Stricter requirements for invoicing and reporting by entrepreneurs

Setting up VAT processes in IT systems when integrating businesses

Publication
14 Sep 2023

An integration of companies after an acquisition offers a great opportunity to optimise the set-up of VAT processes in an IT system landscape. In this way, you will be better prepared for the increasingly stringent invoicing and reporting requirements that entrepreneurs will face in the coming years, argue PwC experts Robert Lantman and Sharon Neven.

More efficient set-up and automation

Controlling VAT and other indirect taxes - the main sources of revenue for governments - is more challenging than ever. Radical reforms are taking place all over the world and real-time reporting is increasingly required. This is forcing companies to design and automate the indirect tax processes in their system landscape more efficiently. A correct set-up of ERP and other systems - which meet current requirements as well as provide a foundation for future business growth and tax changes - facilitates an end-to-end reporting and compliance process whereby companies can meet billing requirements and successfully manage their supply chain compliance obligations.

Understanding the VAT processes in the current systems of the business to be acquired

In case of an acquisition, it is extremely important that the buyer gets a good understanding of the set-up of the VAT processes in the current (ERP) systems of the business to be acquired. Not only in a regular takeover, but certainly also when the buyer integrates the business to be taken over into the existing organisation. After all, it is quite possible that the business to be acquired operates in countries where the buyer itself has no operations or that new transaction flows with different VAT treatments become relevant. If the integration comes down to using the buyer's (ERP) systems for the activities of the company to be acquired, this will lead to the necessary adjustments in the buyer's (ERP) systems.

VAT in the Digital Age

One development in legislation that businesses need to take into account is the proposal announced late last year to amend the EU VAT Directive to make it more future-proof, the so-called 'VAT in the Digital Age' package. The proposal includes the mandatory use of 'e-invoicing' for cross-border transactions from 1 January 2028. This will require businesses to issue the relevant electronic invoices within two working days after the supply of goods or services. However, Member States may - if the current proposals are adopted and transposed into law - enforce 'e-invoicing' obligations earlier from 1 January 2024. Based on recently announced amendment proposals from the European Parliament, the aforementioned implementation deadlines may be extended by one year.

In addition to 'e-invoicing' requirements for cross-border transactions, other reporting requirements will apply to these transactions from 1 January 2028 (or a year later). The current 'intra-EU Transactions Listing' that companies have to submit on a quarterly or monthly basis will then be replaced by a system of 'digital reporting requirements' where companies have to submit data to the tax authorities on a transaction-to-transaction basis. And that within a period of two working days after the invoice was issued or should have been issued.

The above package of measures makes it clear that it is important for companies, when setting up their (ERP) systems, to take into account the stricter invoicing requirements and reporting obligations coming their way in the coming years. Not only to comply with the stricter requirements from legislation, but also to ensure that they issue the right invoices that will not lead to unwanted disruptions to their business. Given the tighter reporting deadlines, the 'first time right' principle will become increasingly important; after all, the time to make any corrections before companies have to report will be lacking in the future.

Mid-market M&A deals

Meanwhile, the M&A activity may not all be eye-catching megadeals, which have ebbed since hitting their peak a few years ago, but rather a great number of mid-market deals according to the 2023 Mid Year update of our Global M&A Industry Trends. But also these mid-market deals are ideally suited for driving transformation and growth. A post-deal transformation or optimisation of the IT landscape is an excellent fit for this.

Realise the full potential of the deal

Setting up VAT processes correctly in the (ERP) systems is crucial for the continuity and successful operation of any business.It is therefore important to take this into account when integrating an acquired company into an existing business and to be mindful of the EU's changing requirements for how companies carrying out cross-border operations invoice and report transactions. Only then will you realise the full potential of the deal.