European-Union - VAT and e-Invoicing: understanding VATEX codes in Peppol

What is a VATEX code?

VATEX stands for VAT Exemption Reason Code, meaning a code identifying the reason for a VAT exemption. However, it would be more accurate to describe it as the reason why no VAT is charged on an invoice.

It is a standardised coding system used in electronic invoices to identify why a transaction is not subject to VAT under the standard VAT rules.

The principle is simple: rather than transmitting only a free-text statement, such as:

• "Intra-Community supply exempt from VAT"
• "VAT-exempt export"

the electronic invoice can transmit a standardised code that can be understood by the invoicing software, platforms and accounting systems of both the buyer and the seller.

Within the Peppol ecosystem, these codes therefore make it possible to identify, in a structured format, the reason why an invoice has been issued without VAT.

Why are VATEX codes important in Peppol?

With paper or PDF invoices, although VAT regulations require certain mandatory information to be included, a degree of technical flexibility was allowed regarding the information entered and the wording used for the statements appearing on the invoice.

Let us take the example of an intra-Community supply departing from France. Different wordings could be used:

• "VAT exemption – Article 138(1) of the VAT Directive / Article 262 ter I of the French General Tax Code (CGI)"
• "Exempt intra-Community supplies – Article 138(1) of Directive 2006/112/EC"
• "Intra-Community supplies exempt from VAT"
• "Exemption on intra-Community sales"

This variety of wording could lead to a lack of standardisation, as well as an increased risk of errors in the information provided and in the interpretation of the invoice, particularly by the buyer.

For a human reader, however, these different formulations may be sufficiently clear to understand that the transaction is an intra-Community supply exempt from VAT.

With a structured electronic invoice, the approach is different. The invoice must be capable of being interpreted automatically by software, and tax data must be transmitted in standardised fields using standardised values.

Simply including a free-text statement is therefore no longer sufficient to guarantee consistent and automated interpretation.

For an intra-Community supply, the reason for the VAT exemption must be correctly coded in the electronic invoice. In Peppol, this notably involves using the corresponding VATEX code: VATEX-EU-IC.

The code makes it possible to identify the reason for the VAT exemption unambiguously, regardless of the wording used by the issuer.

This is precisely the purpose of VATEX codes: to transform a VAT exemption reason expressed in human language into structured, standardised data that can be directly processed by computer systems.

The complexity and variety of VATEX codes

European VAT regulations are complex. There are many reasons that may justify a VAT exemption, the application of the reverse charge mechanism or the use of specific tax rules.

This diversity results in a large number of VATEX codes: there are currently approximately 70.

These include codes corresponding to:

• Exempt intra-Community supplies;
• VAT-exempt exports;
• The reverse charge mechanism;
• Certain exempt supplies of goods or services to commercial vessels or aircraft;
• The special VAT schemes for works of art and second-hand goods, among others;
• The special VAT scheme for travel agents.

This variety explains why selecting a code cannot simply involve looking for a description that appears to match the invoice. The VATEX code must be consistent with the VAT treatment that actually applies to the transaction.

Explore the list of VATEX codes, published and regularly updated on the European Commission's website by CEF Digital (Connecting Europe Facility – Digital).

What happens if the VATEX code is incorrect?

In a structured electronic exchange, an incorrect VATEX code does not simply result in an incorrect statement on the invoice.

It may lead to inconsistencies during invoice validation checks and, depending on the applicable rules, result in payment delays or even invoice rejection.

This is why several pieces of information must remain consistent with one another:

• The nature of the transaction;
• The VAT category;
• The VAT rate;
• The reason for the VAT exemption;
• The VATEX code;
• Any mandatory textual statements, where applicable.

The VATEX code is therefore not an isolated piece of information: it forms part of the overall tax data contained in the electronic invoice.

How to choose the correct VATEX code?

A simple approach is to follow four steps.

1. Identify the VAT treatment

First, determine how the transaction should be treated for VAT purposes:

• Is it within the scope of VAT?
• Is it subject to VAT? If so, at what rate?
• Is it VAT-exempt?
• Is it subject to the reverse charge mechanism?

2. Identify the legal basis

Next, determine why the transaction falls under this particular VAT treatment.

In other words: what is the legal basis justifying the VAT exemption, the reverse charge mechanism or the specific tax treatment applied to the invoice?

3. Find the corresponding VATEX code

Once the VAT treatment has been determined and the legal basis established, identify the corresponding VATEX code in the applicable code list.

4. Check the consistency of the invoice

Finally, verify that the selected code is consistent with:

• The VAT rate;
• The VAT category;
• The reason for the VAT exemption or reverse charge;
• The type of transaction;
• The other tax-related information included in the electronic invoice.

In practice, selecting the correct VATEX code is therefore the result of prior VAT analysis: it should not be chosen independently of the tax treatment applicable to the transaction.

Some examples of VATEX codes depending on the nature of the transaction :