In our previous blog, we looked at how businesses can determine their obligations when they’re registered for VAT in other countries. We will now focus on what is required to meet those obligations.
Submitting VAT returns
The VAT return is the most obvious declaration that has to be submitted although as we highlighted in our last time, this is starting to change. However, in most countries, there is currently a requirement to submit VAT returns, with the format and frequency varying considerably around the EU.
The European Commission looked to introduce a Standard VAT Return for all taxpayers in 2013 which would have created a consistent VAT return format across the EU. At the time it was estimated by the Commission that the proposal would save businesses up to €15 billion per annum in submitting 150 million VAT returns around the EU.
However, the proposal was eventually withdrawn as it wasn’t possible to obtain agreement between Member States on how the return should be structured. The data required by Member States varies considerably and Member States use the return differently to collect a wide range of information. At the time, the VAT return in the UK consisted of nine boxes whereas other VAT returns had more than 100 fields.
The introduction of the EU e-commerce VAT package has increased the ability to have a single VAT registration and therefore a single VAT return covering multiple Member States, but businesses not using the various One Stop Shop schemes need to navigate a wide range of formats.
The key is ensuring specific requirements in each country are fully understood so that the return can be completed correctly. The VAT codes in the business’ accounting systems need to be mapped correctly to the various boxes in the return so that all supplies are correctly reported. This will reduce the exposure to audits which could lead to penalties and interest if the VAT return has been completed incorrectly.
It’s also essential to keep track of changes that occur over time – tax authorities regularly change how returns should be completed and failure to keep abreast of these changes can lead to problems.
In addition to the VAT return, businesses may have to submit additional declarations depending on their activity and the requirements in the Member State of registration.
EC Sales Lists, also known as the Recapitulative Statement, must be submitted if there is intra-EU trade in goods and services. Their purpose is to provide information on cross-border trade where the recipient of the supply has to account for the VAT due.
Some Member States also require purchasers of intra-EU goods and services to submit EC Purchases Listings. The listings provide a control mechanism for the Member State where the VAT is due, providing them with details of how much VAT should be accounted for by the purchaser of the goods and services. We regularly see tax authorities using the data when carrying out audits. It’s therefore important they are given proper consideration to ensure they are correct as errors can lead to issues for customers which could impact the commercial relationship.
Intrastat returns are required where the intra-EU supplies of goods exceed the relevant threshold in the Member State of dispatch or arrival of the goods. Changes to the Intrastat system will take place on 1 January 2022 with additional information being required, so businesses will need to ensure that they plan for the change to allow compliance. There is also currently uncertainty about how Intrastat interacts with the introduction of the Union One Stop Shop on 1 July 2021 with varying treatments being applied around the EU.
There are many other declarations across the EU, many of which provide the tax authorities with more detailed information about the transactions that make up the figures on the VAT return. The Standard Audit File for Tax (SAF-T) is common but the specific requirements can vary between Member States so advice on how to meet the varying obligations is key.
Continuous transaction controls (CTCs)
Where a Member State has a CTC regime in place, it will be necessary to carefully plan how the obligations imposed on the business can be met. This will take considerable planning and integration with existing systems. Whilst CTCs may initially appear to be a burden to the business, if they are approached in the appropriate way, they should be seen as an opportunity for the business to enhance its internal processes and ensure that data submitted to the tax authority is accurate and complete.
The key is having an approach which looks at existing CTCs and also those to be introduced in the future rather than treating each mandate separately. This will allow the business to gain the benefits of CTCs by having a strategy that enables all mandates to be met with minimum disruption to the business.
Within the EU, this is essential as the CTCs currently in place have different formats as do those that are planned for the coming years. The European Commission is reviewing the position of CTCs across Member States but harmonisation is some way off.
The filing of VAT returns and other declarations provides the tax authorities with a significant amount of information especially in those countries where there are additional requirements such as SAF-T or CTCs. Tax authorities carry out audits from time to time to ensure declarations that have been made are correct; we will be looking at the implications of audits and what can be done to prepare in our next blog.
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