VAT Compliance and Reporting Watch: Six Countries Facing Dramatic Changes

Tax authorities in countries around the world are changing VAT compliance and reporting rules in an effort to minimize tax gaps, improve efficiency and accuracy, simplify auditing and ultimately achieve real-time visibility into companies’ operations. While every country is at a different stage in rolling out these initiatives and they all take slight different approaches, the trend is clear: countries are leveraging technology to support eFiling, eAccounting and eLedger capabilities, with many moving toward real-time reporting with eInvoicing and eReceipts.

Here’s a look at six countries in Europe and Latin America that are facing the most significant changes in the year to come:

Hungary

Hungary is already a pioneer in fiscal cash registers to track retail B2C sales. Starting in July 2018, all VAT-registered businesses must submit domestic B2B sales invoices with VAT amounts exceeding 100,000HUF (~320€) in XML format to Hungary’s Tax and Customs Administration (NAV) within 24 hours of issuance. Failure to report invoices in real-time could result in penalties of up to 500,000HUF (~1,600€) per invoice.

Italy

In October, Italy’s Council of Ministers approved the 2018 Budget Bill, which includes two new eInvoicing requirements for businesses:

• › July 1, 2018 – B2B eInvoicing becomes mandatory for companies engaged in petrol sales and for sub-contractors to suppliers in public procurement.
• › January 1, 2019 – B2B eInvoicing becomes mandatory for all companies.

These new requirements are part of the Italian government’s move to a clearance model that will help decrease its VAT Gap and improve efficiency. Clearance models require all transactions between private businesses to go through the government so that the government can, in real-time, effectively audit, monitor and authorize dealings between trading partners.

United Kingdom

Through November 2017, Her Royal Majesty’s Revenue and Customs (HMRC) accepted comments regarding current legislation for the “Making Tax Digital” (MTD) initiative, which is slated to take effect starting in April 2019.

“MTD” aims to make access to information in near real-time and bring all tax information into a single interface. It is expected that within the next two years, taxpayers will be able to see all of their finances in one digital account. The initiative also would introduce a new online billing system, automatic tax code adjustments and other digital tax services.

Spain

Several modifications to Spain’s Immediate Information Sharing system (SII) real-time reporting mandate are expected to go into effect in 2018 and beyond.

• › January 1, 2018 – SII expands to Basque Country and Navarra.
• › January 30, 2018 – Submission of annual information related to: i) Cash transactions above 6,000 EUR with the same person, ii) Insurance transactions (Insurance companies only), iii) Purchases corresponding to provisions of air transportation of passengers and their luggage (Travel agents only), and iv) “Capital Assets.”
• › July 1, 2018 – The AEAT, Spain’s tax authority, proposed several amendments to SII to correct challenges with the existing system and address recommendations from the first quarter of the mandate’s implementation. Once approved these changes will go into effect on July 1.

• › 2019 – If the results of Spain SII meet specific goals, the AEAT plans to accelerate the time it currently takes to obtain VAT refunds. At the same time, Spain is likely to roll out SII to remaining businesses not currently required to participate in the program. Spain is also considering using SII data to produce proposed VAT returns for taxpayers to review and submit, rather than waiting for taxpayers to produce their own (eAssessments).

Colombia

In late November 2017, Colombia began mandating eInvoicing compliance for select companies. More than 3,600 taxpayers must conform to the regulation beginning in the first quarter of 2018. Colombia’s tax and customs administration (DIAN) published a draft resolution, expected to be signed by January 2018, that specifies which companies will be subject to this mandate. In addition, the DIAN is moving quickly to finalize its eInvoicing program after identifying several required enhancements following its pilot program. Starting January 1, 2019, each taxpayer-issued invoice must have a pre-authorization by the tax administration. Taxpayers that do not comply with the electronic invoicing mandate will not be able to operate in Colombia and will be subject to fines per each improperly issued invoice.

Mexico

Mexico transitioned to CFDI 3.3 during 2017, marking the biggest change to the country’s eInvoicing program in more than five years. The most complex change involved a new product and services classification schema. Under this updated mandate, companies are now required to standardize their product/service structure in accordance with 52,000 new government code options, which requires businesses to reclassify all of their product codes within their ERP master data files. This standardized catalog gives Mexico’s tax authority greater visibility into individual business operations and the economy as a whole. With this insight, Mexico will be able to better understand what, specifically, is being produced and consumed within its borders. In addition, Mexico is continuing to accelerate its transition to electronic audits as it moves toward its goal of conducting all audits in this manner.

In addition, companies in Mexico must begin generating pagos reports starting April 1, 2018. These payment receipts require companies to link payments to their corresponding invoice so the government can better track VAT liabilities and transactions. This introduces new business processes to track payments and payment methods and requires new procedures for cancelling invoices and issuing credit/debit notes.