Trends: What’s Driving the Global VAT Landscape?

This blog was last updated on November 28, 2023

We recently launched the 13^th Edition of our annual Trends report, the industry’s most comprehensive study of global VAT mandates and compliance controls. Trends provides a comprehensive look at the world’s regulatory landscape highlighting how governments across the world are enacting complex new policies and controls to close tax gaps and collect the revenue owed. These policies and protocols impact all companies in the countries where they trade no matter where they are headquartered.

This year’s report looks at how large-scale investments in digitization technology in recent years have enabled tax authorities in much of the world to enforce real-time data analysis and always-on enforcement. Driven by new technology and capabilities, governments are now into every aspect of business operations and are ever-present in company data.

Businesses are increasingly having to send what amounts to all their live sales and supply chain data as well as all the content from their accounting systems to tax administrations. This access to finance ledgers creates unprecedented opportunities for tax administrations to triangulate a company’s transaction source data with their accounting treatment and the actual movement of goods and money flows.

The European VAT landscape

After years of Latin America leading with innovation in these legislative areas, Europe is starting to accelerate the digitization of tax reporting. Our Trends report highlights the key developments and regulations that will continue to make an impact in 2022, including:

• VAT reporting processes become digital and more frequent – Existing VAT reporting is becoming more granular and more frequent in many EU Member States, with the majority quickly evolving towards real-time controls with or without electronic invoice mandates.
  • Italy has mandatory e-invoicing via a data exchange platform previously introduced for public procurement messaging.
  • Since 2017 in Spain, all companies must report inbound and outbound invoices within four days.
  • In Hungary, suppliers have had to report their sales invoices in real-time since 2018.

• Public procurement standards will play a major role in the design of various continuous transaction control (CTC) models – Frameworks such as PEPPOL are increasingly adopted by public administrations as large buyers of goods and services – the standards and platforms used for these transactions will increasingly be repurposed for electronic invoicing as a key enabler of VAT digitization.
• “Own the Transaction” CTC model becomes more popular – More tax administrations aim not only to receive reporting data from business transactions but use legislation to become the invoice exchange platform themselves.
  This trend is gaining traction after Turkey and Italy introduced it as core concepts in their CTC legislation, while countries like France and Poland are introducing similar models.

• SAF-T is here to stay – The OECD’s Standard Audit File for Tax (SAF-T) will remain an inspiration for European tax administrations not only to enforce VAT via real-time or near-real-time controls, but to obtain copies of taxpayers’ entire accounting books on their own systems for broader tax controls and audit support as well.

• EU E-commerce VAT package and digital services – Changes introduced in July 2021 to the One Stop Shop (OSS) and the launch of an Import One Stop Shop (IOSS) concept have drastically changed requirements for all e-commerce vendors and marketplaces selling low-value goods or digital services to European consumers.

According to Christiaan van der Valk, lead author of Trends, governments already have all the evidence and capabilities they need to drive aggressive programs toward real-time oversight and enforcement. These programs exist in most of South and Central America and are rapidly spreading across countries in Europe such as France, Germany and Belgium as well as Asia and parts of Africa. Governments are moving quickly to enforce these standards and failure to comply can lead to business disruptions and even stoppages.

This new level of imposed transparency is forcing businesses to adapt how they track and implement e-invoicing and data mandate changes all over the world. To remain compliant, companies need a continuous and systematic approach to requirement monitoring.

Trends is the most comprehensive report of its kind. It provides an objective view of the VAT landscape with unbiased analysis from our team of tax and regulatory experts.  The pace of change for tax and regulation continues to accelerate and this report will help you prepare.