Transforming VAT Compliance: Leveraging VIES and SAP Solutions to Combat EU Fraud

Intra-EU transactions, which involve the exchange of goods or services between EU member states, are exempt from Value Added Tax (VAT) when certain conditions are met. However, this exemption is often exploited in fraudulent schemes, especially carousel fraud, which is responsible for a significant portion of VAT revenue losses within the European Union. As part of the European Union’s efforts to combat VAT fraud, it has mandated the verification of VAT registration numbers for intra-EU transactions, effective from January 2020. The VAT Information Exchange System (VIES), a search engine, was introduced to facilitate this process, providing an online platform to validate VAT numbers against national databases. This paper explores the different methods available for businesses, particularly those using SAP, to validate VAT numbers through VIES. The focus is on comparing two SAP solutions—Online Validation Framework (OVF) and Online Validation Service (OVS)—along with the Vertex solution. The comparison includes aspects such as implementation, customization, and connectivity to the VIES database. The paper concludes with a discussion of the effectiveness of these solutions in mitigating VAT fraud and the ongoing efforts by the EU to modernize VAT compliance in the digital age.

Introduction

Are you validating the VAT registration number of your customers before conducting intra-EU transactions with zero percent VAT? Are you unintentionally becoming part of carousel fraud, which accounts for a quarter of the total VAT fraud in Europe? These are critical questions every business should consider before operating in Europe.

On December 4, 2018, the European Union amended VAT Directive 2006/112/EC through Council Directive (EU) 2018/1910 [1], requiring mandatory validation of VAT identification numbers for exemptions related to the supply of goods in intra-community trade. The European Council established the VAT Information Exchange System (VIES), a central search engine that connects national VAT databases from EU member states to verify VAT registration numbers. VIES is publicly accessible, enabling businesses to validate VAT numbers and ensure proper VAT application, reducing the risk of errors and fraud.

VIES allows businesses to verify VAT registration numbers individually through an online platform or in bulk, either via batch validation or the VIES API. SAP enables businesses to automate VAT registration validation by connecting to the VIES database through its Online Validation Framework (OVF), an older solution, or the Online Verification Service (OVS), a newer solution. Additionally, SAP clients using Vertex can validate VAT registration numbers by utilizing the web service API calls provided by Vertex to connect to the VIES database.

This research paper will provide an in-depth comparison of both SAP and Vertex solutions, highlighting the pros and cons of each approach.

Literature Review

After World War II, in 1951, six European countries—Belgium, France, Italy, Luxembourg, the Netherlands, and West Germany—established the European Coal and Steel Community (ECSC) through the Treaty of Paris [2]. Their primary aim was to manage coal and steel production, which were crucial industries for wartime economies, a growing concern at the time. Later, in 1957, the Treaty of Rome led to the formation of the European Economic Community (EEC), promoting the free movement of goods and services across member states.

In 1992, under the Maastricht Treaty. The EEC became the European Union (EU) and established the European Parliament. The EU Parliament is a unified approach to foreign and home affairs. In 1993, the concept of a single market within the EU was introduced, allowing the free movement of goods, services, people, and capital. In 1999, the euro was launched as a single currency, adopted by 11 countries [3].

Since its inception, the EU has expanded to include 27 member states. However, the United Kingdom decided to leave the EU, officially exiting on December 31, 2020, following a referendum held in January 2020.

The EU has reaped significant benefits from its policies promoting the free movement of people, goods, services, and capital within its member states. However, these policies have also created challenges, such as VAT fraud. Every year, the EU publishes a report on the VAT compliance gap, which measures the difference between the VAT that should have been collected under full compliance and the actual VAT collected. This gap arises due to various factors, including VAT fraud, avoidance, and evasion. In 2018, the VAT compliance gap stood at 11% of the total collectible VAT i.e., 121 billion euros [4] [5].

One of the most common VAT frauds is carousel fraud, also known as Missing Trader Intra-Community (MTIC) fraud. One-fourth of the VAT Compliance Gap is due to Carousel/MTIC Fraud [6].

Carousel/MTIC Fraud: Exploiting EU VAT Regulations

Carousel fraud takes advantage of the European Union's regulations on the free movement of goods and services within member states. This type of fraud occurs in business-to-business (B2B) transactions, where goods are moved between member countries in a cycle like a Carousel. The fraudster collects VAT from a buyer during a domestic sale, but instead of remitting it to the tax authority, the fraudster disappears with the collected funds. [7]–[10].

A simple example of Carousel fraud is as follows (Fig. 1):

Fig. 1. A simple EU carousel/MTIC fraud.

• Entity A (based in France) sells goods to Entity B (based in Italy) without charging VAT, as the transaction is an intra-EU sale.

• Entity B then sells the goods to Entity C (another Italian entity) within the domestic market, applying the 22% Italian VAT.

• Subsequently, Entity A buys the goods back from Entity C without paying any VAT, since the transaction between EU member states is VAT-exempt.

• However, Entity B never remits the collected VAT to the Italian tax authorities, often disappearing before any tax can be collected.

In this scenario, Entity A and Entity B are collaborating to commit Carousel fraud, exploiting the EU’s VAT rules to illegally pocket VAT funds.

The European Council has implemented several measures to reduce the VAT compliance gap, yielding noticeable improvements. One significant step was the introduction of a mandate requiring the validation of VAT registration numbers before applying the 0% VAT rate on intra-EU sales. This mandate was established by Council Directive (EU) 2018/1910, which came into effect on January 1, 2020. To support businesses in verifying VAT registration numbers, the European Commission established the VAT Information Exchange System (VIES), a dedicated search engine for VAT number validation [1].

VAT Information Exchange System (VIES)

The VAT Information Exchange System (VIES) is a publicly accessible search engine that connects to the national VAT databases of EU member states. Owned by the European Commission, VIES allows users to validate VAT registration numbers issued by any member state. The system can be accessed via the following website:  https://ec.europa.eu/taxation_customs/vies/#/vat-validation. There are several methods available to validate VAT registration numbers using VIES (Fig. 2):

Fig. 2. VIES validation methods available on the official VIES website.

• VAT validation (Interactive Service): This method is used to validate a single VAT registration number. The user inputs the member country and VAT number, and VIES instantly provides a result, confirming whether the VAT number is valid or not.

• Batch validation: This method allows users to verify multiple VAT registration numbers at once by uploading a file. Supported file formats include .csv, .xls, or .xlsx, which can be downloaded from the official VIES website. Batch validation requires a minimum of three VAT numbers to be included in one file.

• VIES-on-the-Web (Technical Validation): This feature enables VAT registration number validation via API calls. VIES-on-the-web supports both SOAP and REST web service APIs, allowing multinational companies to directly integrate their ERP systems with VIES for seamless VAT validation.

Exploring SAP Solutions

SAP customers have multiple options for validating VAT registration numbers using the VIES-on-the-Web services. SAP provides a standard SOAP web service API to connect to the VIES system through a feature called Online Validation. There are two primary solutions for connecting to VIES: the older Online Validation Framework (OVF) and the newer Online Validation Service (OVS). While both terms are used interchangeably in SAP documentation, OVS is the latest and most advanced solution, built upon the Online Validation Framework [11]. Additionally, SAP users who use Vertex can leverage the VIES interface provided by Vertex through SAP’s web service [12]. In this discussion, we will explore all three solutions in terms of implementation, customization, and establishing connections. Finally, we will compare all solutions.

VAT Validation with SAP OVF (Online Validation Framework)

This solution, originally developed by SAP, is still available for ECC clients. It was introduced to comply with the VAT mandate set by the European Council. The Online Validation Framework (OVF) was developed in phases: Phase 1 and 2 focused on integrating VIES validation for business partners, enabling mass VAT validation for business partners (BP), and generating validation history reports. Phase 3 expanded this functionality to Sales Orders and Billing Documents [13]. The implementation of the Online Validation Framework (OVF) follows a three-step process, as outlined below:

i) Implement SAP notes to activate functionality: The first step is to integrate the Online Validation Framework (OVF) functionality into the SAP system. This can be achieved by implementing a sequence of SAP notes. All related SAP Notes can be found under the master SAP note 2855240 [14], while the main SAP note 2866929 [15] contains detailed information about the VIES interface using OVF. Follow the instructions outlined in SAP note 2866929 [15] to successfully integrate OVF into the SAP system. Note: Some of the SAP notes may have already been implemented as part of an upgrade or support pack. In such cases, SAP will display a message indicating that the note “can’t be implemented” or is “not applicable.” Please skip those notes.

ii) Customization to enable the service: The next step is to customize the Online Validation Framework (OVF) within SAP. Below are the manual configuration steps to enable the service:

• Execute transaction code OVF_CHECKS (Fig. 3) to access the customization screen for OVF VIES. Define the Check ID and the Format of the request (Table I).

Fig. 3. SAP screen to create check ID.

Table I. Define OVF check ID

SAP Field	Value	Usage
Check ID	VIES (Check ID name)	All subsequent settings are based on this Check ID.
Format	XML (File format used for the SOAP call to VIES)	This is the file format that will be generated by SAP.
Check ID description	Free field	A meaningful description of the VIES interface.

• Select the Check ID created above, then choose 'Maintain Result Codes' (Table II) (Fig. 4).

Table II. Maintain Reason Code

SAP field	Value	Usage
Check ID	VIES (as created above)	Identify the Check ID to determine the applicability of the result code.
Result code	1 to 16	Result codes returned by VIES for VAT validation.
Integration Spot	Dropdown (e.g., BP, Order, Billing, etc.)	A validation finishes with a certain Result code (RC). Integration spot allows to have a different system response in different business processes for the same RC.
Message Type	Dropdown (e.g., Error, Warning, Information, etc.)	The type of message to display for a specific result code.
Save	Tick	Save the result in the OVF_History.
Result Code description	Free field	Meaningful description of the result code.

Fig. 4. SAP screen to maintain result code.

• Select the Check ID created above, and select ‘Maintain Validity of Checks’(Fig. 5): In this section, Define the number of days for which the existing VAT check remains valid. The validity period can be set per company code, ensuring that SAP will not perform VAT validation again within the specified number of days.If no company code is specified, the validity period will apply uniformly across all company codes.

Fig. 5. SAP screen to maintain validity of checks.

• Select the Check ID created above, and select ‘Maintain Partner Function (VIES)’ (Fig. 6): If VAT validation is activated at the Sales Order and Billing Document levels, SAP uses the partner function defined here to validate the VAT registration number.

Fig. 6. SAP screen to maintain partner function (VIES).

• Establish a connection to the VIES service (Fig. 7): The above customization alone does not activate the VIES service. To enable VIES validation, an RFC (Remote Function Call) connection must be created and maintained in the activation customization. Below are the steps to establish this connection:

• Execute t code SM59 to create an RFC connection to establish the connection to VIES. Please enter the below details:

– Destination: VIES_DIRECT Note: The destination name is very important. The name must start with “VIES” (case sensitive) to establish a direct connection.

Fig. 7. SAP screen to set up RFC connection for VIES.

– Connection Type: G – HTTP connection to external server

– Description 1: VIES VAT Registration Number Validation

– Host: ec.europa.eu

– Port: 80

– Path Prefix: /taxation_customs/vies/services/checkVatService

• Execute T-Code OVF_CHECKS and select ‘Activate and Connect to External Services’ to maintain the RFC Connection (Fig. 8) created above. This step will activate the VIES validation services in SAP.

Fig. 8. SAP screen to activate VIES validation services.

• Select the Check ID and RFC connection set above step and double click on ‘Enable Selective Online Validation.’

This customization allows to enables the VIES validation check for various integration spots within the SAP system, such as during Business Partner, Sales Order, or Billing Documents (Fig. 9). This gives you the flexibility to apply VAT validation checks at different stages of the business process based on requirements.

Fig. 9. SAP screen to activate VIES validation on different integration spots.

VAT Validation using SAP OVS (Online Validation Service)

This is the new solution provided by SAP. Initially, the OVF check was limited to validating VAT only on the Business Partner (BP). However, there was a growing need for a solution that could seamlessly integrate not only with BP but also with Sales and Master Data Governance (MDG). The old solution, being embedded in the Finance and Logistics layers of SAP, lacked the flexibility for extension. The new solution overcomes this limitation by extending the OVF to the NetWeaver layer (SAP_ABA), making it compatible with integration across other SAP products like MDG. The implementation of the new Online Validation Service (OVS) follows a three-step process, as outlined below:

i. Implement SAP notes to enable the functionality

Master SAP note 3085468 [16] contains all the necessary information to integrate the OVS functionality into SAP. The sequence and necessity of SAP notes may vary depending on your SAP version and application, but SAP has simplified the process by publishing SAP note 3291504 [17]. This note includes the XML files (OVS_VIES_v1.XML) that can be imported using the Note Analyzer app, part of the SNOTE transaction, to activate the OVS functionality with VIES. To implement the SAP notes, follow these steps:

1. SAP note 3200109 [18] provides detailed instructions for implementing the list of SAP notes available via the Note Analyzer. Ensure your system has the latest version of the Note Analyzer by applying SAP Note 3200109 [18].

2. Execute transaction code SNOTE. Then, select Goto → Other Tools → Launch Note Analyzer.

3. Download the OVS_VIES_v1.XML file from SAP note 3291504 [17]. Upload this file into the Note Analyzer. The tool will then download all the listed notes, check for any newer versions, verify prerequisites, and automatically implement the required SAP notes.

4. Some SAP notes might already be implemented in your SAP system as part of a support pack or version upgrade. In such cases, the Note Analyzer will display messages such as “Can't be implemented” or “Not applicable.” Skip these notes.

5. Alternatively, you can manually integrate the OVS functionality by following the instructions outlined in SAP note 3085468.

ii. Customization to enable the service

After implementing the basic functionality of OVS as described above, the next step is to customize the settings in SAP. Follow the manual configuration steps outlined below:

• Go to transaction code OVS_CHECKS (Fig. 10) and define the Check ID (Table III).

Fig. 10. SAP screen to define check ID.

Table III. Maintain Check ID

SAP field	Value	Usage
Check ID	VIES (Check ID name)	All subsequent settings are based on this check ID.
Validity of check result	1 (number of days)	The number of days an existing validation result can be reused without requiring revalidation.
Check ID description	Free field	A meaningful description of the Check ID.

• Select the Check ID created above and select Maintain Result Codes (Table IV) (Fig. 11).

Table IV. Maintain Reason Code

SAP field	Value	Usage
Check ID	VIES (as created above).	Identify the Check ID to determine the applicability of the result code.
Result code	1 to 16	Result codes returned by VIES for VAT validation.
Integration spot	Dropdown (e.g., BP, Order, Billing, etc.)	A validation finishes with a certain Result code (RC). Integration spot allows to have a different system response in different business processes for the same RC.
Message type	Dropdown (e.g., Error, Warning, Information, etc.)	The type of message to display for a specific result code.
Save	Tick	Save the result in the OVS_History.
Result code description	Free field	Meaningful description of the result code.

Fig. 11. SAP screen to maintain result code.

• Select the Check ID and choose ‘Enable Selective Online Validation’ (Fig. 12).

Fig. 12. SAP screen to enable VIES integration spots.

• This customization allows to enable the VIES validation check for various integration spots within the SAP system, such as during Business Partner, Sales Order, or Billing Documents.

• Select the Check ID and select ‘Maintain VIES Specific Parameters’ (Table V) (Fig. 13).

Table V. Maintain Requestor’s VAT Registration Number

SAP Field	Value	Usage
Check ID	VIES	As created above.
Requestor’s VAT number	VAT registration number of the organization	It is mandatory to send the requestor’s VAT number to get the consultation number from the VIES search engine. This has been simplified by SAP in the new OVS setup and allows businesses to maintain the requestor’s VAT number in the customization.
Function	Drop-down (Sold-To, Ship-To, Bill-To, or Payer)	If VAT validation is activated at the Sales Order and Billing Document levels, SAP uses the partner function defined here to validate the VAT registration number.

Fig. 13. SAP screen to requestor’s detail.

If you are currently using OVF and migrating to OVS, you can implement SAP Note 3238418 to migrate the existing customization from OVF to OVS [19]. In addition to migrating the customization, this note will also transfer the VAT validation history from the OVF_History table to the OVS_History table. The History migration needs to be done in each system in the SAP landscape.

iii. Establish a connection to the VIES service

The above customization alone does not activate the VIES service. To enable VIES validation, an RFC (Remote Function Call) connection must be created and maintained in the activation customization. Below are the steps to establish this connection:

• Execute t code SM59 to create an RFC connection to establish the connection to VIES. Please enter the below details (Fig. 14):

– Destination: VIES_DIRECT

Fig. 14. SAP screen to maintain VIES RFC connection.

– Note: The destination name is very important. The name must start with “VIES” (case sensitive) to establish a direct connection

– Connection Type: G – HTTP connection to external server

– Description 1: VIES VAT Registration Number Validation

– Host: ec.europa.eu

– Port: 80

– Path Prefix: /taxation_customs/vies/services/checkVatService

• Execute transaction code OVS_CHECKACTIV to associate the RFC connection created earlier with the check ID. This step will activate the VIES services within the SAP system (Fig. 15).

Fig. 15. SAP screen to activate RFC connection with check ID.

VAT Validation via Vertex Webservice

Vertex Inc. is a leading organization providing solutions to automate indirect tax and improve tax compliance. Sixty percent of the Fortune 500 companies use Vertex products for their tax requirements. Vertex also offers a standard SAP SOAP Webservice API service that connects to the VIES search engine to validate VAT registration numbers. The Vertex Webservice is fast and can handle multiple VAT validations in a single call. Below are the steps for implementing Vertex VIES solutions in SAP:

i. Install Vertex Accelerator Tool

The VIES Webservice is part of the Vertex Accelerator license. Any client using the Vertex indirect tax solution will receive the Vertex Accelerator tool license by default. It is important to install the latest version of the Vertex Accelerator tool. The latest version of Vertex Accelerator at the time of writing this paper is 3.1E. Installation of the Vertex Accelerator tool includes the following steps:

1. Install External Vertex Transports: This step brings the Vertex Accelerator program and default configurations into SAP. Vertex will provide the transport request (TR) based on the latest version of the Accelerator tool available at the time.

2. Activate Vertex Accelerator Tools: Activate the tool by following the steps mentioned in the Vertex activation guide. The activation steps vary depending on the version, and Vertex provides detailed guidance in its document repository for these steps. The SAP users will have access to the Vertex Activation guide once they secure the license for the tool from Vertex.

ii. Web Service Customization, Including Connection to the VIES Service

The above step integrates the standard Vertex application into the SAP web service for customization. Follow the steps below to complete the customization.

• Execute transaction code SOAMANAGER in SAP and select webservice configuration (Fig. 16).

Fig. 16. SOAMANAGER initial screen.

• Enter Object Name *VERTEX* and Select /VERTEX/CO_CHECK_VAT_PORT_TYPE (Fig. 17).

Fig. 17. List of webservices available in SOAMANAGER for Vertex.

• Select Create WSDL-Based Configuration (Fig. 18).

Fig. 18. SOAMANAGER configuration screen I.

• Enter ‘VERTEX_VIES_PORT’ as the logical Port Name

– Enter ‘Vertex VAT Validation Proxy Port’ for Description,

– Tick Logical Port is Default.

– Click Next (Fig. 19).

Fig. 19. SOAMANAGER configuration screen II.

• Select Via File.

– Select the file ‘ from your desktop (Fig. 20).

Fig. 20. Sample file from vertex.

– This file is provided by Vertex to approved customers. If you are unable to locate the file on the Vertex customer portal, please raise a ticket with Vertex customer service support.

– Click Next (Fig. 21).

Fig. 21. SOAMANAGER configuration screen III.

• In the Actions column, click the below ‘Select’ icon, then click Next (Fig. 22).

– Click Next (Fig. 23).

Fig. 22. SOAMANAGER configuration screen IV.

Fig. 23. SOAMANAGER configuration screen V.

• The below setting with come from the upload file. Please verify if it looks like below:

– If you are using the Proxy setting, enter the proxy’s name and Port here.

– If your Internet port is not 80, change the port number accordingly.

– Click Next (Fig. 24).

Fig. 24. SOAMANAGER configuration screen VI.

• Verify Message ID Protocol is set to Suppress ID Transfer, and then click Finish (Fig. 25) (Fig. 26).

Fig. 25. SOAMANAGER configuration screen VII.

Fig. 26. SOAMANAGER configuration screen VIII.

iii. Test VIES connection

• Execute transaction code /N/VERTEX/VIES to run the Vertex VIES program.

– The program can be executed for either multiple or single entries.

– For multiple entries, select the checkboxes for customer, vendor, and/or company code. Additional parameters such as country key or customer/vendor/company code numbers can also be specified.

– For a single entry, enter the VAT number to validate (Fig. 27).

Fig. 27. SAP screen to Vertex VIES program.

• Execute the transaction code. This will initiate a call to VIES and validate the entered VAT number. Below are the results for a dummy e.g. invalid VAT number and a valid VAT registration number test result (Fig. 28).

Fig. 28. SAP screen with VIES validation result.

Results: Comparison of Different Methods

Table VI is a comparison of different options to connect SAP with the VIES search engine. Each method has its strengths and weaknesses. OVF was the original method, but due to its limited flexibility for extending to various SAP functions like MDG, SAP introduced OVS. When OVF offered only limited functionality, Vertex launched the VIES Webservice. The Vertex Webservice is fast and can validate thousands of VAT registrations in a single call.

Table VI. Comparison of Various VIES Validation Methods

Parameters	Online validation framework (OVF)	Online validation services (OVS)	Vertex VIES webservice
Online/Offline VAT Registration Validation for Business Partners (BP)	Online VAT Registration Validation for Business Partners (BP).	Online VAT Registration Validation for Business Partners (BP).	Offline VAT Registration Validation for Customer, Vendor, and Company Code.
Online VAT Registration Validation during Sales Order Creation/Change	Online VAT Registration Validation During Sales Order Creation/Change.	Online VAT Registration Validation During Sales Order Creation/Change.	No such functionality exists.
Online VAT Registration Validation during Billing Document Creation/Change	Online VAT Registration Validation During Billing Document Creation/Change.	Online VAT Registration Validation During Billing Document Creation/Change.	No such functionality exists.
Disabling Online Validation for Specific Business Partners	Certain Business Partners (BPs) can be excluded from the VAT validation check by maintaining them in transaction code OVF_DISABLEMENT.	No such functionality exists.	No such functionality exists.
SAP Product layer	OVF is available within the Financial Accounting and Logistics layers and therefore does not support VAT validation in other business functions, such as Master Data Governance (MDG).	OVS is available on the SAP NetWeaver layer (e.g., SAP_ABA layer), making it accessible for other functions, including Master Data Governance (MDG).	Standard ABAP Program, available to be executed as a standalone function.
IMG Path for Customization	Financial Accounting (New) –> Accounts Receivable and Accounts Payable –> Business Transactions –> Online Validation.	Cross-Application Components -> SAP Business Partner -> Business Partner -> Basic Settings -> Online Validation.	Customization: SOAMANAGER.
Parameters	Online Validation Framework (OVF)	Online Validation Services (OVS)	Vertex VIES Webservice
Repeat Validation	Customize the number of days per company code to retain the validated results for reuse.	The validation is global, and it is not possible to set different numbers of days per company code. Only one customization can be done per check.	No such functionality exists.
Activation of the VIES interface	All customizations, including activation, are part of a single customization transaction code: OVF_CHECKS.	Activation and connection to external services are separated from the main customization. The activation will be done using transaction code OVS_CHECKACTIV.	No separate activation step is required. Once the web service is configured, it is ready for use.
Sender VAT Registration number	VIES provides a consultation number for each check when the sender provides its VAT registration. The VAT number is extracted from the company code.	This process has been simplified, and the requestor's VAT number can be maintained in the customization.	No such functionality exists.
API Connection type	SOAP Remote Function Call (RFC) based connection.	SOAP Remote Function Call (RFC) based connection.	Webservice API-based connection. It is fast and can validate multiple VAT numbers in batches.
Report on past validation	History of past validations is stored in SAP and can be retrieved using SAP reports via transaction code OVF_HISTORY.	History of past validations is stored in SAP and can be retrieved using SAP reports via transaction code OVS_HISTORY.	No such functionality exists.
Licensing requirement	It is included as part of the standard SAP deliverable, and no separate license is required.	It is included as part of the standard SAP deliverable, and no separate license is required.	This is part of the Vertex Accelerator, so a Vertex Accelerator license is required to implement this service.

The Past and the Future in the Digital Age

The European Union has implemented several measures in recent years, and these efforts are starting to show positive results. According to the 2024 VAT Compliance Gap report (Fig. 29), the gap has decreased from 11% in 2018 to 6.6% in 2021, though it slightly rose to 7% in 2022 [6].

Fig. 29. 2024 VAT compliance gap report.

The new initiative, VAT in the Digital Age (ViDA), aims to modernize and improve the EU's VAT system. The three key initiatives in this program are designed to make VAT fit for the digital age: [20]

• Real-Time Digital Reporting for Cross-Border Transactions through E-Invoicing: Every EU country will implement e-invoicing in the coming years, aiming to save €11 billion annually in VAT fraud prevention. Businesses will also save €4.1 billion per year in tax compliance costs.

• New Rules for Facility Suppliers (e.g., passenger transport and short-term accommodation): This will simplify VAT collection and payment for SMEs and individual service providers.

• A Single EU-Wide VAT Registration Number: This initiative will reduce VAT compliance costs for companies operating across multiple EU countries, saving businesses €8.7 billion annually in registration and administration costs.

Conclusion

The introduction of VAT registration number validation as a requirement for intra-EU transactions is a significant step toward combating VAT fraud in Europe, particularly carousel fraud, which has caused substantial losses within the EU's VAT system. The availability of systems like the VAT Information Exchange System (VIES) and the solutions provided by SAP and Vertex to validate VAT numbers ensures businesses can comply with these regulations. Both SAP’s Online Validation Framework (OVF) and Online Validation Service (OVS) provide robust methods for integrating VIES checks into business processes, with OVS offering a more modern and flexible approach suitable for various business applications like MDG.

The Vertex solution provides an alternative method for VAT validation, particularly useful for companies using Vertex’s broader indirect tax automation tools. The Vertex solution can validate multiple VAT registration numbers in a single call and avoid too many calls with VIES.

Initiatives like VAT validation have shown positive results by reducing the VAT compliance gap from 11% in 2018 to 6.6% in 2021. The upcoming EU initiative of VAT in the Digital Age (ViDA), is expected to further modernize the system. The introduction of real-time digital reporting, the e-invoicing system, and a single EU-wide VAT registration number will streamline VAT compliance and significantly reduce the administrative burden and fraud risks.