Invoices are an essential part of the VAT system since they constitute the evidence on which the purchaser can deduct VAT that has been charged to him. Until now, each Member State has had different rules concerning the obligatory information to be included in invoices and the form the invoices should take in order for VAT authorities to recognise their validity.
Electronic invoicing
One particular type of invoicing – electronic invoicing – is becoming increasingly common as businesses take advantage of opportunities offered by technology, including that of cost. Electronic invoicing is considerably cheaper than more conventional forms of invoicing.
But in some Member States, electronic invoicing is prohibited or has to be accompanied by parallel transmission of paper invoices. In others it is permitted subject to varying conditions.
At present, therefore, firms established in several Member States require special authorisations in certain countries to apply cross-border invoicing arrangements and they have to use a technology specific to each Member State for the creation, transmission and storage of the electronic invoices. They also have to cope with recording different items of information for each country, storing information for a different period in each country and sometimes even making simultaneous electronic and paper transmissions of data.
The new rules
The Directive on VAT Invoicing, passed in December 2001, was intended to make sure that firms operating within the Internal Market only need to deal with a single, simplified set of rules on invoicing valid throughout the EU.
At the same time, the Directive requires Member States to recognise the validity of electronic invoices and allow cross-border electronic invoicing and electronic storage. The result should be a significant reduction of firms' administrative costs, in particular for SMEs, and an important boost to e-commerce, currently hampered by obsolete invoicing rules.
The simplified rules should also facilitate tax authorities' efforts to fight fraud.
However, with the implementation deadline passed, confusion reigns in the business arena. Some reports state that electronic VAT invoicing is now illegal while others state that all invoices must be sent by electronic means. In an attempt to clarify matters, the Commission has published a paper answering frequently asked questions on the issue.
According to the Commission, the Directive provides for:
"A list of mandatory items that must be mentioned on each invoice such as the date of issue, number of the invoice, name and address of the selling trader and of his customer, description of the goods or services, VAT rate applicable and VAT amount payable. In some particular cases, such as sales of new cars, some supplementary information must be provided.
Simplification schemes for certain categories of traders (such as small traders) and certain invoices (such as where the amounts involved are small).
The option to issue electronic instead of paper invoices which will be valid for claiming VAT deductions. This is permitted if the "authenticity of the origin and integrity of the content of the invoice are guaranteed." This may be established by either advanced electronic signatures or electronic data interchange (EDI), but Member States can accept less secure methods of ensuring the authenticity and integrity of the invoice if they wish do so.
The freedom to choose the place and method of storage of invoices. For example, the Directive makes it possible for a trader to store invoices on-line in a Member State other than the Member State in which he is established.
The possibility for a trader to outsource invoicing operations to a third party or to his customer (i.e. self-billing)."
The rules will only apply to those situations where it is compulsory on a business, for VAT purposes, to issue an invoice, whether to a party within the same Member State, within the EU or to countries out with the EU.
The UK approach
The UK has implemented the Directive. HM Customs and Excise appears to be taking a relatively relaxed approach to the question of electronic VAT invoices and, according to a report on Computing.co.uk, is not requiring that electronic signatures be attached to invoices if they have been transferred by EDI.