Eastern European countries are taking new steps concerning the implementation of continuous transaction controls (CTC) systems to reduce the VAT gap and combat tax fraud. This blog provides you with information on the latest developments in several Eastern European countries that may further shape the establishment of CTC systems in other European countries and beyond.

Poland

Previously announced on 1 January 2022, taxpayers have been able to issue structured invoices (e-invoices) using Poland’s National e-Invoicing System (KSeF) voluntarily, meaning electronic and paper forms are still acceptable in parallel. On 30 March 2022, the European Commission announced the derogatory decision from Article 218 and Article 232 of Directive 2006/112/EC. The decision will apply from 1 April 2023 until 31 March 2026, after receiving the last approval from the EU Council. Moreover, on 7 April 2022, the Ministry of Finance published the test version of the KSeF taxpayer application that enabled the management of authorisations issuing and receiving invoices from KSeF. The mandatory phase of the mandate is expected to begin the second quarter of 2023, 1 April 2023.

Romania

The Romanian CTC system is one of the fastest developing in Eastern Europe, with the E-Factura system being available for B2G transactions since November 2021. Based on the Government Emergency Ordinance no. 41, published in the official gazette on 11 April 2022, the use of the system will become mandatory for transporting high fiscal risk goods domestically as of July 2022.

Moreover, Draft Law on the approval of the Government Emergency Ordinance no. 120/2021 on the administration, operation, and implementation of the national e-invoicing system (Draft Law) on 20 April 2022 was published by The Romanian Chamber of Deputies. According to the Draft Law, the National Agency for Fiscal Administration (ANAF) will issue an order in 30 days following the derogation decision from EU VAT Directive and establish the scope and the timeline of the B2B e-invoicing mandate. As derived from the proposed amendments, B2G e-invoicing will become mandatory as of 1 July 2022, and mandatory e-invoicing for all B2B transactions is in the pipeline.

Serbia

Serbia has introduced a CTC platform called Sistem E-Faktura (SEF) and an additional system to help taxpayers with the processing and storage of invoices called the Sistem za Upravljanje Fakturama (SUF).

To start using the CTC system Sistem E-Faktura (SEF) provided by the Serbian Ministry of Finance, a taxpayer must register through the dedicated portal: eID.gov.rs. SEF is a clearance portal for sending, receiving, capturing, processing and storing structured electronic invoices. The recipient must accept or reject an invoice within fifteen days from the day of receipt of the electronic invoice.

The CTC system became mandatory on 1 May 2022 for the B2G sector, where all suppliers in the public sector must send invoices electronically. The Serbian government must be able to receive and store them from 1 July 2022. Additionally, all taxpayers will be obliged to receive and store e-invoices, and from ​1 January 2023, all taxpayers must issue B2B e-invoices​.

Slovakia

The Slovakian government announced its CTC system called Electronic Invoice Information System (IS EFA, Informačný systém elektronickej fakturácie) in 2021 through draft legislation.

The CTC e-invoicing covers B2G, B2B and B2C transactions and will be conducted via the electronic invoicing information system (IS EFA).

The official legislation regulating the e-invoicing system has not been published yet although it is expected to be published soon. However, the Ministry of Finance has recently posted new dates concerning the implementation of the electronic solution:

The second phase will follow for B2B and B2C transactions.

Slovenia

Slovenia has not progressed in introducing its CTC system. Due to the national elections in April 2022, the CTC reform was not expected to gain much traction until at least the summer of 2022. Nevertheless, there are still ongoing discussions around the CTC reform, which intensified soon after the Slovenian parliamentary elections.

The fast pace of the developments happening within Eastern European countries brings challenges. The lack of clarity and last-minute changes makes it even harder for taxpayers to stay compliant in these jurisdictions.

Take Action

Staying compliant with CTC changes throughout Eastern Europe is easier with help from Sovos’ team of VAT experts. Get in touch or download the 13th Annual Trends report to keep up with the changing regulatory landscape.

The global trend in the e-invoicing sphere for the past decade has shown that legislators and local tax authorities worldwide are rethinking the invoice creation process. By introducing technologically sophisticated continuous transaction control (CTC) platforms tax authorities get immediate and detailed control over VAT, which has proven a very efficient way to reduce the VAT gap.

However, many common law countries, that don’t have a VAT system, including the United States, Australia and New Zealand, haven’t followed the same path. They have stood out in international comparisons by providing little regulation in the field of e-invoicing. The reason why there is no need to have control over the invoices is the lack of a VAT tax regime. Recent developments, however, indicate that also common law countries try to spur e-invoicing, driven by the business process efficiencies rather than the need for tax control. Accordingly, the upcoming developments will be addressed in this blog, focusing on the Unites States e-invoicing pilot program and the Australian and New Zealand initiatives to promote e-invoicing.

United States

E-invoicing has been permitted for a very long time in the United States but is still not widespread business practice. According to some sources, e-invoicing currently only amounts to 25% of all invoices exchanged in the country. With the introduction of the Business Payments Coalition (BPC) e-invoicing pilot program in cooperation with the Federal Reserve, this may be about to change.

The BPC’s e-Invoice Exchange Market Pilot aims to promote faster B2B communication and provide an opportunity for all kinds of businesses to exchange e-invoices in the US.

The BPC e-Invoice Exchange Market Pilot

The pilot program is a standardised e-invoicing network across which structured e-invoices can be exchanged between counterparties using various interoperable invoicing systems to connect and exchange documents. It’s intended to drive efficiency and productivity while reducing data errors. A federated registry services model enables authorised administrators or registrars to register and onboard participants into the e-invoice exchange framework.

The e-invoice exchange framework operates similarly to the email ecosystem. Users can sign up with an email provider to send and receive emails. The provider serves as an access point to email exchanges for their users and delivers emails between them over the internet. It allows multiple registrars to register participants within the e-invoice exchange framework. This is reminiscent of the globally established PEPPOL model, which standardizes the structure of an invoice as well as provides a framework for interoperability.

Future vision

The US is following the European e-invoicing model based on open interoperability functionality. It enables parties using various invoicing systems to connect and exchange documents through the e-invoicing network easily. The digitization process in the e-invoicing sphere will enable large and small organisations in the US to save resources, promote sustainability and provide business efficiency.

Australia and New Zealand

Similarly, to the US, the move towards e-invoicing in Australia and New Zealand is not primarily driven by tax issues but process efficiency. Neither country has any plans concerning a traditional B2B e-invoicing mandate. However, the New Zealand and Australian governments have committed to a joint approach to e-invoicing, and the first steps are ensuring that all government entities can receive e-invoices.

Australia

In Australia, all commonwealth government agencies must be able to receive PEPPOL e-invoices from 1 July 2022. Moreover, the government also seeks to boost e-invoicing in the B2B space without the traditional mandate for businesses to invoice electronically. Instead, the proposal is to implement what is referred to as Business e-Invoicing Right (BER).

Under the government’s proposal, businesses would have the right to request that their trading parties send an e-invoice over the PEPPOL network instead of traditional paper invoices. Businesses need to set up their systems to be able to receive PEPPOL e-invoices. Once a business has this capability, it would be able to exercise its ‘right’ and request other companies to send them PEPPOL e-invoices.

This reform is expected to be introduced in July 2023, by which businesses will be able to request to receive PEPPOL e-invoices only from large businesses, followed by a staged roll-out to eventually cover all businesses by 1 July 2025.

New Zealand

Following the Australian e-invoicing reform from July 2022 for the B2G sector, the New Zealand Government is encouraging businesses and government agencies to adopt e-invoicing. One step in this direction is the possibility for all central government agencies to be able to receive e-invoices based on PEPPOL BIS Billing 3.0 since 31 March 2022.

Outside of these B2G requirements, there are currently no published plans to move the full economy to mandatory e-invoicing.

To find out more about what we believe the future holds, download Trends 13th Edition.

Take Action

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The Italian government has taken important steps to broaden the scope of its e-invoicing mandate, more specifically by widening the scope of taxpayers subject to electronic invoice issuance and clearance obligations, starting 1 July 2022.

On 13 April 2022, the draft Law-Decree, known as the second part of the National Recovery and Resilience Plan (Decreto Legge PNRR 2 – Piano Nazionale di Ripresa e Resilienza), was approved by the Italian Council of Ministers (Consiglio dei ministri).

The Italian government-approved National Recovery Plan is part of the European Union’s Recovery and Resilience Facility (RRF), an instrument created to assist Member States financially in recovering from the economic and social challenges raised by the Covid-19 pandemic.

The expansion of Italy’s e-invoicing mandate is one element of the government’s anti-tax evasion package and addresses, in particular, the advancement of digital transformation, one of the six pillars of the RRF.

New taxpayers in scope

The draft Law-Decree PNRR 2 expands the obligation to issue and clear electronic invoices through the Italian clearance platform Sistema di Intercambio (SDI) to certain VAT taxpayers exempt from the mandate thus far. This means that from 1 July 2022, the following additional taxpayers are obliged to comply with the Italian e-invoicing mandate:

The regime forfettario is available to taxpayers who fulfil specific requirements, allowing them to adopt a reduced flat-rate VAT regime of 15%, decreased to 5% for new businesses during the first five years. These taxpayers have, up until now, been exempt from the obligation to issue e-invoices and clear them through the SDI, according to Legislative Decree 127 of 5 August 2015.

Additionally, amateur sports associations and third sector entities with revenue up to EUR 65,000 who have also been exempt from the e-invoicing mandate, are included as new subjects. Starting 1 July 2022, e-invoicing will also become mandatory for them.

The mandate still excludes microenterprises with revenues or fees up to EUR 25,000 per year, which instead will be required to issue and clear e-invoices with the SDI starting in 2024.

Short grace period introduced

The draft decree also established a short transitional grace period from 1 July 2022 until 30 September 2022. During this time taxpayers subject to the new mandate are allowed to issue e-invoices within the following month when the transaction was carried out, without being subject to any penalties. This gives the new subjects time to conform to the general rule stating electronic invoices must be issued within 12 days from the transaction date.

What’s next?

The definitive text of the decree has not yet been published in the Italian Official Gazette; only once this final step is taken will the decree formally become law, and the extended scope become binding. The start of the second semester of this year brings additional significant changes in Italy concerning the mandatory reporting of cross-border invoices through FatturaPA, also set to begin on 1 July 2022.

Take Action

Need help ensuring your business stays compliant with evolving e-invoicing obligations in Italy? Contact our team of experts to learn how Sovos’ solutions for changing e-invoicing obligations can help you stay compliant.

The Philippines continues in constant advance towards implementing its continuous transaction controls (CTC) system, which consists of near real-time reporting of electronically issued invoices and receipts. On 4 April, testing began in the Electronic Invoicing System (EIS), the government’s platform, with six companies selected as pilots for this project.

The initial move toward a CTC system in the Philippines started in 2018 with the introduction of the Tax Reform for Acceleration and Inclusion Act, known as TRAIN law, which has the primary objective of simplifying the country’s tax system by making it more progressive, fair, and efficient. The project for implementing a mandatory nationwide electronic invoicing and reporting system has been developed in close collaboration with the South Korean government, considered a successful model with its comprehensive and seasoned CTC system.

Electronic invoicing and reporting are among many components set forth by the TRAIN law as part of the country’s DX Vision 2030 Digital Transformation Program. With this, the Philippines is making headway toward modernising its tax system.

Introduction of mandatory e-reporting in the Philippines

The Philippines CTC system requires the issuance of invoices (B2B) and receipts (B2C) in electronic form and their near real-time reporting to the Bureau of Internal Revenue (BIR), the national tax authority. The EIS offers different possibilities in terms of submission, meaning that transmission can be done in real-time or near real-time. Documents that must be electronically issued and reported include sales invoices, receipts, and credit/debit notes.

According to the Philippines Tax Code, the following taxpayers are covered by the upcoming mandate:

However, taxpayers not covered by the obligation may opt to enroll with the EIS for e-invoice/e-receipt reporting purposes

E-invoices must be issued in JSON (JavaScript Object Notation) format and contain an electronic signature. After issuance, taxpayers can present their invoices and receipts to their customers. The tax authority´s approval is not needed to proceed. However, electronic documents must be transmitted to the EIS platform in real-time or near real-time.

E-archiving requirements

The Philippines introduced somewhat unusual requirements in this period of digitization, when it comes to e-invoice archiving. The preservation period is ten years and consists of a system in which taxpayers are obliged to retain hard copies for the first five years. After this first period, hard copies are no longer required, and exclusive storage of electronic copies in an e-archive is permitted for the remaining five years.

What’s next for taxpayers?

With tests officially underway, the next phase should begin on 1 July 2022, with the go-live for 100 pilot taxpayers selected by the government, including the six initial ones. After that, the government plans to advance a phased roll-out in 2023 for all taxpayers under the system’s scope. Meanwhile, taxpayers can take advantage of this interim period to conform with the Philippines CTC reporting requirements.

Take Action

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Transition from voluntary to mandatory e-invoicing expected from 1 April 2023

From 1 January 2022, taxpayers have been able to issue structured invoices (e-invoices) using Poland’s National e-Invoicing System (KSeF) on a voluntary basis, meaning electronic and paper forms are still acceptable in parallel. Introduction of the KSeF system is part of the digital transformation happening in Poland following the establishment of continuous transaction control (CTC) mandates all around Europe, supporting faster and more effective identification of tax fraud.

The KSeF system enables taxpayers to issue and receive invoices electronically. It is one of the most technologically advanced tools in Europe for exchanging information on economic events. Structured invoices issued via the system are prepared in accordance with the invoice template developed by the Ministry of Finance. After issuance, the invoices are sent from the financial and accounting system via an interface (API) to the central database (KSeF). Afterwards they are available in the system and can be downloaded by the recipient.

Poland’s derogation requests

On 5 August 2021, the Republic of Poland requested authorisation to derogate from Articles 218, 226 and 232 of the VAT Directive to be able to implement an obligation to issue electronic invoices, processed through the National e-Invoicing System (KSeF), for all transactions that require the issuance of an invoice according to Polish VAT legislation.

Subsequently, on 9 February 2022, Poland modified its request, asking for the authorisation to derogate only from Articles 218 and 232 of the VAT Directive and specified that mandatory electronic invoicing would only apply to taxable persons established in the territory of Poland.

Poland considers the introduction of a generalised obligation to issue electronic invoices would bring significant benefits in terms of combating VAT fraud and evasion while simplifying tax collection. Moreover, the implementation of the measure will accelerate the digitalization of the public sector.

 The European Commission derogatory decision

As derived from Article 218 of the VAT Directive, Member States are obliged to accept all documents or messages in paper or electronic form as invoices. Poland strived to obtain a derogation from the above-mentioned Article of the VAT Directive so that only documents in electronic form could be considered as invoices by the Polish tax administration.

Additionally, based on Article 232 of the VAT Directive the use of an electronic invoice is subject to acceptance by the recipient. Therefore, the introduction of an electronic invoicing obligation in Poland requires a derogation from this Article, so that the issuer no longer has to obtain the consent of the recipient to send an invoice in a paperless format. Currently, under Article 106n of the Polish VAT law, the use of electronic invoices requires the approval of the invoice recipient, which hinders the possibility to impose mandatory electronic invoicing.

As announced by the European Commission on 30 March 2022, Poland has been granted the derogatory decision both from the Article 218 and Article 232 of Directive 2006/112/EC. The decision will apply from 1 April 2023 until 31 March 2026, after receiving the last approval from the EU Council. The mandatory phase of the mandate is expected to begin on 1 April 2023.

The KSeF taxpayer application – on the horizon

To allow taxpayers to issue and make electronic invoices available using KSeF, the Polish Ministry of Finance will offer several tools free of charge:

On 31 March 2022 the Ministry of Finance announced that the test version of the KSeF Taxpayer application will be made available on 7 April 2022. It will enable management of authorisations, issuing and receiving invoices from the KSeF.

Next steps

With the published decision of the European Commission Poland has entered into the next implementing stage of mandatory e-invoicing. The next steps will follow after receiving the approval from the EU Council (which is now a formality and should take place within a few weeks). Subsequently, the Ministry of Finance will implement universal electronic invoicing in Poland giving adequate time for the businesses to adapt to new solutions.

Need help with Poland’s evolving CTC requirements?

Development of Sovos’ CTC solution for Poland is already well-advanced and will shortly be ready for implementation. To get ahead of the inevitable rush to comply with Poland’s CTC mandate, contact us today.

Brazil is, without doubt, one of the most challenging jurisdictions in the world when it comes to tax legislation. The intricate fiscal system that encompasses rules from 27 states and over 5000 municipalities has created a burden on companies, especially for cross-state and cross-municipality transactions.

Furthermore, taxpayers must carefully examine the numerous e-invoicing formats and requirements (and, sometimes, the lack of such). Therefore, hopes for tax reform in Brazil have existed for quite some time.

Simplifying e-invoicing compliance

In recent years, several legislative initiatives towards integrating indirect taxation mandates across the country have not met successful outcomes. Meanwhile, a feasible step into bringing forth such changes may be through the unification of rules on digital compliance with tax obligations, such as VAT e-invoicing and e-reporting.

In late 2021 a draft law proposal (Projeto de Lei Complementar n. 178/2021) was initiated by the private sector. Named the National Statute for the Simplification of Ancillary Fiscal Obligations, it has been welcomed this year by the House of Representatives. Its primary purpose is to introduce a significant reform within digital tax reporting obligations by creating a unified e-invoicing system.

By establishing national fiscal cooperation, the proposal intends to reduce costs with compliance, allow information sharing among tax authorities, and create an incentive for taxpayers’ conformity across all federal, state and municipal levels.

The principal agenda of the draft law proposal is to introduce:

What this means for businesses

The most significant change is the introduction of the NFB-e (Nota Fiscal Brasil Eletronica), a national standard for e-invoicing. It entails the unification of the NF-e (Nota Fiscal Eletronica), NFS-e (Nota Fiscal de Servicos Eletronica) and NF-C (Nota Fiscal do Consumidor Eletronica) in one single document. This will cover Brazil’s VAT-like taxes, in this case, ICMS (VAT on products and certain services) and ISS (services VAT).

In practice, this means that instead of complying with numerous e-invoicing formats and mandates, according to the state and municipality of the transaction, one national digital standard will provide uniform country-wide compliance for e-invoicing. The NFB-e will cover invoicing of goods and services on state and municipal levels for B2G, B2B and B2C transactions.

The reform will drastically reduce the burden on taxpayers and expand the scope of e-invoicing to municipalities where such a mandate hasn’t been adopted yet.

It’s essential to add clearance requirements for e-invoicing in Brazil will be maintained, meaning that businesses will still need to comply with rules for real-time clearance of invoices with the tax authority.

What’s next?

The draft law proposal is still in early discussions and will follow to the Justice and Citizenship Constitutional Commission (CCJC) for approval and possible amendments before voting by Congress. Until then, compliance with e-invoicing rules across Brazil remains at its current challenging status.

Take Action

Need to ensure compliance with the latest Brazilian e-invoicing requirements? Speak to our team or download Trends Edition 13 to keep up to date with the latest regulatory news and updates.

In the European Union, the VAT rules around supplies of goods, as well as ’traditional’ two-party supplies of services, are well-defined and established. Peer-to-peer services facilitated by a platform, however, do not always fit neatly into the categories set out under the EU VAT Directive (Council Directive 2006/112/EC). There are ambiguities around both the nature of the service provided by the platform operator, and the status, for tax purposes, of the individual service provider (i.e., a driver for a ride-sharing service, or an individual offering their property for rent on an online marketplace). This creates a unique challenge for VAT policymakers.

The EU Commission has recently opened a public consultation on VAT and the platform economy to address these issues. We have previously discussed other initiatives proposed by the Commission including a single EU VAT registration and VAT reporting and e-invoicing. This blog will discuss the underlying challenges policymakers face and the specific proposals set out in the consultation, which could significantly impact digital platform operators and users.

Digital platforms and existing VAT law

A threshold question for the VAT treatment of digital platforms is whether the platform merely connects individual sellers with individual customers – i.e., acts as an intermediary – or whether it actively provides a separate service to the customer. This question is significant because services rendered to a non-taxable person by an intermediary, under Article 46 of the VAT Directive, are sourced to the location of the underlying transaction.

In contrast, services provided to a non-taxable person under a taxpayer’s name are sourced either to the supplier’s location or, in certain circumstances, to the customer’s location. Whether a particular platform is acting as an intermediary can be very fact-specific and can depend, for example, on the level of control exercised by the platform over pricing or user conduct.

To further muddy the waters, there are potential ambiguities for VAT involving:

  1. Whether platform operators act as disclosed or undisclosed agents of individual sellers, or
  2. Whether services of platform operators, to the extent they are not intermediary services, are electronically supplied, and thus sourced to the customer’s location.

A final source of ambiguity is whether an individual service provider qualifies as a taxable person when making only occasional supplies; this could raise the question of whether said supplies would attract VAT.

These ambiguities present an obvious challenge to the consistent VAT treatment of platforms across the Member States.

Proposed solutions

As part of its public consultation on “VAT in the Digital Age”, the EU Commission has proposed several solutions to the challenges listed above. Of these, three proposals directly address the ambiguous nature of services provided via platforms:

  1. An EU-wide “clarification” of the nature of the services provided by platform operators
  2. A rebuttable presumption for the status of service providers who use platforms
  3. A “deemed supplier regime” for digital platforms – similar to what exists now for platforms that facilitate supplies of goods

These proposals aim to provide clear guidelines to Member States on how platform services should be categorised, and, therefore, which VAT rules should apply under the Directive. Perhaps the most direct is the “deemed supplier” proposal, which would attach VAT liability to platform operators under defined circumstances.

A “deemed supplier regime” already exists for platforms that facilitate sales of low-value goods in the EU, so it is likely the Commission will seriously consider this option. Notably, the public consultation solicited comments on three different permutations of the deemed supplier regime, differing only in the scope of services covered.

Whichever direction the EU ultimately goes in, it is clear that a significant change is on the horizon for digital platforms. Platform operators and platform users should pay close attention to these ongoing consultations in the coming months.

Take Action

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The electronic invoicing system in Paraguay has been in development since 2017 according to the plan carried out by the Undersecretary of State for Taxation (SET) to modernise and improve tax collection and minimise the incidence of tax fraud.

The introduction of the Integrated National Electronic Invoicing System (Es. Sistema Integrado de Facturación Electrónica Nacional -SIFEN –) meant the introduction of a new e-invoicing regime in the country. The adoption of this new system is currently in its voluntary adhesion phase, which began in 2019, and has allowed entrepreneurs, merchants, and companies to issue e-invoices optionally. However, from July 2022, the use of the system will gradually become mandatory for certain taxable persons.

Electronic Tax Document types

Taxpayers in Paraguay can use the SIFEN to issue Electronic Tax Documents (Es. Documento Tributario Electrónico – DTE). The DTE is a digital version of the invoice and other traditional documents, which has tax and legal validity. The DTE has become a modern, effective, secure and transparent form to issue and manage e-invoices for distinct types of business operations.

The DTEs are validated upon issuance by the SAT to support the VAT deductions and transactions related to income tax. Among the distinct types of DTE in Paraguay, we find:

The DTE issuance process

The e-invoices issued by the taxable persons that have adhered to the SIFEN are generated in XML format. The authenticity and integrity of each document are guaranteed through the digital signature and the control code that DTEs include. Each document must be sent electronically to the tax administration for its clearance.

The SIFEN is responsible for verifying and validating each document. Once it is established that the DTE meets all the requirements, it becomes a legal e-invoice. The taxable persons issuing the e-invoice then receive the verification results through the web service system.

After the e-invoice is cleared, suppliers can send the DTE to their buyers via email, data messaging or other means.

E-invoicing mandate roll-out

The Paraguayan Undersecretary of State for Taxation recently published a General Resolution providing administrative measures for the issuance of DTEs. This resolution also established a phased schedule of implementation, in which certain taxable persons will be required to issue e-invoices and other DTEs using the SIFEN.

The implementation schedule consists of ten stages starting on 1 July 2022 with all taxpayers who joined the pilot program to adopt the SIFEN. From January 2023, the mandate will include more taxpayers. However, it is not yet defined which companies will start in that stage. The SET aims to cover all taxpayers carrying out economic activities in the country by October 2024.

What’s next

Companies in Paraguay must get ready to issue e-invoices under the requirements of the SIFEN. From 1 July 2022, all companies in the country will be able to use this system voluntarily. The list of taxpayers required to comply with the mandate will be available on the SIFEN website and on the SET website (www.set.gov.py). The SET will notify affected taxpayers via the Paraguayan Tax Mailbox known as “Marandu.”

Take Action

Get in touch with our team of experts today to ensure compliance with the latest Paraguayan e-invoicing regulations.

The European Commission’s “VAT in the Digital Age” initiative reflects on how tax authorities can use technology to fight tax fraud and, at the same time, modernise processes to the benefit of businesses.

A public consultation was launched earlier this year, in which the Commission welcomes feedback on policy options for VAT rules and processes in a digitized economic EU. In an earlier blog post, Sovos explored the aspects of a single EU VAT registration.  It’s one of the main initiatives proposed by the Commission to adapt the EU VAT framework to the digital age. Another critical issue is VAT reporting obligations and e-invoicing, discussed in this blog.

Digital Reporting Requirements

The Commission sees a need for modernising VAT reporting obligations and is considering the possibility of further extending e-invoicing. The term Digital Reporting Requirements was introduced by the Commission for any obligation to report transactional data other than the obligation to submit a VAT return, i.e. reporting transaction by transaction. This means that Digital Reporting Requirements include various types of transactional reporting requirements (e.g. VAT listing, Standard Audit File/SAF-T, real-time reporting) and mandatory e-invoicing requirements.

These measures have been implemented in various fashions in different EU Member States over the past couple of years resulting in diverse rules and requirements for VAT reporting and e-invoicing across the EU. The current Commission initiative is an opportunity for the EU to obtain harmonisation in this area. Its public consultation is asking for input as to which road to take.

The route to harmonisation

The public consultation contains several policy options to consider. One would be to leave things as they currently stand with no harmonisation and the continued need for Member States to request a derogation if they wanted to introduce mandatory e-invoicing. At the other end of the scale, a further option would be to introduce full harmonisation of transactional reporting for VAT for both intra-EU and all domestic transactions.

And sitting between these extremes, are several other routes. Instead of making a harmonised solution mandatory such a solution could be simply recommended and voluntary, coupled with the removal of the need to request a derogation ahead of introducing B2B e-invoicing mandates. Another way is to have taxpayers keep all transactional data and make it available on request by the authorities. And one final option could be to adopt partial harmonisation where the VAT reporting for all intra-EU supplies is aligned and mandatory but where domestically it remains optional.

While these policy options formally remain open to public consultation until 5 May here, they must now be viewed in the light of the European Parliament resolution of 10 March 2022 with recommendations to the Commission on fair and simple taxation supporting the recovery strategy.

In its resolution, the European Parliament calls upon the Commission to take actions regarding e-invoicing and reporting, to reduce the tax gap and compliance costs. Among the measures recommended are to set up a harmonised common standard for e-invoicing across the EU without delay and establish the role of e-invoicing in real-time reporting. Furthermore, the European Parliament proposes that the Commission explore the possibility of a gradual introduction of obligatory e-invoicing by 2023, where state-operated or certified systems should administrate the invoice issuance. In both cases focus should be on a significant reduction of costs of compliance, especially for SMEs.

It remains to be seen how the Commission will manage to align the European Parliament’s recommendations with their policy options and Member States where in several cases solutions have already been implemented.

Take Action

Need more information? Sovos’ VAT Managed Services can help ease your business’s VAT compliance burden. Contact our team to learn more.

In November 2021, a Draft Royal Decree was published by the Chancery of the Prime Minister of Belgium, aiming to expand the scope of the existing e-invoicing mandate for certain business to government (B2G) transactions by implementing mandatory e-invoicing for all transactions with public administrations in Belgium. This obligation was already in place for suppliers of the centralised public entities of certain regions (Brussels, Flanders, Wallonia). However, going forward, it will include all public entities in all Belgian regions.

A phased approach

More specifically, the roll-out for mandatory issuance of e-invoices by the suppliers of public institutions in Belgium will be carried out in the following phased approach:

As a result of the transposition of the Directive 2014/55/EU, all Belgian government bodies are already obliged to be able to receive and process e-invoices within public procurement. This new national legislation expands the Directive’s scope and mandates the issuance of e-invoices by all suppliers to the federal government.

The journey continues towards a B2B e-invoicing mandate

These B2G developments are not the end of the story. They are just the beginning. The Belgian Minister of Finance, Vincent Van Peteghem, announced in October 2021 that the government intends to extend the existing B2G e-invoicing obligation to also cover B2B transactions. Nevertheless, official sources have not yet communicated formal information specifying details of the mandate and its following implementation. Rumour has it that a legislative proposal for the B2B e-invoicing mandate was going to be published during 2022 with the implementation process happening in 2023.

However, considering the European Parliament Resolution last week which strongly favours harmonised and mandatory e-invoicing in the EU, Belgium will likely hold its horses at least until the Commission produces a proposal for how to manage e-invoicing and reporting in the Union.

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On 10 March, the European Parliament (EP) adopted a Resolution to the Commission’s Action Plan on fair and simple taxation supporting the recovery strategy, which set forth 25 initiatives predominantly related to European Union Value Added Tax (EU VAT). The document includes several general considerations and recommendations to the Commission for the VAT Directive revision proposal (“VAT in the Digital Age”) for 2022.

Changes to the EU VAT tax policy

The EP’s resolution addressed the significant challenges in the European Union (EU) VAT tax policy and placed particular attention on the simplification, modernisation and harmonisation of such rules by uniform adoption of technology tools across all Member States, including digital and e-invoicing requirements and mandates.

The updated resolution highlights a concern around the lack of sufficient support from the Council regarding the definitive VAT regime, that is, the shift from origin to destination principle, still due for implementation. In such a system, VAT will be levied at the place of destination, leaving behind the complex transitional VAT system rules.

EU VAT tax policy challenges

Concerns were also raised on the complexity of the multiple tax regulations across the EU and the constraints this entails, particularly for small and medium enterprise (SME) compliance and for those vulnerable to fraud. Added to these factors are the high costs borne by businesses to conform to the multitude of legislative requirements in the different jurisdictions. The Parliament makes an urgent call for a consistent move towards a more straightforward and modern VAT system.

Moving towards simpler VAT reporting

More specifically, the EP described the Commission’s efforts to harmonise procedural rules across the EU and encourage closer cooperation efforts among tax authorities and businesses through the EU Cooperative compliance program as of “highest importance”.

The objective of various points was to use technology as an effective means for simple and modern tax compliance. Digitization of VAT was utterly welcomed as a means for modern and simplified VAT compliance, where real-time or near real-time reporting and e-invoicing is to be utilised by Member States in a uniform and harmonised manner across EU all jurisdictions.

On the same front, recommendations were for one-time collection of data by the tax authority aligned with utmost protection and respect regarding data security legislation, and the use of artificial intelligence (AI) and various software to ensure maximum effectiveness of data usage and security. Adopting digitization requirements will enhance security, prevent and combat fraud and increase administrative cooperation among Member States.

The resolution also targeted the new Union business and taxation agenda, supporting the design of a new and single Union corporate tax rulebook, which should reflect the OECD Pillar 1 (reallocation of taxing rights) and Pillar 2 (minimum tax on corporate profit) negotiations.

These recommendations are to be followed by the European Commission’s submission of one or more legislative proposals by 2022/2023.

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Poland has been moving towards introducing the CTC framework and the system, the Krajowy System e-Faktur (KSeF), since early 2021. As of 1 January 2022, the platform has been available for taxpayers who opt to issue structured invoices through KSeF and to benefit from the introduced incentives.

As the taxpayers have been using KSeF for a while, let’s take a closer look at what has been happening and will happen in the future regarding Poland’s CTC reform.

Publication of regulation on the use of KSeF

Initially presented as a draft act by the Ministry of Finance in November 2021, the regulation on the use of KSEF was finally adopted and published in the Official Gazette on 30 December 2021 after several reiterations.

The regulation covers mainly the categories of authorisations, methods of authentication, and information required to access the structured invoices.

According to the regulation, taxpayers using KSEF are required to authenticate using one of the following methods: Qualified Electronic Signature, Qualified Electronic Seal, Trusted Signature, or Token.

A trusted signature confirms the identity assigned to a specific Polish Identification (PESEL) number. The token method can be used to grant authorisations in the KSeF once the taxpayer has been authenticated.

New information and documentation published by the Polish tax authority

The Polish tax authority has published new information on its website about KSeF features including FAQs and further documentation.

The FAQs include information regarding the scope and operational side of the system, whereas the sample XML files and the information brochure shed light on the logical structure of e-invoices and mapping requirements.

What will happen next?

Although the tax authority continues to make every effort to clarify the many aspects of the new CTC system in Poland, we still have a long way to go regarding the full implementation of KSeF.

For instance, during the public consultation of the draft act the Ministry of Finance stated taxpayers would be able to download structured invoices via API in XML or PDF format. As of today, there is no technical information available regarding the PDF generation within the system using the API. The tax authority has published the technical documentation related to the outbound process but there is still no documentation available on the inbound side.

More importantly, a decision authorising Poland to introduce special measures derogating from Articles of the EU VAT Directive is yet to be obtained from the EU Council for roll-out of the e-invoicing mandate for all B2B transactions. The current Polish VAT Act requires the buyer’s acceptance to receive structured invoices. As the Polish authorities aim to make the KSeF mandatory in 2023 an amendment of this provision is expected once the special measures have been authorized by the EU Council.

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Unlike many other country initiatives that we have seen in the e-invoicing space recently, Australia does not seem to have any immediate plans to introduce continuous transaction controls (CTC) or government-portal involvement in their B2B invoicing.

Judging from the recent public consultation, current efforts are focused on ways to accelerate business adoption of electronic invoicing. This consultation builds on the government’s previous outreach undertaken in November 2020 on “Options for the mandatory adoption of e-invoicing by businesses”, which led to a serious government effort to enhance the value of e-invoicing for businesses and increase business awareness and adoption.

In addition to a decision to make it mandatory for all commonwealth government agencies to receive PEPPOL e-invoices from 1 July 2022, the Australian government seeks to also boost e-invoicing in the B2B space, but without the traditional mandate for businesses to invoice electronically. Instead, the proposal is to implement the Business e-Invoicing Right (BER).

What Is Business E-invoicing Right (BER)?

Under the government’s proposal, businesses would have the right to request that their trading parties send an e-invoice over the PEPPOL network instead of paper invoices.

To make and receive these requests, businesses need to set up their systems to receive PEPPOL e-invoices. Once a business has this capability, it would be able to exercise its ‘right’ and request other companies to send them PEPPOL e-invoices.

According to the current proposal, BER would be delivered in three phases, with the first phase to include large businesses, and the later stages to include small and medium-sized businesses. The possible rollout of BER would be as follows:

Further measures to support e-invoicing adoption

The objective of the Australian BER initiative to boost the adoption of B2B e-invoicing is complemented by a proposal for several other initiatives supporting businesses in this direction. One measure would be the enabling of PEPPOL-compatible EDI networks. As EDI networks represent a barrier to broader adoption of PEPPOL e-invoicing, particularly for small businesses that interact with large businesses that use multiple EDI systems, the proposal to enable PEPPOL-compatible EDI networks could ultimately reduce costs for businesses currently interacting with multiple EDI networks. Furthermore, the government is contemplating expanding e-invoicing into Procure-to-Pay. Businesses may realise more value from adopting e-invoicing if the focus grows to embrace an efficient and standardised P2P process that includes e-invoicing.

Finally, integrating e-invoicing with payments is another proposed means to boost e-invoicing. This would allow businesses to efficiently receive invoices from suppliers directly into their accounting software and then pay those invoices through their payment systems.

How efficient the proposed measures will be in accelerating adoption of e-invoicing, and whether the Australian government will feel it was the right decision not to introduce a proper e-invoicing mandate, as is becoming more and more common globally, remains to be seen.

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On 24 February 2022, the Indian Central Board of Indirect Taxes and Customs (CBIC) issued a notification (Notification No. 01/2022 – Central Tax) that lowered the threshold for mandatory e-invoicing.

In India, e-invoicing is mandatory for taxpayers when exceeding a specific threshold (businesses operating in certain sectors are exempted). The current threshold for mandatory e-invoicing is 50 Cr. Rupees (approximately 6.6 million USD). From 1 April 2022, taxpayers with an annual threshold of 20 Cr. Rupees (approximately 2.65 million USD) or above must comply with the e-invoicing rules.

Evolution of e-invoicing in India

E-invoicing has been mandatory in India since October 2020. The IRP must approve and validate e-invoices before being sent to the buyer. Therefore, the Indian e-invoicing system is categorised as a clearance e-invoicing system, a type of continuous transaction controls (CTC).

From the beginning, the Indian tax authority clearly expressed their intention to gradually expand the scope of e-invoicing. In line with its message, the threshold limit has been lowered twice; in January 2021 (from 500 CR. To 100 Cr.) and April 2021 (from 100 CR. To 50 Cr.). Once again, the threshold limit is reduced to require more taxpayers to transmit their transactional data to the tax authority’s platform.

One important thing to be noted in this context is that voluntary adoption of e-invoicing is still not possible. Taxpayers cannot opt in to use the e-invoicing system and transmit their invoices to the IRP voluntarily. Given the recent developments, this might change in the future.

E-invoicing and E-waybill relationship

Suppliers in the mandatory scope of e-invoicing must generate e-waybills relating to B2B, B2G and export transactions through the e-invoicing platform because their access to the e-waybill platform is blocked for generating e-waybills relating to these transactions. E-waybills relating to transactions outside of the scope of e-invoicing can still be generated through the e-waybill platform.

Therefore, it would be advisable for taxpayers who are getting ready to implement e-invoicing to consider this aspect.

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The Spanish Ministry of Finance has published a draft resolution that will – once adopted – establish the requirements for software and systems that support the billing processes of businesses and professionals. This law will have a significant impact on the current invoice issuance processes. It will require implementing new invoice content requirements, including a QR code, and the generation of billing records by January 2024.

The regulation is also intended to adapt the Spanish business sector, especially SMEs, micro-enterprises, and the self-employed, to the demands of digitization. For this, it is considered necessary to standardise and modernise the computer programs that support the accounting, billing, and management of businesses and entrepreneurs.

Scope of the regulation

The regulation establishes the requirements that any system must meet to guarantee the integrity, conservation, accessibility, legibility, traceability and inalterability of the billing records without interpolations, omissions or alterations.

The new rules established in the regulation will apply to:

Companies that do not fall within the above categories do not need to comply, but those who do must ensure their computer systems are adapted to this regulation as of 1 January 2024.

New invoice content requirements: ID and QR codes

Invoices generated by the computer systems or electronic systems and programs that support the billing processes of businesses and professionals must include an alphanumeric identification code and a QR code, generated per the technical and functional specifications established by the Ministry of Finance.

Billing system requirements

The computer systems that support billing processes must have the capability to:

To achieve these ends, all computer systems must certify that they ensure the commitment to comply with all the requirements established in this regulation through a “responsible statement”. The Ministry of Finance will establish the minimum content of this statement later in a new resolution.

Billing record content and its optional transmission

The billing records must comply with several content requirements laid down by the regulation.

The taxpayers using computer systems to comply with their invoicing obligations may voluntarily send all its billing records generated by the computer systems to the AEAT automatically by electronic means. The response of a formal acceptance message from the AEAT will automatically mean that these records have been incorporated into the taxpayer’s sales and income ledgers.

Tax administration audits

The AEAT may appear in person where the computer system is located or used and may require full and immediate access to the data record, obtaining, where appropriate, the username, password and any other security key that is necessary for full access.

The AEAT may request a copy of the billing records, which companies may provide in electronic format through physical support or by electronic means.

Application to the B2B e-invoicing mandate

The regulation doesn’t include any specific rule for the B2B e-invoice mandate draft decree currently being discussed in Congress and waiting for approval. However, if the mandate is approved, all the B2B e-invoices issued under this draft decree will have to comply with all the new rules established in this regulation.

Next steps

While this new regulation does not seem to take Spain further down the continuous transaction control (CTC) route, the proposal has clear similarities with Portugal’s invoice requirements.

The draft resolution establishing these is currently open for public consultation until 11 March 2022. Once this resolution is approved, the Ministry of Finance will publish the technical and functional specifications needed to comply with the new requirements and the structure, content, detail, format, design and characteristics of the information that companies must include in the billing records.

The Ministry of Finance will also publish the specifications of the signature policy and the requirements that the fingerprint or ‘hash’ must meet. Once these details are published, it will be clearer whether Spain is going down the Portuguese route or carving out its own path.

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South Korea has an up-and-running e-invoicing system that combines mandatory e-invoicing with a continuous transaction controls (CTC) reporting obligation. This mature and well-established system, launched over a decade ago, is seeing its first significant changes in years.

Presidential Decree No. 31445 (Decree) has recently amended certain provisions of the Enforcement Decree of the Value-Added Tax Act. Among other changes, the scope of e-invoicing has been expanded and a new timeline and threshold limits introduced. This means that more taxpayers in South Korea must comply with e-invoicing rules in accordance with the timelines.

What is the new timeline and threshold limits for e-invoicing?

In South Korea, e-invoicing has been mandatory for all corporate businesses since 2011. From 2012, individual businesses (entrepreneurs) have also been required to comply with e-invoicing obligations if they meet the threshold limits which have been updated a couple of times over the years. Currently, an individual business whose aggregate supply value (including transactions that are tax exempt) for the immediately preceding tax year is KRW 300,000,000 or more, is required to comply with the country’s e-invoicing rules.

After the recent amendments, the current threshold is now lowered to KRW 200,000,000 and the new threshold limit will be applicable from 1 July 2022. The tax authority has already communicated further adjustments, announcing that from 1 July 2023, the threshold will be reduced further to the limit of KRW 100,000,000. The Korean tax authority aims to enhance the transparency of tax sources by requiring more businesses to comply with the e-invoicing rules.

What´s next for e-invoicing requirements in South Korea?

The expansion of the scope of e-invoicing obligations does not come as a surprise. Like in many other CTC jurisdictions, transactional data collected from a larger number of taxpayers provides greater insight to the tax authority about VAT, market trends and more.

Due to its success and maturity, e-invoicing in South Korea continues to inspire other countries in the Asia Pacific region. The Philippines tax authority is in the process of launching an e-invoicing pilot for the country’s 100 largest taxpayers from 1 July 2022. When designing their e-invoicing system, the Philippines tax authority had several meetings with its South Korean counterparts to benefit from Korean expertise and experience. Therefore, the Philippines is introducing a relatively similar CTC system to the Korean one.

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During the last decade, the Vietnamese government has been developing a feasible solution to reduce VAT fraud in the country by adopting an e-invoice requirement for companies carrying out economic activities in Vietnam. Finally, on 1 July 2022, a mandatory e-invoicing requirement is scheduled to enter into force nationwide.

2020 e-invoicing mandate postponement 

Despite the postponement of the original starting date for the mandatory nationwide e-invoicing obligation, which was first intended to enter into force in July 2020, the Vietnamese government quickly established a new deadline.

Later that year, in October 2020, the new timeline was communicated through Decree 123, delaying the e-invoicing mandate until 1 July 2022. This new deadline is also in line with the implementation dates for the rules concerning the e-invoicing system envisaged in the Law on Tax Administration.

Ongoing regional readiness plan

Vietnam’s General Taxation Department (GTD) announced its plan to work first with the local tax administrations of six provinces and cities: Ho Chi Minh City Hanoi, Binh Dinh, Quang Ninh, Hai Phong and Phu Tho to start implementing technical solutions for the new e-invoice requirements and the construction of an information technology system that allows the connection, data transmission, reception, and storage of data. According to the GTD’s action plan, by March 2022, these six cities and provinces should be ready for the e-invoice system’s activation.

The GTD announced that, from April 2022, the new e-invoicing system will continue to be deployed in the remaining provinces and cities.

Finally, under this local implementation plan, by July 2022, all cities and provinces in Vietnam must deploy the e-invoicing system based on the rules established in Decree 123 and the Circular that provides guidance and clarification to certain aspects of the new e-invoicing system.

Next steps for businesses

Taxable persons operating in Vietnam will be required to issue e-invoices for their transactions from 1 July 2022 and must be ready to comply with the new legal framework. Enterprises, economic organisations, other organisations, business households and individuals must register with the local tax administration to start using e-invoices according to the rules established in the mentioned Decree 123.

Vietnam is finally moving forward to adopt mandatory e-invoicing. However, there is plenty of work related to the necessary technical documentation and local implementation of the new e-invoicing system. We will continue to monitor the latest developments to determine whether the GTD can meet all the requirements in time for the mandatory e-invoicing roll-out.

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On 30 January 2022, the Zakat, Tax and Customs Authority (ZATCA) published an announcement on its official web page concerning penalties for violations of VAT rules, and it is currently only available in Arabic. As part of the announcement, the previous fines have been amended, ushering in a more cooperative and educational approach for penalizing taxpayers for their non-compliance with VAT rules than previously.

What’s the new approach?

If ZATCA officials detect a violation during a field visit, the taxpayer will first be given a warning about the violation without any penalty. The ZATCA aims to raise awareness instead of penalizing taxpayers for their first violation. Taxpayers will be granted three months to comply and make necessary changes in their processes.

If non-compliance continues after the first inspection, the taxpayer will be fined 1.000 Riyals, roughly 267 USD. The penalty charge will gradually increase if the taxpayer fails to comply with the rules and doesn’t make necessary changes within three months after the notice.

The fine for each additional repetition time will be as follows: 5.000 Riyals for the third time, 10.000 Riyals for the fourth time and 40.000 Riyals for the fifth time. If the same violation is repeated 12 months after its discovery, it is considered a new violation, and the process will begin with a warning without a fine.

What are the violations of e-invoicing?

According to the announcement, the violations of e-invoicing rules will be penalized per the new procedure described above. The instances that require a notice/fine are slightly different than the initial violations described previously and highlighted as follows:

What´s next?

The ZATCA states that the new approach ensures proportionality between the violation and the penalty imposed on taxpayers while giving taxpayers a chance to comply within a specific time frame. Considering that the introduction of both VAT and mandatory e-invoicing is fairly recent in the country, there are certain aspects that are unclear for taxpayers. This approach will educate businesses and is expected to be welcomed by stakeholders.

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