The future of transaction-based reporting in the EU. The European Commission ask for a feed-back on the “Digital Reporting Requirements” (DRR)

As the fight against tax fraud becomes a critical issue and top ranks in the agendas of Governments around the world, there are an increasing number of tax Administrations which see immediate access to data as a solution an introduce in their local tax systems obligations known as Continuous Transaction Controls (CTC) or transaction-based reporting.

These obligations may adopt the form of compulsory use of homologated e-invoicing solutions or transactions list reporting, which must comply with the technical standards regulated by the corresponding local tax Administration.

The diversity of technical regulations when complying with such tax obligations represents a big issue for companies operating globally which required that the governments and multinational institutions place at the same level of priority than the fight against tax fraud since it may represent a significant burden to the smooth functioning of global economy.

The European Commission is an active player in this scenario and in July 2020 adopted a “Tax Package for fair and simple taxation supporting the recovery strategy” where a set of 25 initiatives to be implemented up to 2024 is detailed. Among them the action plan announces a legislative proposal for 2022 on ‘VAT in the digital age’, which will cover:

• VAT reporting obligations and e-invoicing
• VAT treatment of the platform economy
• single EU VAT registration.

The European Commission has opened a Feedback and consultation period (20 January 2022 - 15 April 2022) inviting for a feed-back on the three proposed reforms.

As regards the VAT reporting initiative, the aim of the European Commission is to introduce harmonised Digital Reporting Requirements (DRR) (previously known as ‘Transaction Based Reporting’) across the 27 member states. The consultation covers the following aspects:

• Possible scope of the reform (four choices from maintaining the status quo to a full EU-level DRR);
• Continuous Transaction Control (CTC); or Periodic Transaction Control (PTC) invoice reporting if option DRR is selected above;
• Scope of transactions – B2G, B2B, B2C, exempted etc.;
• Taxpayer issues – including the use of pre-filled VAT returns; and
• The potential use of Blockchain.

Since the original consultation period was planned for November 2021, it is not likely that a legislative proposal from the Commission where the harmonization changes to introduce in the VAT Directive is published before Autumn 2022.