The costs and penalties of non‑compliance in Europe’s digital tax era

This, in itself, is not new. What has changed is where and when those consequences surface. Across Europe and globally, governments are moving directly into the transaction flow between businesses. Through continuous transaction controls (CTCs), real‑time e‑invoicing, and digital VAT reporting, tax authorities now have near‑instant visibility into commercial activity. Compliance has become embedded in day‑to‑day operations rather than assessed retrospectively. 

In markets such as Malaysia and Israel, non‑compliance with continuous transaction controls can even expose company management to the risk of criminal proceedings. This global trend underscores a broader shift: real‑time tax systems are becoming not just administrative frameworks but mechanisms with direct consequences for business continuity and governance. 

As Thomas Anderson, Director of Product Management at Thomson Reuters, puts it: 

This shift changes the consequences of non‑compliance fundamentally. What was once a regulatory risk is now an operational one. 

The logic behind digital real-time controls is straightforward. Governments want earlier insight into transactions to reduce fraud, close VAT gaps, and increase certainty. That has led to strict requirements around invoice formats, data structures, transmission channels, and — in many jurisdictions — government validation. 

In many real-time and clearance regimes, an invoice only exists if it meets prescribed requirements and is successfully processed by the relevant platform. Traditional formats, such as emailed PDFs, may no longer qualify as valid tax invoices for in‑scope transactions. 

For businesses, this means compliance can no longer be deferred or corrected without later consequence. Errors surface immediately and their impact is felt across finance, tax, and operations. 

Non‑compliance now triggers effects that go well beyond penalties. Inability to transact digitally via e-invoicing or report the data to tax administration in real-time, might mean that the business might have to stop operating in that jurisdiction, since it would not be able to issue invoices in a compliant manner. Real-time controls might mean that invoice might not reach the buyer, if it hasn’t passed mandatory validations. When that happens, payment stalls. VAT deductibility may be denied. Prefilled returns might be erroneous, triggering unnecessary audits. Refunds can be delayed or, in unresolved cases, blocked altogether. 

These outcomes translate directly into revenue loss, cash‑flow pressure and P&L impact. As Nazar Paradivskyy, Director of Regulatory Affairs, explains: 

“Non‑compliance with real-time controls – as opposed to traditional periodic manual filings – can create immediate P&L impacts. For example, one might have to shut down operations in a country or indirect tax can become non‑deductible. If invoice errors happen repeatedly, your Days Sales Outstanding can start to increase, while manual invoice handling will increase your operational costs. 

If everything is done correctly and in real time, you can get paid faster by your buyers. In some cases, you can even pledge invoices or claims to the bank or other digital platform if your documentation is digitally structured and compliant, which has a direct financial benefit.” 

Compliance, in other words, has become inseparable from everyday operations (of non-tax functions), profitability and liquidity. In a digital VAT environment, valid invoices move money. Invalid ones do not. 

While EU’s VAT in the Digital Age initiative (ViDA) does not impose a single penalty regime, it reinforces a clear trajectory: greater reliance on digital data, earlier intervention, and stronger enforcement using existing national laws. As reporting becomes more harmonized (while not entirely standardized) and more frequent, discrepancies become easier to identify and harder to ignore. Here are some examples of how non-compliance will be enforced in local jurisdictions.  

France is expanding its public platform (PPF, Chorus Pro next‑gen) and a network of accredited private platforms (PAs) to support phased B2B e‑invoicing from September 2026 (large and mid‑size) with SMEs in September 2027. Accepted formats include Factur‑X, UBL, and CII; emailed PDFs won’t count for in‑scope transactions.

Penalties are proportionate but real. Failure to issue an electronic invoice when required can trigger a €50 per invoice fine up to an annual cap, with a compliance‑first approach during ramp‑up.  

What non‑compliance feels like: rejected invoices, delayed VAT refunds, and reconciliation friction as platforms align master data and lifecycle statuses.  

Italy's Sistema di Interscambio (SdI) has validated and routed B2G, B2B, and B2C e‑invoices nationwide since 2019. Non‑compliant files don’t pass validation and therefore aren’t delivered to customers, interrupting the commercial flow and jeopardizing VAT deductibility.  

What non‑compliance feels like: immediate operational disruption — no cleared invoice, no payment pipeline. 

Spain’s near‑real‑time SII regime remains for larger taxpayers, while the VERI*FACTU secure‑record standard for billing software — QR legend, tamper‑evident chains, optional real‑time submission — has been postponed to 2027 (companies from Jan 1, self‑employed from Jul 1).  

What non‑compliance feels like: software‑based penalties and auditability gaps rather than invoice “clearance” failures, with a heavier emphasis on traceable records and anti‑fraud controls. 

Belgium made domestic B2B e‑invoicing mandatory from Jan 1, 2026, using EN 16931/Peppol. The tax authority granted a three‑month tolerance period (as of Q1 2026) for good‑faith adopters facing technical hurdles; the mandate date itself did not move.  

What non‑compliance feels like: after Q1, penalties resume and businesses that haven’t completed Peppol onboarding face issuance and reception failures that ripple into AP/AR operations.  

Financial penalties are only one dimension of risk. Persistent non‑compliance can attract increased audit attention, disrupt business relationships, and undermine trust with customers and partners. 

Phil Bailey, Director of Sales Strategy and Execution, highlights the broader implications: 

“The risks of non‑compliance go far beyond just financial penalties. Those can be significant and painful, but the reputational damage can last for years and can impact customer trust, investor confidence, and even the ability to operate in certain markets. In some cases, non‑compliance can trigger investigations, which themselves are costly and disruptive, even if no wrongdoing is ultimately found.” 

In jurisdictions where enforcement is more severe, repeated or deliberate violations can, in certain circumstances, escalate into personal liability for senior executives. While criminal sanctions are reserved for serious cases, their existence reinforces a broader point: digital tax compliance is now treated as a matter of governance and accountability, not just administrative hygiene. 

As Bailey notes: 

There is a clear upside to this transformation. When compliance is embedded correctly, invoices flow smoothly through validation, payments accelerate, VAT recovery becomes more predictable, and financing options expand. Structured, compliant data enables trust — between businesses, with financial institutions, and with regulators. 

In this context, compliance is no longer simply about avoiding risk, but rather a prerequisite for operating efficiently in digital markets. 

The era of digital VAT and real‑time invoicing is already here. Governments are part of the transaction lifecycle, and the consequences of non‑compliance are immediate, visible, and material. 

In real time and clearance regimes, an invoice that fails to meet regulatory requirements may never legally exist. And without a valid invoice, revenue cannot flow. 

For organizations navigating this environment, the question is no longer whether compliance matters. The question is whether their systems, processes, and partners are equipped for a world where compliance underpins the ability to do business. 

This text was originally published 8 June 2023 and last updated 16 February 2026.