Upcoming VAT Mandates – a Tax Technical or Technology Issue?

Andrew Hocking
June 25, 2020

A new and growing reporting trend in Europe, despite the current pandemic, is the move towards more transaction-based reporting – also known as Continuous Transaction Controls (CTCs). In an economic climate where the protection of government revenue bases is more important than ever, we still see the continuing trend of mandates providing governments with more visibility over data, and more control of the right to deductions at the first instance. While taxpayers would generally welcome greater transparency, this can also place greater strain on both IT and tax technical resources. So, the question is, how can tax functions stay in front of these new mandates in a cost and risk effective way?

Greek myDATA framework – the move towards CTCs

With a recent bill being signed, Greece is one of the latest European countries to begin its CTC journey. With the bill signed which will regulate the myDATA framework (and to an extent the e-invoicing system), there will soon be incentives for companies to start complying with an e-invoicing framework. The start of this journey ultimately has implications for VAT reporting in Greece for several reasons. Firstly, e-invoicing allows interrogation of transactional data in Greece at a much deeper level, increasing the likelihood of data based audits in the future, where taxpayers will potentially be provided with data listings to validate at short notice. Secondly, e-invoicing in other global jurisdictions has also been closely followed by real-time (or near real-time) reporting of data to revenue authorities. This means that many taxpayers with operations in Greece should start considering their data quality and the technology platforms currently used for compliance with a view to the future.

Italian VAT – pre-population the next step?

While this mandate has been previously announced for Italian resident entities (and now delayed to January 2021), this can be certainly considered the next step in respect of transaction-based VAT reporting in Europe. Here, as in key Latin American jurisdictions, the Italian authorities intend to collect information from electronic invoices via their SDI platform together with details of cross-border transactions to pre-populate a return to be later submitted by the taxpayer. While it will be possible to amend these pre-populated returns, it’s not clear to what extent these will be able to be changed. For instance, reasons may have to be given to exclude any transactions that are included in the initial pre-population, and this could potentially flag certain returns as requiring further investigation by the authorities. While this only initially applies to resident businesses from January 2021, a successful trial could likely see this extended to non-resident registrations soon after.

This again highlights the need for accurate data in the first instance.  It not only requires constant vigilance to stay on top of master data changes, but also an understanding of what fields and areas within the ERP need to be monitored and continually enhanced to ensure a high quality of data is produced initially. This can be a challenge and requires an ongoing tax and IT function partnership to be achieved.

Future proofing your tax function

Given the nature of these changes, compliance is adding pressure to both tax and IT functions. It falls to IT to ensure information is correctly supplied to revenue authority portals to comply with e-invoicing mandates, and to tax functions to be able to interpret tax and data requirements, and also to understand the content of pre-populated returns against any additional transactions that may need to be reported. Both pressures highlight the need for the continuing fusion of technology with expertise around data management in modern indirect tax functions.

Given this, without scope to enhance internal tax functions to ensure this skill and technology mix can be met, a trusted partner for both tax technology and managed services is essential to stay in front of the rapidly changing landscape and to meet VAT reporting compliance requirements.

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Author

Andrew Hocking

Director of Managed Services. Andrew is the Director of Sovos’ Managed Services group in Europe. Based in London, he leads teams specialising in IPT and VAT compliance and fiscal representation in over 30 countries. Andrew holds qualifications in Finance and Business Law, and is a qualified Chartered Accountant with over 10 years experience in indirect tax and technology.
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