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As an initial measure towards the implementation of a transaction-related reporting system, Germany’s Federal Ministry of Finance (BMF - Bundesministerium der Finanzen) is considering the compulsory adoption of electronic invoices for business-to-business (B2B) sales within the country.
Update
On the 23rd of June, the European Commission gave Germany permission to deviate from certain parts of the VAT Directive. This permission is valid from the 1st of January 1st 2025, to the 31st of December 31st 2027.
Germany's proposed plan aligns with the requirements of the VAT rules for the digital age (ViDA), specifically Articles 218 and 232 of the Directive. This derogation will remain in effect until either the 31st of December 31st 2027, or until Member States are obligated to adopt new national provisions based on a directive that changes the VAT rules for the digital age.
What is VAT in the Digital Age?
VAT in the Digital Age is the European Commission’s new directive mandating intra-community electronic invoicing and B2B digital reporting by 2028 for all European Member States.
Announced in December 2022, the European Commission’s directive aims to recover billions of lost VAT from fraudulent invoices, and therefore fraudulent VAT claims.
Mandating intra-community e-invoicing and B2B digital reporting forces member states to create and implement a system that allows e-invoicing and digital reporting to take place. As these systems will come into place many member states, just like Germany, will be encouraged to go one step further and mandate all B2B sales within their country in hope to recover even more VAT and to also further digitalise their economy.
Learn even more about VAT in the Digital Age via our blog.
Germany’s response in detail
Last week, the BMF distributed a proposal for discussion to selected German associations, inviting them to comment on their planned law changes.
As of now, the proposition introduces compulsory e-invoicing for B2B sales within the country by the 1st of January 2025, although it is expected to be introduced via a phased roll-out. There are a few proposed approaches:
Roll-out based on company size.
The use of e-invoices could be enforced based on the invoice amount. Initially, the obligation may only apply above a specific threshold which could gradually decrease over time (e.g., 50,000 euros in the first year, 30,000 euros in the second year, and eliminated by the third year).
Receipt of an e-invoice could be mandatory for all businesses from the first day of the mandate. Small and medium-sized enterprises would only be obliged to issue e-invoices at a later stage.
As outlined above, under the current ViDA proposal transaction-based reporting for intra-community B2B sales will be mandatory and recapitulative statements will be discontinued as of the 1st of January 2028. Germany aims to develop a unified electronic system for transaction-related reporting that minimises the burden for both national and cross-border B2B sales. The ongoing EU-level discussions are taken under consideration in the national design of the reporting system, and technical requirements from these discussions are incorporated in the consultations.
It is important to note that Germany is in favour of the Decentralised CTC Exchange (DCTCE) model. The DCTCE model is a combined effort of key e-invoicing stakeholders around the globe who seek for 100% interoperability and full business automation. The new model will provide business automation, while still allowing the tax authority to obtain the VAT information they need.
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