E-Invoicing in the EU: How are the Tax Authorities using your data?

E-Invoicing in the EU: How are the Tax Authorities using your data?

The shift towards e-invoicing across the European Union has generated significant debate. Businesses are questioning how tax authorities will use the vast amount of invoice data collected in real or near real time. Will this reduce compliance burdens through prefilled VAT returns? Will it increase the risk of penalties for taxpayers? And could it transform the way VAT audits are carried out?

Current Status in the EU

Although many EU member states are preparing for mandatory e-invoicing, only Italy and Romania have fully implemented it for both B2B and B2C transactions. Both countries have adopted a centralised model, requiring suppliers to submit invoices to the tax authority for validation before sending them to customers.

Key Differences in Data Requirements

Standard invoice details are required in both jurisdictions (customer and supplier details, description of goods/services, taxable amount, VAT rate, etc.) but there are key differences in the transactions and level of data required.

• Italy
  • Specific VAT codes must be used to justify exemptions or reduced rates, providing clarity on the legal basis of each treatment.
  • Imports, exports, and cross-border transactions must also be reported.
• Romania
  • Exports and cross-border transactions are excluded from the e-invoicing requirement.
  • A separate e-reporting system demands more detailed information on transactions than e-invoicing alone.

Validation Checks

In both countries, authorities check invoice files for correct structure and completeness of mandatory fields. However, they do not verify VAT treatment. Businesses remain at risk if they misapply exemptions, miscode transactions, or incorrectly report cross-border activity.

How do Italy and Romania utilise E-Invoicing data?

Italy
While a significant volume of data involving various transaction types is transmitted through e-invoicing, the Italian tax authority’s primary focus has been on validating VAT payments. Before the introduction of e-invoicing, authorities had limited visibility over whether monthly or quarterly VAT settlements were accurate, as the annual VAT return was typically filed four months after year-end. E-invoicing has transformed this process by enabling far more efficient reconciliations, allowing tax authorities to verify the accuracy of VAT payments on a near real-time basis.

Romania
In Romania, e-invoicing data is combined with other reporting obligations and used as part of the country’s prefilled VAT return process. This integration allows the authorities to cross-check taxpayer declarations with transactional data, enhancing oversight and improving compliance monitoring.

Prefilled VAT Returns – A Benefit to Taxpayers?

Several member states have introduced pre-filled VAT returns to some extent, such as deferred import VAT in France. Italy has limited introduction of prefilled VAT returns for taxpayers with fewer than 2,000 transactions annually.  Others can download their transaction data to support filing the VAT return. However, the responsibility for ensuring that the VAT return is correct still rests with the taxpayer.

Romania also provides pre-filled returns, but these do not replace the traditional VAT return. Taxpayers must still file their returns as usual and reconcile any discrepancies. In Romania, if the pre-filled return (which can be a combination of e-invoicing, e-reporting and SAFT file) and the taxpayer’s return differ by more than 20% and RON 5,000, the taxpayer must provide an explanation to avoid penalties.

Instead of reducing compliance obligations, this often creates an additional reconciliation burden for businesses.  Robust reconciliation processes between e-invoicing data and VAT returns are now more critical than ever.

Will E-Invoicing eliminate VAT audits?

E-invoicing will not remove the need for VAT audits, but it will change their focus. Traditionally, audits occurred after VAT returns were filed, often based on sample documentation. With e-invoicing, tax authorities can identify inconsistencies earlier and compare invoice data with VAT returns in real time.

Audits are therefore expected to become more targeted and data-driven, but businesses must still ensure that the correct VAT treatment is applied and the correct documentation to support certain transactions such as intra community supplies must still be provided.

 Looking Ahead: The Role of ViDA

The VAT in the Digital Age (ViDA) initiative aims to harmonise e-invoicing across the EU by 2030. However, many member states are already implementing domestic systems, some centralised via the tax authority platform, some decentralised, some implementing four corner model using third party providers.

This fragmented approach means businesses operating in multiple jurisdictions will continue to face a complex mix of requirements, formats, and deadlines for years to come.

Beyond E-Invoicing

While e-invoicing is a powerful tool for tax authorities, it is not the only one. Cross-checks against e-reporting systems, SAF-T files, control statements and customs documentation also play a growing role in identifying errors and inconsistencies.

Ultimately, it’s not the mechanism itself but how tax authorities use the data that matters. For businesses, the priority must be ensuring data accuracy, whether for e-invoicing, SAF-T, or e-reporting.