. Members of the media can reference this material in articles with proper attribution to Gartner.

A: ViDA is a tax reform set to launch across some European Union (EU) countries this year, with some countries, such as Italy, having already initiated these mandates. This reform will mainly impact controllers responsible for ensuring compliance with financial and tax regulations in the countries where they operate.

However, tax and IT leaders should also support the implementation to guarantee cross-functional coverage. The ViDA reform is set to tackle compliance and fraud issues, consequently reducing the substantial VAT gap, which is currently more than €90 billion.

A: ViDA will impose the implementation of e-invoicing and preclearance, eliminating the manual issuance of documents between businesses, supporting real-time booking of documents, and replacing them with a structured electronic format that can be machine readable when transmitted to public tax authorities.

The requirement for preclearance will impose that companies have an adequate integration between their systems and tax authorities to streamline the process — especially for industries that operate a high volume of invoices raised. The implementation of e-invoicing targets increased compliance, and reduces human errors and tax evasion, which is a major issue with paper-based invoices.

The reform also introduces a new Digital Reporting Requirement (DRR), which requires VAT taxable companies to submit data in a digital format to the tax authority. The DRR could improve companies’ VAT Information Exchange System, return of trading details (RTD), and statistics on the movement of goods between EU countries (Intrastat) reporting and will obviously improve the VAT return harmonization of reverse charge rules.

The DRR will be supported by the information already provided in real time by the fields predetermined on the e-invoice and should streamline the returns constantly produced and submitted to tax authorities. With these new requirements, the reform aims to achieve a uniform approach for EU members and reduce associated costs for businesses via accelerated digitization of invoicing, payment, and reporting.

The reform proposes to achieve a single VAT registration for businesses selling to consumers across EU countries. Currently, controllership and tax departments have to keep their staff trained and up to date for the preparation of local reports across different countries. This typically increases cost and complexity, especially for small and midsize businesses (SMBs). With this change, companies will have the opportunity to review their strategy for VAT registration and improve processes accordingly.

A: Corporate controllers must begin to assess their master data records, assess invoicing systems and plan to close potential gaps in meeting the new requirements.

It is critical that the corporate controller establish organizational readiness and catalog change impacts at the legal entity level. They should start by setting up a steering committee and defining a core delivery team to clarify roles and responsibilities within this project.

Controllers should also liaise with local tax authorities to guarantee timeline compliance with multiple regions that they may operate in and prioritize entities with closer go-live dates. Companies should start this project at least six months prior to the go-live date. In a more complex environment or amid technology issues, the timeline must be assessed carefully to have a minimum viable process in place when ViDA is enforced.

Additional information and example principles each category noted above are available to Gartner clients in the report Quick Answer: Preparing for VAT in the Digital Age (VIDA) Reform.