The EU’s ViDA legislation represents a pivotal step toward modernising the VAT framework. Alex Baulf delves into the details
It is fair to say that the VAT system across the European Union (EU) has become increasingly misaligned with the realities of 21st-century commerce.
In an age defined by cross-border transactions, digital innovation and rapid market shifts, the current system serves neither businesses laden with complex compliance requirements, nor governments exposed to fraud and evasion.
A fundamental overhaul has long been overdue.
Enter the VAT in the Digital Age (ViDA) legislation, a landmark reform passed by the European Parliament in late 2024. ViDA represents a pivotal step towards modernising the VAT framework, addressing inefficiencies and embracing the demands of a digital-first economy.
Though its approval was not without challenges—most notably opposition from Estonia, which voiced concerns about its implications for supplier economies—the legislation's eventual passage signals widespread agreement on the need for change.
ViDA is not just a tightening of VAT rules or a regulatory clampdown on digital platforms like Airbnb and Uber. It is a transformative initiative.
At its heart lies the embrace of e-invoicing. Changing the way businesses and tax authorities interact and promising unprecedented efficiency, greater compliance, and a robust defence against VAT fraud, e-invoicing is the centrepiece of a forward-thinking system built for the future.
However, for Irish businesses, this transformation is not just an opportunity—the benefits of ViDA come with significant strategic and technological demands, requiring immediate preparation to ensure a smooth transition into this new digital age.
A game-changer for businesses?
E-invoicing is set to become the default system for cross-border transactions by 2030. Unlike traditional paper or PDF invoices, e-invoices are machine-readable, consistent, and embedded with rich, structured data.
This allows businesses to automate their invoicing processes entirely, from receipt to validation and posting—a touchless system created to potentially save time and reduce errors.
The traditional invoicing landscape, characterised by fragmented platforms and manual processes, has long been a burden for businesses, especially SMEs. A supplier with multiple customers often has to log into several different procurement systems and platforms to send invoices, an inefficient and costly approach.
On the other hand, e-invoicing promotes interoperability through open networks, meaning businesses no longer need to rely on proprietary legacy systems.
With tax authorities becoming intermediaries in the invoicing process, VAT compliance is integrated into real-time operations. This represents a profound shift, as tax authorities will now receive, review, and even deliver customer invoices.
Italy's model, where the tax authority handles centralised distribution, sets the standard for how seamless this process can become.
Why governments are embracing e-invoicing
Governments are increasingly prioritising e-invoicing because of its potential to close the VAT gap, which currently sits at a staggering €61 billion annually in the EU alone.
By enabling live reporting, tax authorities gain granular, real-time insights into transactions, making it easier to detect fraud and errors.
Latin America has long adopted e-invoicing, demonstrating its effectiveness in increasing tax revenues and enhancing compliance.
Europe is now catching up, with France, Spain, Romania, Poland, Belgium and Germany already announcing mandates ahead of the EU-wide 2030 deadline for intra-community digital reporting.
According to the OECD, e-invoicing represents a “win-win”, offering higher revenue recovery for governments while making compliance simpler and less costly for businesses.
The hard work begins
The passage of ViDA is not the start of the journey—it is the finishing line for legislative approval.
However, for businesses that have not already prepared, it marks the beginning of an urgent race to do so. E-invoicing may bring immense benefits, but implementing it requires strategic planning and technological investment.
A recent study revealed that 55 percent of companies doubt their current ERP systems can support compliant e-invoicing. This underscores the need for a global, scalable solution rather than relying on disparate local systems or vendors.
The shift to e-invoicing also demands significant changes to financial operations, IT infrastructure, and supplier relationships.
Businesses that start preparing now will gain a competitive edge. Early adopters will ensure compliance and unlock efficiencies that can drive growth. Those who delay risk being overwhelmed by the complexity of new regulations and the technological demands of the system.
A VAT system for a digital economy
ViDA represents a long-overdue modernisation of VAT, aligning it with the realities of a digital and globalised economy.
By introducing standardised e-invoicing, digital reporting requirements, and streamlined VAT registration processes, it simplifies business compliance and strengthens tax authorities' ability to combat fraud.
But beyond compliance, ViDA offers businesses the tools to operate more efficiently and transparently. ViDA is a bold step forward, signalling the EU’s commitment to a more efficient, fair, and technologically advanced tax system.
By acting now, businesses can position themselves as leaders in this new era, ready to reap the rewards of a modern VAT system.
Alex Baulf is Vice President at Avalara
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