The European Commission has adopted a proposal to amend a 2006 directive on value-added tax (VAT) so as to reduce the burdens on business, help SMEs and help EU member states tackle fraud.

The EC adopted the amendment on January 28 2009 against a background of technological developments in electronic invoicing, it said in a media statement.

It said that the proposal "simplifies, modernises and harmonises the VAT invoicing rules".

The proposal eliminates the current barriers to e-invoicing in the VAT directive by treating paper and electronic invoices equally.

"The proposal is a key element of the EC's Action Programme to reduce burdens on business by 25 per cent by 2012, and is part of the EC's strategy to combat VAT fraud more efficiently," the statement said.

European Taxation and Customs Commissioner Laszlo Kovacs said that current national VAT invoicing rules were excessively complicated and disparate.

"This has led to unnecessary administrative burdens on businesses operating cross-border and has also facilitated VAT carousel fraud."

Treating paper and electronic invoices equally would allow businesses to move to a 100 per cent e-invoicing system and to save up to 18 billion euro across the EU, he said.

The EC said that it believed that it was necessary to increase the up-take of electronic invoicing, by removing the pre-conditions of advanced electronic signatures or electric data interchange (EDI) for sending invoices electronically.

The electronic storage of invoices will be allowed, even if the original invoice is in paper format, and common storage periods are set.

The EC said that other measures to help reduce burdens on business include the removal of the many options available to EU member states, by so doing creating a harmonised set of invoicing rules.

"This will help those businesses that want to implement practices such as self-billing or summary invoices and will allow the larger businesses to centralise their invoicing," the EC said.

To help SMEs, the proposal widens the use of simplified invoicing, notably for small value invoices (up to 200 euro), which will be of particular benefit for smaller businesses.

It also allows simplified invoicing for business to consumer (B2C) supplies and certain VAT exempt supplies where the risk of fraud is limited.

In addition, and of direct benefit to SMEs, is the option for member states to introduce a cash accounting scheme under which the tax becomes due only when the invoice is paid, the EC said.

Notwithstanding the measures to help reduce burdens on business and promote SMEs, safeguards are maintained or enhanced to help the authorities to tackle VAT fraud.

As businesses operating cross-border will have to report their transactions in the month of the supply, fraudsters will not be able to abuse the possibility of including an invoice in a later reporting period.

Moreover, the rules on the right to VAT deductions are strengthened in respect to the requirement to hold a valid invoice and as regards the contents of invoices, the EC said.