INSIGHT: Italy Introduces General B2B and B2C Mandatory e-Invoicing Obligations

The Council of European Union authorized Italy to derogate from the VAT Directive and extend a mandatory electronic invoicing obligation for all taxable persons established in Italy except small enterprises, on April 16, 2018.

Consequently, a general B2B and B2C e-Invoicing obligation will apply starting from January 1, 2019. For some high level risk sectors the e-Invoicing applies from July 1, 2018.

The e-Invoice shall be in XML format without macro-instructions or executable codes that may impact the integrity of the invoice content and has to be delivered to/approved by the tax authorities through the so-called Sistema di Interscambio (“SDI”).

The aim of a generalized e-Invoicing is to tackle VAT fraud and evasion, increase voluntary tax compliance and reduce the VAT gap (i.e. the overall difference between expected VAT revenue and the amount actually collected).

New e-Invoicing Obligations

Under an Italian VAT viewpoint, mandatory electronic invoicing (e-Invoicing) for supplies made to government agencies is effective as of June 6, 2014 for supplies to some central administrations (ministries, tax agencies) as well as national social security and welfare bodies and as of March 31, 2015 for supplies to all remaining public administrations including local authorities such as regions, provinces, municipalities, etc.

The Italian Budget Law for 2018 (Law No. 205/2017), modifying the Legislative Decree No. 127/2015, extended the obligation to use e-Invoicing for both B2B and B2C transactions.

Specifically, as from January 1, 2019, any VAT invoice must be issued in electronic form, by using the same system already in use for the electronic invoicing of supplies made to public administrations. For business sectors characterized by a high level of risk, the e-Invoicing obligation is anticipated.

In particular, for both the public subcontract sector and for supplies of petrol or diesel fuel intended for use as motor fuel, the e-Invoicing obligation will be effective as from July 1, 2018.

However, following requests from fuel retailers, the Italian government agreed a partial postponement of e-Invoicing obligations with respect to fuel supplies made through petrol stations.

According to Law Decree 79 published on June 28, 2018, e-Invoicing concerning fuel supplies made by retailers will be mandatory now starting from January 1, 2019 (and no longer from July 1, 2018).

Finally, the Italian Budget Law for 2018 postponed the entering into force of the mandatory tax-free shopping e-Invoicing regime (introduced by Law Decree No. 193/2016), related to the supply of goods to private customers resident outside the EU, from January 1, 2018 to September 1, 2018.

Implication of e-Invoicing

As confirmed by the head of the Italian Revenue Agency, General Director, Ernesto Maria Ruffini, in the last public hearing held last July 4, Italy is moving towards a clearance model where all transactions between private businesses have to be digitally transmitted to the tax authority.

The aim of the introduction of the generalized e-invoicing obligation is stimulating tax compliance via communication, introduction and implementation of the pre-filled tax return.

In fact, dispatching invoices through the SDI will allow the Italian tax administration to receive in real time an overview of the transactions carried out by taxpayers, monitor the consistence of the payments of VAT, provide a draft of the tax return and reduce the risk of fraud.

According to an estimate of the Italian Tax Authority, currently it takes around 18 months for the tax administration to become aware of the existence of a missing trader. The immediate availability of electronic invoices would allow this interval to be reduced by up to three months thus interrupting the fraudulent chain much quicker than in the past.

Moreover, according to the Ministry of Economy and Finance, the mandatory e-Invoicing should generate more than 2 billion euros of additional revenue per year.

It is worth noting that the Italian Council of European Union, authorized Italy to introduce a mandatory generalized electronic invoicing obligation from July 1, 2018 until December 31, 2021.

Should Italy wish to extend the derogating measure, it will have to provide a report on the functioning of the measure together with the extension request. According to the request of the European Council, the report should provide the assessment of the measure what concerns its effectiveness in fighting VAT fraud and evasion and in simplifying tax collection.

The report should also include an evaluation of the measure on taxable persons and in particular what concerns the increase of their administrative burdens and compliance costs.

From a taxpayer perspective, e-Invoicing could represent the first step of a complete integration of the administrative process aimed to get a significant savings of costs and an increasing of accuracy of the data provided to the tax authority.

Taxpayers Subject to the New e-Invoicing Obligations

Although Italian legislation provides for the e-Invoicing obligation for all transactions performed between persons established/resident in Italy not benefiting from the exemption for small enterprises, as well as Italian VAT registrations of non-established taxable persons, EU Council Decision 2018/593 authorizes Italy to introduce mandatory e-Invoicing only for invoices issued by taxable persons established in Italy.

Consequently foreign taxpayers without a fixed establishment in Italy, even if identified in Italy for VAT purposes, are excluded from the new obligation.

If a taxpayer established in Italy issues an e-invoice towards a non-established recipient a hard copy of the invoice has to be put at the disposal of the foreign client.

Cross-border Transactions

Cross-border transactions do not fall under the mandatory e-Invoicing but are subject to specific communication to be filed by the last day of the month following the one in which the invoice is issued or received.

For import and export transactions where a Customs bill is issued and for cross-border transactions where the supplier opted for e-Invoicing, the communication is optional.

Definition of Electronic Invoicing

According to the technical rules published by the Italian Revenue, an electronic invoice is a structured computer document created as an XML file, which does not contain commands nor executable codes and meets all the requirements provided by the Italian VAT law as well as further information provided for under specific dispositions.

The XML format is the only format currently admitted for the generation of the e-Invoice, although different formats based on European standards might be allowed in the future.

In order to support the taxpayers, the tax authorities make available a free web service for the creation of an XML file and management of the e-Invoicing process—free software to be downloaded and an app named FATTURAe to allow the taxpayers to obtain the details of the counterparty using the QR-Code.

The QR code can be generated online through the registration to the digital services of the Italian Revenue or through an authorized professional and can be provided to the seller for the purposes of the issuance of the invoice.

The creation of an e-Invoice can also be managed through software provided by a specialized software house provided that it meets the technical rules published by the Italian Tax Authority.

The Italian Operating Model for e-Invoicing

From a technical viewpoint, the operating model for e-Invoicing is based on a single exchange hub (SDI).

The SDI works as an e-Delivery service, transmitting each e-Invoice to the recipient via certified e-mail, web cooperation system or FTP protocol data transmission. Both the web service and the FTP protocol require a specific application at the time of the registration to the SDI.

The ways in which the recipient wants to receive the e-Invoice are the same provided for the issuer.

The transmission of the e-Invoice via the SDI has to be made by midnight of the day in which the tax point arises.

Based on the guidelines published by the Italian Tax Authority on July 2, 2018, due to the complexity of the new e-Invoicing procedure and the efforts requested to the operators to update their ERP, no penalties will be levied for late transmissions of e-Invoices to the SDI system during the first application of the new e-Invoicing procedure, provided that the delay does not affect the correct payment of the periodical VAT due.

The SDI performs some formal checks at the time of the delivery.

If the invoice is formally correct, SDI will send the invoice to the recipient and provide a delivery receipt to the issuer.

Conversely, in case formal mistakes are detected, a reject report is issued within five days from the delivery/upload into the SDI. In this case, the invoice is considered not issued.

The e-Invoice can be delivered also by an intermediary on behalf of the taxpayer.

The e-filing may regard either one single invoice or a group of invoices.

It is worth noting that the e-Invoices issued towards final users (B2C) shall be available to the latter through the Italian Revenue portal. A copy of the invoice in analogic or paper format shall be provided directly by the issuer.

Storage of e-Invoices

From an Italian VAT viewpoint e-Invoices have to be stored electronically (e-archiving). The electronic archive can be located in the EU or outside the EU (only in case a specific agreement between Italy and the extra-EU country is in place).

In case of inspection, the taxpayer must ensure that the Italian Tax Authority is able to have an immediate easy access to the archives and to all the documents contained therein.

The electronic storage of fiscal documents has to meet search criteria and be managed through a clear delegation plan for the responsibility of the archiving process. The e-archiving process has to be made on an annual basis and ends with a time stamp.

For the purposes of simplification, all the e-Invoices sent and received through the SDI can be stored using the free services put at disposal of taxpayers by the Italian Revenue Agency in its portal provided that the taxpayer applies for a specific e-archiving service agreement via the web at the time of the registration at the SDI.

Focus on Supply of Fuel

The Italian Tax Authority, with circular letters 8/E of April 30, 2018 and 13/E of July 2, 2018, provided specific guidelines on e-Invoices for the supply of fuel.

In particular the tax authority specified that binding e-Invoicing apply for diesel and gasoline used as motor fuel but not to supply of fuel used for electric generator, equipment, gardening tools, aircraft or boats.

Furthermore, should the document include the sale of fuel together with others goods or services (e.g. repair services, spare parts) an electronic invoice needs to be issued.

In addition, with reference to the content of the invoice the license plate number, the vehicle type and similar information are not mandatory.

The tax authority pointed out that in case of vouchers issued by oil companies, the e-Invoice is mandatory at the time of the issuance of the invoice if the voucher qualifies as a single purpose voucher.

Conversely, in case of a multi-purpose voucher allowing the purchase of fuel from several petrol stations (different from those of the issuer), or the purchase of different goods/services, being the transaction not subject to VAT no e-invoicing can be envisaged.

It is worth noting that, starting from July 1, 2018, for the purposes of the right of deduction of the expenses for income tax purposes and the right to recover VAT, supplies of motor fuel have to be paid through electronic means (e.g. credit card, debit card, prepaid card or any other electronic means that charge the cost on a bank account).

Planning Points

No mandatory issuance of e-Invoices versus traditional paper invoices can be envisaged for nonresident taxpayers without a fixed establishment in Italy even if identified in Italy for VAT purposes.

Conversely, companies established in Italy for VAT purposes, must meet the new e-Invoicing rules.

Taxpayers can face the changes through a mere regulatory approach and proceed with the selection of software to be used for the issuance of the e-Invoices followed by the activation of their position on SDI in order to be able to send and receive the e-Invoices and store them using the archiving services provided by the Italian Revenue.

Furthermore they could compare the cost of the self-management of the e-Invoicing with the outsourcing of procedure.

Alternatively, companies could invest in a partial or complete digitalization and automatization of their administrative processes aimed to maximize the advantages of the e-Invoicing procedures.

Therefore, companies interested by the new e-Invoicing obligations should reach to their Italian advisors in order to evaluate the consequences of the e-Invoicing obligation in the supply chain, implement a more efficient administrative-accounting processes and be compliant with the new legal VAT framework.

Francesco Bonichi is Tax Partner and Serena Paone is VAT and Indirect Tax Manager at EY Italy.