Italy – The European pioneer of electronic invoicing

Dramatic change in Italy’s VAT compliance Gap 

As highlighted in our previous article, combatting tax evasion has been a major driving force behind the European Commission’s Plan to modernize the VAT System through the ViDA-Initative. To measure the amount of tax losses, the difference between the tax revenue that would be collected in the case of full compliance and the actual VAT receipts is calculated. This VAT compliance gap fell in Italy by 10,7% (€12,7 billion) in 2021 compared to 2020, according to the VAT Gap Report 2023 of the European Commission. This marks the highest drop among EU-27 Member States, both in relative and absolute terms, contributing to 32% of the overall reduction across the European Union. While economic shifts and data inaccuracies need to be considered, the data strongly suggests that the majority of the decrease can be explained by an increase in compliance. We can therefore say with reasonable accuracy that the implementation of e-invoicing in Italy proved very effective in combatting fraud.

Italy’s Implementation approach 

Initially, the e-invoicing directive applied to Italian taxpayers with annual turnover greater then €65,000. Over time, the legal requirements have gradually expanded; as of January 2024, e-invoicing is now mandatory for all businesses, regardless of turnover. The Italian government took a two-tiered approach for the implementation of e-invoicing by defining both the format as well as the delivery mechanism for e-invoices. All e-invoices are required to be issued in the FatturaPA format and are transmitted through the Italian exchange system Sistema di Interscambio (SdI). This system, which is provided by the Italian government, works as an eDelivery service and formally checks e-invoices before forwarding each to the relevant public administration based on an addressee identifier (Unique Office Code). There are multiple ways to submit an e-invoice, e.g., through Certified Electronic Mail (CEM), the Revenue Agency Website (authentication required), SDIFTP (File Transfer Protocol (Technical specifications)) and the Web Service SDICoop. 

Overcoming technological hurdles and changing mindsets

The shift to e-invoicing, especially the two-tiered approach prescribed, presented Italian businesses with a complex array of hurdles. At its core was the need for significant technological adaptation and, consequently, the need to change consolidated habits and mindsets. 

Integrating existing ERP and accounting systems with the new e-invoicing platform demanded substantial technical expertise and financial investment in new IT infrastructure and software. Beyond the IT infrastructure, businesses struggled to understand and adhere to the stringent XML format requirements and SdI regulations, and to ensure the accuracy, completeness, and security of data to avoid compliance issues. The risk of non-compliance loomed large, with severe penalties for those unable to meet the regulatory requirements. However, the biggest challenge was the human factor and in particular people's need for cultural change, as the human mind tends to be routine and stick to old habits, especially when it comes to processes that have remained unchanged for years. 

Grant Thornton Italy played a pivotal role in successfully guiding numerous clients through the complex transition to e-invoicing by leveraging in-depth knowledge of Italian tax and accounting regulations and processes, technology and business operations. E-invoicing is not just a tax matter; it requires a holistic approach.

Technological Integration: A new market for e-invoice consolidators

As implementation of the e-invoicing requirements into existing accounting and ERP systems proved to be very costly, specifically for smaller local entities and subsidiaries of international enterprises, a new market opportunity for e-invoicing consolidators was sparked. Grant Thornton Italy for example developed a dedicated cloud platform for end-to-end e-invoicing management. It is fully compliant with Italian e-invoicing regulations and integrates with the Sistema di Interscambio. These platforms exchange data directly with accounting and ERP systems (e.g., through API integration for real-time data exchange or file-based for import and export data) and therefore enable companies to take part in the e-invoicing exchange independently from their accounting system.

Leveraging efficiencies gains through modernization and automation

Overall, the change to e-invoicing has delivered a number economic and operational benefits for Italian businesses. The necessity to overhaul internal processes to accommodate e-invoicing workflows, coupled with the need for changes to the IT infrastructure imposed significant operational changes which generated tremendous opportunities in terms of modernization and automation. Automation not only enhances process efficiency, but it also drastically reduces manual effort, thereby minimizing the risk of human error. E-invoicing ensures heightened compliance with tax regulations by adhering to the mandated electronic format. The electronic nature of invoices also provides a rich source of data, enabling businesses to conduct in-depth analyses and make data-driven decisions. Another key benefit is improved cash flow management. Faster invoice processing and subsequent payment collection contribute to a healthier financial position. 

“While the transition to e-invoicing required an initial investment in IT infrastructure and personnel, both our clients and our firm have realized substantial long-term cost savings.” said Gabriele Labombarda, Partner and IBC director for the Italian Member firm Bernoni Grant Thornton. “The efficiency gains realized through automation have positively impacted operational costs for all parties involved. Furthermore, as we navigated clients through this complex transition, our relationships deepened significantly. This collaborative approach not only benefited our clients, leading to improved efficiency and cost savings within their organizations, but also streamlined our internal processes.” 

By exchanging best practices and expertise across the Grant Thornton network, our member firms can support businesses in navigating complex regulations across borders and implementing effective solutions through collaborative efforts to achieve financial goals. Stay tuned for our next article highlighting Poland’s approach to implement e-invoicing.