In our previous blog, we completed the compliance cycle with tax authority audits. However, that’s not the end of the challenges businesses face in remaining compliant in the countries where they have VAT obligations. VAT rules and regulations change as do a business’s supply chains – these need to be carefully reviewed and appropriate action taken so that the business remains complaint.
Supply chains develop over time for a variety of reasons: changes are made to improve efficiency, provide a better customer experience in delivery times or because of entry into new markets. Sometimes, these changes are instigated by the business seeking optimisation, whereas others are forced by external changes such as Brexit forcing businesses trading between the UK and EU to alter supply chains following the UK’s exit from the EU.
Whatever the reason for the change, it’s essential to review the impact on the VAT position of the business. This involves determining the VAT obligations that arise from the new transactions – which we covered in our previous blog. An early warning system of impending supply chain changes is required so they can be reviewed before the new transactions commence. Key to this is awareness of the importance of VAT within the business; the supply chain changes cannot be reviewed if the finance team is not aware of them.
Also, it’s not possible to undo a transaction once it’s taken place so the business must deal with the consequences even if they are adverse. Proactive action can ensure that the business goes into the new supply chain prepared and aware of all the consequences.
There are different ways to structure a supply chain to achieve the same commercial aim; they can have differing VAT implications so consideration of the consequences should form part of the evaluation process to determine the appropriate strategy.
Whilst businesses can control some element of when their supply chains change, responding to changes in legislation is much more difficult.
The first step is to be aware of what has changed. Changes can happen on a pan-EU basis or in an individual Member State so a mechanism needs to be in place to identify changes as soon as they are announced. Often this will require external support, especially if there are obligations in multiple territories.
Once the change has been identified, the next step is to determine the impact on the business. Some changes will have minimal impact whereas others will require proactive action to be compliant with the new rules. Significant changes may require a redesign of the supply chain. An action plan with clear responsibilities and timescales should be put in place to manage the necessary changes.
The EU has seen the introduction of numerous new mandates over recent years, often in respect of continuous transaction controls (CTCs), and this is set to continue as Member States seek to reduce the VAT gap.
The latest information published by the European Commission is for 2019 where the VAT gap was €134 billion. Whilst this showed a reduction from the previous year, it still represents 10.3% expressed as a share of the VAT Total Tax Liability.
Governments need to generate revenue in a post-pandemic world and addressing the VAT gap provides one solution without imposing additional tax burdens as it involves collecting tax that should already have been charged. Based on current trends, it will take 13 years to eradicate the gap so new initiatives are needed, hence the increase in CTCs.
Managing these new mandates will be a critical challenge for business in the coming years as they are introduced in more Member States. A clear strategy is essential to avoid becoming overwhelmed by disparate local requirements.
Over this series of blogs, we’ve looked at the key aspects of ensuring ongoing VAT compliance. Once the necessary processes and controls are in place, businesses can focus on trade knowing that VAT compliance is assured. However, maintaining VAT compliance is a continuous process which should be constantly reviewed to maximise efficiency and minimise risk.
Get in touch about the benefits a managed service provider can offer to ease your VAT compliance burden.
Update: 12 January 2024 by Edit Buliczka
The Polish Financial Ombudsman Office (Rzecznik Finansowy), like other regulatory bodies such as the Italian IVASS, requires insurance companies to submit various reports about their activities. One of these is the Claims Report.
According to the Act on the Consideration of Complaints by Financial Market Entities and on the Financial Ombudsman (Act of 5 August 2015) a report titled “Handling of complaints and the number of cases” is due within 45 days of the reporting period ending.
Subsequently, the deadline for the 2023 reporting year is 15 February 2024. This report must be submitted through the Polish Financial Ombudsman Office’s website.
The regulation determines the scope of the financial market entities, including domestic insurance companies, branch offices and foreign insurance companies.
The form and instructions for producing this report are published on the ombudsman’s website during the first week of January.
The following information should be reported:
1) Number of complaints
2) Accepted and unacknowledged claims resulting from submitted complaints
3) Information on the value of claims submitted in lawsuits and amounts awarded by final court judgments to clients during the reporting period
For in-depth information on Insurance Premium Tax, read our guide.
Update: 16 October 2023 by Edit Buliczka
Withholding tax (“WHT”) is an income tax, not an insurance premium tax, and is governed by the Polish Corporate Income Tax Law (CIT Law). However, in the case of foreign insurers that are operating business in Poland on a Freedom of Services (FoS) basis, it could be an important element of the taxable base calculation for the Financial Ombudsman Charge (“FOC”).
In this blog, we will explain why the judgement of the Polish Administrative Supreme Court on the application of withholding tax is relevant from the perspective of IPT and FOC.
The Financial Ombudsman confirmed to Sovos that FOC is owed on the full premium amount as stated in the policy documents, with no deductions. This implies that even if the foreign insurer receives a reduced premium after deducting WHT, FOC will still be due on the whole amount of the premium.
The WHT was applied to insurance services because the Polish Tax Office considered insurance contracts to be “performance of a similar nature” to a guarantee under CIT Article 21(1)(2a) and so wanted to deduct WHT from the premium amount paid to a foreign insurer.
The Provincial Administrative Court in Wrocław in its decision on 24 August 2023 concluded that a contract whose content corresponds to the essentialia negotii (“essential elements”) of an insurance contract is not a “performance of a similar nature”. Therefore, Polish policyholders are not obliged to withhold income tax at source on insurance premium income.
This decision also determines that payments made by the Polish policyholder for intermediate insurance services, generally referred to as brokerage services, do not constitute payment for “performance of a similar nature.” As a result, the policyholder company is not required to deduct withholding tax on brokerage fees.
Looking for further information on the decision? Our Insurance Premium Tax specialists can help.
Update: 12 June 2023 by Edit Buliczka
The first annual FOC return is complete, and the first payment for the newly imposed Polish Financial Ombudsman Charge (FOC) has been made. The Ombudsman Office implemented the new charge in 2023, with an effective date of 1 January 2023. The first settlement was due on 31 March 2023.
Sovos obtained knowledge during the settlement process on how to proceed with the settlement of this new charge and what the transitional procedures are for transitioning from IOC to FOC. In this blog update, we summarise what we learnt during this process.
Speak with our Insurance Premium Tax experts to learn more or read more about Insurance Premium Tax in our guide.
Update: 14 March 2023 by Edit Buliczka
Although Poland still lacks an Insurance Premium Tax (IPT) system, there are various other taxes and fees in the country. The Insurance Ombudsman Charge (IOC) implemented in 2014 is one of the most well-known parafiscal charges. As of January 2023, the Financial Ombudsman Charge (FOC) replaces the Insurer Ombudsman Charge regulation.
There are differences and similarities between the new Financial Ombudsman Charge (FOC) and the previous Insurer Ombudsman Charge (IOC). We have also noticed some anomalies which we will discuss.
Both IOC and FOC are parafiscal charges that should be paid to the Ombudsman Office. Payment is still in PLN with a payment threshold of PLN 16.00.
As in the case of IOC, the FOC is declared online and with NIL report submission requirement.
Similarly to the IOC, the FOC is applicable to Domestic (DOM insurers) and foreign insurers writing business in Poland on a freedom of services (FOS) basis (FOS insurers). FOC rates for DOM and FOS insurers are different as was the case with the IOC regime.
The tax point date is the same for the IOC and the FOC and it is the date when the cash is received.
Sovos contacted the Ombudsman office to clarify some questions raised around anomalies with the Financial Ombudsman Charge. We have received responses so please get in touch if you would like to learn more.
Do you still have questions about the new ombudsman charge? Speak with our IPT experts.
Update 15 December 2021 by Kateryna Binkowska
Currently, Poland doesn’t have an IPT. Instead, there is a parafiscal tax called Insurance Ombudsman Contribution (IOC). It is currently charged at a rate of 0.02% and was effective from 1 January 2020 for all insurance companies operating under Freedom of Services (FOS) in Poland.
IOC applies to all 18 classes of non-life insurance. It is applicable to all insurance companies either selling insurance in Poland or collecting premiums from Polish persons. Prior to its origination date of 1 February 2014, it only applied to domestic insurers or foreign insurers with Polish branches.
The basis for IOC is the premium that must be paid to the insurer to obtain the insurance cover.
Reporting for IOC can be tricky because of the different name and numbering system for quarterly declarations. For Example: Quarter I (Quarter 1) of the current year covers October, November and December of the previous year. The quarterly submission is due 90 days from the reporting period. In this example, Q1’s declaration must be filed by 31 March of the current year.
All the payments made throughout the year are considered prepayments or advance payments. For instance, the liabilities that arose in Q1 2021 are declared in the Q2 2021 tax period as an advanced payment for Q2 2021.
The Annual Report is due by 30 June of the following year. This report is submitted to the Insurance Ombudsman summarising the actual premiums received in the previous year (i.e., for 2020, a report is submitted by 30 June 2021 summarising the total amount of premiums received by the insurer in 2020).
The Insurance Ombudsman then determines its funding requirements, and an adjustment is made based on the difference between the insurer’s share of the market percentage multiplied by the funding requirements and the previously made payments for the reporting year.
The Ombudsman’s adjustment may result in the tax authorities requiring additional funds or providing a refund. Either result is communicated by the authorities through Annual Settlement Letters that usually arrive by the end of October.
Insurers are obligated to keep records of insurance contracts and the documents required for tax declaration for five years from the contract’s expiry date.
If the taxpayer doesn’t declare and remit the tax in accordance with the regulations, the relevant authority may demand delayed interest and require an assessment of the tax. In such cases, the court can award a penalty fee and/or imprisonment of the company’s management for up to three years, as per the fiscal penalty code from 10 September 1999.
For any insurance company operating under FOS in Poland, understanding the details of the Insurance Ombudsman Contribution and the reporting requirements are key to ensuring compliance.
Need help to ensure your business stays compliant with current and upcoming changes to IOC? Contact the Sovos team today. For more information see this overview about e-invoicing in Poland, Poland SAF-T or VAT Compliance in Poland.
In our previous blog, we looked at the challenges that businesses face in submitting VAT and other declarations on an ongoing basis. However, the compliance cycle doesn’t end there as tax authorities will carry out audits for a variety of reasons to validate declarations.
When VAT returns consisted of only numbers, audits were carried out to obtain more information about the business activities taking place behind those numbers. The increased amounts of transaction data provided to tax authorities via SAF-T, local listings and continuous transaction controls (CTCs) means this is changing. Audits are still carried out even with the additional VAT information, mainly to determine that VAT declarations accurately reflect the activities of the business.
Whilst the frequency of audits varies considerably between Member States, it is common across the EU for an audit to be carried out if the business requests a repayment of VAT. In some countries, this will happen whenever a repayment is requested, whereas others will take a more risk-based approach and only audit if the repayment is higher than expected from a business that regularly receives repayments.
Speed is of the essence for audits as cashflow is impacted until the repayment is made. This needs to be at the forefront of whoever is managing the audit but careful consideration of the questions being asked by the tax authority and responses being made by the business remains essential.
Audits can either be done in-person or via correspondence although In-person audits are currently less common due to Covid-19. The audit is normally carried out via correspondence if the taxpayer is not established in the country of registration, which in some countries requires a local advisor.
This leads to a key question: whether to handle the audit in-house or bring in external expertise. Whilst managing an audit in-house will save fees, it is essential to consider the consequences of the audit. An external advisor could be brought in at a later stage but they may be hampered by responses provided to the tax authority at the outset of the audit. Proper consideration should be given to utilising specialist external advisors, especially if there is a significant amount of VAT or complex issues are involved.
The priority for any audit is to successfully resolve it as quickly as possible with no detrimental impact to the business. This will minimise the amount of management time, fees and exposure to penalties or interest.
Many audits will start with the tax authority asking some specific questions – this could be about the business generally or about specific transactions. The questions are asked for a reason so businesses need to consider why they’re being asked to determine how to respond and minimise the risk of problems later in the audit.
Managing deadlines is important as failure to do so can have detrimental effects. Some tax authorities impose very short deadlines so prompt attention is required. It may be possible to agree an extension, but this is not always the case. Providing clear unambiguous answers and supporting documentation is essential to obtain the desired outcome.
Once the audit has been concluded, any corrective action needs to be taken. In the ideal situation, nothing must be done and the business can continue to trade successfully. If an adverse decision or payment request has been issued by the tax authority, consideration needs to be given as to whether to appeal the decision; again, strict deadlines must be met.
Even without such a decision, the audit may have highlighted areas where work is required to avoid problems arising in the future. An action plan should be created with clear responsibilities and deadlines.
Once all work has been done, the business can return to the normal compliance cycle of submitting VAT returns and other declarations. An ongoing challenge is making sure the business successfully manages changes in their VAT position, and we will be looking at this in our final blog in this series.
Get in touch about the benefits a managed service provider can offer to ease your VAT compliance burden.
As we inch closer to the implementation date of 1 January 2022 for Norway’s new digitized VAT return, let’s take a second look at the details.
Norway announced its intentions to introduce a new digital VAT return in late 2020, with an intended launch date of 1 January 2022. With this update comes the removal of box numbers, which will be replaced by a dynamic list of specifications. The report will also repurpose the Norwegian Standard Tax Codes from the SAF-T financial file to provide more detailed reporting and flexibility. It’s important to note that the obligation to submit a SAF-T file will not change with the introduction of this new VAT return.
This change is for the VAT return only – with the SAF-T codes being re-used and re-purposed to provide additional information. Businesses must still comply with the Norwegian SAF-T mandate where applicable and must also submit this new digital VAT return. With the new VAT return, the Norwegian Tax Administration (Skatteetaten) seeks to simplify reporting, better administration, and improved compliance.
Skatteetaten has created many different web pages with detailed information for businesses to look through over the next few months, including the following:
Norway is encouraging direct ERP submission of the VAT return where possible. However, the tax authorities have announced that manual population via the portal will still be available.
Login and authentication of the end user or system is carried out via the ID porten system. Originally, Norway didn’t allow for XML upload; however, the tax authorities have recently updated their guidance to ensure that XML upload will be accepted. Changing numbers or notes in the uploaded XML file will not be possible, but it will be possible to upload attachments.
Additionally, Norway has provided a method for validation for the VAT return file, which should be tested before submission to increase the probability that the file is accepted by the tax authorities. The validator will validate the content of a tax return and should return a response with any errors, deviations, or warnings. This is done by checking the message format and the composition of the elements in the VAT return.
Please note that Norway is not allowing for any grace period for the submission of this newly designed return.
In addition to the new VAT return, Norway has also announced plans to implement a sales and purchase report by 2024. The proposal is currently in the mandatory public consultation phase, which ends on 26 November 2021.
To find out more about what we believe the future holds, download Trends: Toward Continuous Transaction Controls and follow us on LinkedIn and Twitter to keep up-to-date with the latest regulatory news and updates.
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Update: 3 January 2024 by Inês Carvalho
After the implementation of Romania’s new B2B e-invoicing regulations, effective January 2024, the country introduced Government Emergency Order No. 115/2023 with last-minute amendments.
We can summarise the key amendments from the new legislation in three categories:
The e-reporting mandate explicitly excludes the following transactions:
From July 2024 onwards, the requirement to issue e-invoices for transactions between established entities persists. The amendment states that in the event of a taxpayer’s failure to generate an electronic invoice, they are obligated to submit it to the RO e-Factura platform within five calendar days.
From July 2024, established entities that fail to comply with the issuance and receipt of e-invoices will receive a fine equal to 15% of the total invoice amount.
Additionally, those who fail to report the invoice which was not issued and automatically transmitted to the RO e-Factura within the additional five calendar days will be fined:
Read our dedicated Romania e-invoicing page for more information on the mandate or VAT Compliance in Romania.
Update: 20 September 2023 by Inês Carvalho
The Romanian Ministry of Finance has published draft legislation proposing new budgetary measures, among which is the implementation of the highly anticipated electronic invoicing mandate.
Even though the draft legislation maintains the January 2024 roll-out date previously approved by the EU Council, it proposes an invoice reporting system to operate in the first six months with the electronic invoicing system (RO e-factura) being fully implemented in July 2024.
Additionally, a three-month grace period – from January 2024 to March 2024 – is foreseen where penalties are not imposed.
For more information see this overview about e-invoicing in Romania.
The first phase of implementation where taxpayers report invoices to the RO e-factura system – instead of issuing the invoices directly through that system – is an addition of the draft law.
This reporting obligation is a transitional measure to help businesses prepare and adapt their systems to the new e-invoicing requirements. Between January and June 2024, the draft legislation also foresees an obligation for the supplier to send the cleared invoice out-of-band to the buyer whenever the latter is not registered with the RO e-factura system.
The scope of the new B2B draft mandate applies to all B2B transactions carried out by established or VAT-registered suppliers deemed to take place in Romania.
Looking to better understand e-invoicing regulations ahead of Romania’s mandate? Our guide can help.
Update: 28 July 2023 by Enis Gencer
The EU Council has approved the proposal from the EU Commission to authorise Romania to introduce mandatory e-invoicing starting from January 2024. The decision was adopted on 25 July and published in the Official Journal of the EU on 27 July.
Romania has been progressing towards implementing a continuous transaction controls (CTC) e-invoicing regime for some time now. The country introduced the e-invoicing requirement for B2B transactions of high-fiscal risk products in December 2021 and B2G transactions in May 2022, both implemented as of July 2022.
In addition to these requirements, Romania aims to make e-invoicing mandatory for all B2B transactions. To this end, the country applied to the European Commission on 14 January 2022, requesting authorisation for a special measure to derogate from articles 218 and 232 of Directive 2006/112/EC, which was granted on 25 July. This measure would allow for the introduction of mandatory electronic invoicing for all transactions carried out between taxable persons established in Romania.
The Romanian authorities will need to make the necessary amendments to local legislation to implement mandatory e-invoicing, following the derogation decision received by the EU Council.
The Romanian tax authority, ANAF, is expected to issue an order within 30 days from the date of the derogation which will define the scope and timeline for the implementation of the mandate. The order will provide more specific details about the upcoming mandate.
Considering the mandate could come into effect as early as January 2024, it’s crucial that taxpayers start preparing their systems for mandatory e-invoicing from now.
Looking for guidance to comply with Romania’s upcoming e-invoicing mandate? Our expert team can help.
Update: 28 July 2023 by Enis Gencer
The EU Council has approved the proposal from the EU Commission to authorise Romania to introduce mandatory e-invoicing starting from January 2024. The decision was adopted on 25 July and published in the Official Journal of the EU on 27 July.
Romania has been progressing towards implementing a continuous transaction controls (CTC) e-invoicing regime for some time now. The country introduced the e-invoicing requirement for B2B transactions of high-fiscal risk products in December 2021 and B2G transactions in May 2022, both implemented as of July 2022.
In addition to these requirements, Romania aims to make e-invoicing mandatory for all B2B transactions. To this end, the country applied to the European Commission on 14 January 2022, requesting authorisation for a special measure to derogate from articles 218 and 232 of Directive 2006/112/EC, which was granted on 25 July. This measure would allow for the introduction of mandatory electronic invoicing for all transactions carried out between taxable persons established in Romania.
The Romanian authorities will need to make the necessary amendments to local legislation to implement mandatory e-invoicing, following the derogation decision received by the EU Council.
The Romanian tax authority, ANAF, is expected to issue an order within 30 days from the date of the derogation which will define the scope and timeline for the implementation of the mandate. The order will provide more specific details about the upcoming mandate.
Considering the mandate could come into effect as early as January 2024, it’s crucial that taxpayers start preparing their systems for mandatory e-invoicing from now.
Looking for guidance to comply with Romania’s upcoming e-invoicing mandate? Our expert team can help.
Update: 24 January 2022 by Enis Gencer
With the most significant VAT gap in the EU (34.9% in 2019), Romania has been moving towards a CTC regime to improve and strengthen VAT collection while combating tax evasion.
The main features of this new e-invoicing system, e-Factura, are described further down in this blog. Here, we’ll take a closer look at the roll-out for B2B transactions and the definition of high-fiscal risk products, as well as the new e-transport system that was introduced through the Government Emergency Ordinance (GEO) no. 130/2021, published in the Official Gazette on 18 December.
According to GEO no. 120/2021 (the legislative act introducing the legal framework of e-Factura), the supplier and the recipient must both be registered with the e-Factura system. The recently published GEO no. 130/2021 establishes an exception for high fiscal risk products and ensures that taxpayers will use the e-Factura system regardless of whether the recipients are registered.
In line with the GEO no. 130/2021, the National Agency for Fiscal Administration has issued an order to clarify which products are considered high fiscal risk products.
The five product categories are as follows:
High fiscal risk products are defined based on the nature of the products, marketing method, traceability of potential tax evasion and degree of taxation in those sectors. Detailed explanations, as well as product codes, can be found in the Annex of GEO no. 130/2021.
The enforcement timeline of this requirement means that businesses that supply these types of products must be ready to comply with the new Romanian e-Factura system as follows:
Another reform that shows the intention of the Romanian authorities to combat tax fraud and evasion is the introduction of an e-transport system.
Taxpayers will be required to declare the movement of goods from one location to another in advance. Once declared, the system will issue a unique number written on the transport documents. Authorities will then verify the declaration on the transport routes.
Moreover, it is stated in the justification letter that the e-transport system will interconnect with the Ministry of Finance’s current systems, Romanian e-invoice, and traffic control, much like similar initiatives in other countries, such as India, Turkey and Brazil.
The introduction of the e-transport system is still pending as the Ministry of Finance has not yet issued the order regarding the application procedure of the system. According to GEO 130/2021, the Ministry of Finance had 30 days to do so after GEO 130/2021 was published in the Official Gazette. However, the deadline expired on the 17 January, and no announcement has been made yet. Therefore, the details of the system are still unknown.
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Update: 16 November 2021 by Joanna Hysi
In March 2020, Romania launched an e-invoicing pilot program, e-Factura, to streamline the collection of taxes to improve and strengthen the collection of VAT whilst combating tax evasion.
The decision to launch e-Factura was taken after closely monitoring the Italian e-invoicing model and analysing the economic impact and efficiencies that electronic invoicing has had for both B2G and B2B transactions in Italy.
E-Factura is to implement a new e-invoicing system for B2G transactions but also lays the foundation for the extension of the platform for further developments and provides the necessary know-how to develop an e-invoicing system in B2B.
In October, Government Emergency Ordinance (GEO) no. 120/2021 introduced the legal framework for implementing e-Factura, regulating the structure of the Romanian e-invoice process and creating the framework for achieving basic technical specifications of the e-invoice system.
Further documentation regulating the use and operation of e-Factura and technical documentation such as API specifications and draft e-invoice schemas have also been published.
According to published documentation, the B2B e-invoicing process is not expected to differ from the B2G e-invoicing process, whose framework and relevant requirements are defined to a clearer standard.
Taxpayers can expect the same requirements to apply to B2G and B2B e-invoicing. However, certain aspects for B2B e-invoicing must still be clarified, such as the authentication process and requirements for accessing and using the e-invoicing system through the API for taxpayers and their service providers.
The Romanian e-Factura went live as a voluntary system on 6 November 2021, just six months from the announcement of the Ministry of Finance of the roll-out of a new e-invoicing system and only one month after publication of enacting legislation. Suppliers in both B2B and B2G transactions may opt to use this new e-invoicing system and issue their e-invoices in the Romanian structured format through the new system.
The Romanian e-Factura is a clearance system where e-invoices are sent, cleared, and received through the central platform. The structured invoice is issued in XML format and sent to the central platform for validation. The validation checks relate to the compliance of the structured invoice with the schema requirements, the authenticity of the origin regarding the identity of the issuer who is authenticated in the system and the integrity of the invoice content after transmission. An XML invoice that passes validation and is signed by the Ministry of Finance is considered the legal invoice.
The initial implementation timeline must be – by international comparison – considered short for the roll-out of an extensive new CTC system. This could be explained by the fact that the roll-out of the voluntary system is not as disruptive as that of a mandatory system.
If, or when, a mandate is announced or relevant e-invoicing incentives are introduced, a longer implementation timeline is likely to follow to facilitate for taxpayers to comply with the new requirements in time.
Need to ensure compliance with the latest Romania e-Factura requirements? Speak to our team.
The Zakat, Tax and Customs Authority (ZATCA) announced the finalised rules for the Saudi Arabia e-invoicing system earlier this year, announcing plans for two main phases for the new e-invoicing system.
The first phase of the Saudi Arabia e-invoicing system is set to go live from 4 December 2021.
With the mandate just around the corner, we’ve highlighted the latest news on a reform that is still evolving.
The latest documentation communicated on the requirements was the Detailed Guidelines, published in August 2021. The Detailed Guidelines provided clarity on the following topics:
The first phase requirements are not as complex as the second phase requirements that will be enforced from 1 January 2023.
The ZATCA has been successful in providing taxpayers with the necessary information. The go live date is set to go ahead as planned and a delay is not currently expected.
Find out more about what we believe the future holds, download VAT Trends: Toward Continuous Transaction Controls. Follow us on LinkedIn and Twitter to keep up-to-date with regulatory news and updates.
The widespread adoption of electronic invoicing regimes has given tax authorities access to enormous quantities of taxpayer data.
In many jurisdictions, this data enables tax authorities to summarise a taxpayer’s transactional information for a given filing period. It also enables them to present the taxpayer with a draft VAT Return, filled in ahead of time by the authorities themselves.
This is known as a ‘pre-filled’ VAT Return. This module has now been adopted by several countries, with others planning to implement soon.
Chile was the first country to introduce a pre-filled VAT Return, in 2017. Soon after its introduction, more than 92% of taxpayers used the model prepared by the authorities to declare their VAT.
Chile was able to achieve this in part due to the high quality of its IT infrastructure, by which the tax administration was able to process a large volume of purchase and sales records. In addition, Chile provided taxpayers with ‘calculation assistants’ that facilitated compliance.
European countries already using e-invoicing or e-reporting regimes have been quick to follow.
Here are some key processes and implementation dates for different countries:
It’s likely that other countries with e-invoicing or e-reporting regimes, such as Greece (MyData regime, under development) and France (proposed e-invoicing regime for 2023) will follow suit.
It’s worth noting that European Union countries cannot mandate electronic invoicing for business-to-business transactions without applying for a derogation from the EU VAT Directive.
Italy has been granted such a derogation, but other countries may be reluctant to enter such an uncertain process. This could potentially limit the scope of pre-filled VAT Return offerings. In Spain, for example, the pre303 was initially available only for certain taxpayers making use of SII and submitting relevant data (though this has since been expanded).
Technical infrastructure can also be a limiting factor in countries’ ability to offer pre-filled VAT Returns.
Nevertheless, the rapid adoption of pre-filled VAT Returns in the past five years indicates the concept’s staying power.
Tax authorities clearly see efficiency benefits in having a pre-filled VAT Return that are fileable with a simple approval from the taxpayer.
From the taxpayer standpoint, it’s imperative to maintain accurate and complete electronic records that can be reconciled with pre-filled VAT Returns, and accounting software can be a useful tool to achieve this.
Pre-filled VAT returns are just another example of the complex regulatory tax landscape that organisations must navigate to remain compliant.
As the world moves forward with initiatives like digital transformation and real-time reporting, and new or updated regulations can vary widely across countries, Sovos is on a mission to help you Solve Tax for Good. To find out more about what we believe the future holds, download VAT Trends: Toward Continuous Transaction Controls.
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In Insurance Premium Tax (IPT) compliance, the Aviation Hull and Aviation Liability policy is defined under Annex 1, Classes of Non-Life Insurance, as described in DIRECTIVE 138/2009/EC (SOLVENCY II DIRECTIVE).
But there are variations and identifying which class the policy is covering can be a challenge.
This article will cover what insurers need to know about Aviation Hull and Aviation Liability policy and what IPT rate to apply.
Aviation can fall under Class 5, Class 11 or General Liability.
There are five different variations of an Aviation policy, either taken out individually or in combination. Although the descriptions vary, the most referred to are:
Class 5 Aviation policies are focused on the hull and physical aspect of the aircraft, whereas Class 11 Aviation Liability mainly covers the public and passengers or damage to property owned by third parties.
Defining between Aviation Liability Class 5 and 11 can be a headache. As aviation policies can include a combination of liabilities, it can be difficult to know the correct classification to apply.
Some tax authorities have recognised this and applied similar rates for both, but there are exceptions.
For example, in Hungary Class 5 is considered CASCO , which stands for Casualty and Collision (automobile insurance). So, it has a higher IPT rate of 15% whereas IPT for Class 11 on Aviation Liability is 10%.
There are also parafiscal taxes to consider. These mainly come into effect when the policy includes a fire element. But as always there are exceptions – in Greece both classes are exempt from IPT, but TEAEAPAE (or Pension Fund) can be due on Class 5 Aviation when cover includes the maintenance of the aircraft.
Once the correct class of insurance has been applied to the policy, an additional reference to an AVN clause is made.
AVN clauses are additional to the main risk and more specific than some of the other coverages, which are also included in aviation contracts. There are over 214 AVN clauses and most fall under Class 13 General Liability.
The last piece of the puzzle is how to report a policy document that could have up to three different classes.
The territory could have apportionment rules, meaning an insurer could benefit from some of those exemptions. Some insurers choose to take the prudent approach and apply the highest rate from the three classes to avoid noncompliance or penalties.
For most insurers, classification of an aviation policy is only the beginning of the journey. There are other considerations such as location of risk rules outside of Europe, which can mean double taxation, or exemptions depending on the use of the aircraft.
To ease the burden on compliance, many insurers work with a managed service provider with IPT expertise.
Get in touch with Sovos about the benefits a managed service provider can offer.
Back in 2019, Portugal passed a mini e-invoicing reform consolidating the country’s framework around SAF-T reporting and certified billing software.
Since then, a lot has happened: non-resident companies were brought into the scope of e-invoicing requirements, deadlines have been postponed due to Covid, and new regulations were published. This blog summarises the latest and upcoming changes.
Introduced in 2019, the de facto implementation of the QR code requirement was delayed, and is now expected to be fully implemented by taxpayers in January 2022. A QR code should be included in all invoices. Technical specifications about the content and placement of the code in the invoice are available on the tax authority’s website.
The ATCUD is a unique ID number to be included in invoices and is part of the content of the QR code. The ATCUD is a number with the following format ‘ATCUD:Validation Code-Sequential number’.
To obtain the first part of the ATCUD – the so-called ‘validation code’ -, taxpayers must communicate the document series to the tax authority along with information such as type of document, first document number of the series, etc.
In return, the tax authority will deliver a validation code. The validation code will be valid for the whole document series for at least a fiscal year. The second part of the ATCUD – the ‘sequential number’ – is a sequential number within the document series.
This month, the Portuguese tax authority published technical specifications for obtaining the validation code, creating a new web service. To access this web service, a specific certificate obtained from the tax authority is required and can be assigned to taxpayers or software service providers.
In addition, the tax authority has created a standard list of document classes and types, enabling the communication of document types in a structured format.
An ATCUD will be required in all invoices from January 2022. To be ready for the deadline, taxpayers must get the series’ validation codes during the last half of 2021 to apply in invoices issued in the beginning of 2022.
In April this year, Portugal clarified that non-resident companies with a Portuguese VAT registration should comply with domestic VAT rules. This includes the use of certified billing software for invoice creation, among others. These companies must also ensure integrity and authenticity of e-invoices. In Portugal, integrity and authenticity of invoices are presumed with the use of a qualified electronic signature or seal, or use of EDI with contracted security measures.
Consequently, since 1 July 2021, non-established but VAT registered companies must adopt certified billing software to comply with the Portuguese law as required by Law-Decree 28/2019, Decision 404/2020-XXII, and Circular 30234/2021.
The Portuguese e-invoicing mandate for business-to-government transactions includes a format requirement attached to specific transmission methods. In other words, invoices to the public administration must be issued electronically in the CIUS-PT format and transmitted through one of the web services made available by the public administration.
Initially, a phased roll-out started in January 2021, obliging large companies to issue e-invoices to public buyers. In July, the subjective scope was enlarged to include small and medium-sized businesses. The last step is to include microenterprises by January 2022.
Due to the Covid pandemic, Portugal established a grace period that has been renewed several times, whereby PDF invoices would be accepted by the public administration. Currently, the grace period runs until 31 December 2021, meaning that, in practice, all suppliers of the public administration, regardless of their size, should comply with the e-invoicing rules in public procurement by 1 January 2022.
Need to ensure compliance with the latest e-invoicing regulations? Get in touch with our tax experts at Sovos.
In our last look at Romania SAF-T, we detailed the technical specifications released from Romania’s tax authority. Since then, additional guidance has been released including an official name for the SAF-T submission: D406.
To alleviate taxpayer concerns due to the complexity of the report and difficulties with extraction, the tax authorities are introducing a voluntary testing period which is due to begin in the coming weeks. During this period, taxpayers may submit what is known as D406T which will contain test data that the authorities will not use in the future for audit purposes.
The Romanian SAF-T, D406, is based on the OECD schema version 2.0 which contains five sections:
The submission deadlines are as follows:
Taxpayers must submit sections of D406 monthly or quarterly, following the applicable tax period for VAT return submission.
For the first report, tax authorities have announced a grace period for the first three months of submission. This is from the date when the deposit obligation becomes effective for that taxpayer, where non-filing or incorrect filing will not result in penalization if correct submissions are submitted once the grace period ends.
The D406 must be submitted electronically in PDF format, with an XML attachment and electronic signature. The size of the two files must not exceed 500 MB. If the file is larger than the maximum limit, the portal will not accept it and the file must be divided into segments according to details set out in the Romanian guidance.
The tax authorities have indicated that, should a taxpayer find errors in the original submission, a corrective statement may be submitted to rectify these errors. The taxpayer should submit a second full corrected file to replace the original file that contains errors. If a taxpayer submits a second D406 for the same period, it is automatically considered a corrective statement.
Need to ensure compliance with the latest Romania SAF-T requirements? Speak to our team. Follow us on LinkedIn and Twitter to keep up-to-date with the latest regulatory news and updates or see this overview on VAT Compliance in Romania.
A tax authority audit can come in various forms, whether it be directly to the insurer itself or indirectly through a policyholder or broker.
It can be targeted, for example, where an insurer has been specifically identified to be investigated due to a discrepancy on a tax return, or it can be indiscriminate in its nature as part of a wider exercise being carried out by an authority.
Whatever form the audit takes, the key to responding is in the preparation beforehand.
First and foremost, insurers should ensure they are retaining copies of evidence that can be used to justify the tax amounts declared and settled. This may include the insurance contracts themselves, the invoices issued to policyholders and a record of their data that comprises the declarations that have been made.
It’s worth noting that in Italy there is a formal requirement to maintain IPT books which detail each of the premiums received during each annual period. Although this is not necessarily a specific requirement in other countries, applying this approach to all premiums received will put an insurer in a strong position if an audit is carried out.
Further documentation demonstrating compliance is also useful. If external advice has been sought, e.g., to determine the appropriate class of business for a policy and the consequent tax application, then retaining a record of this advice is advised in case this is required later.
There may be cases where a tax authority’s advice has specifically been sought and such correspondence will inevitably hold considerable weight if tax treatment is queried during a subsequent audit. Documentation of any processes in place to ensure compliance is also valuable.
As statutory limitation periods vary across jurisdictions, evidence should be kept as long as is practicable (subject to relevant data protection laws where applicable) so that it can be produced if an audit takes place.
In the digital age, this practice should hopefully not seem overly burdensome. It’s worth referring to the penalty regimes in place in some countries to put the potential repercussions of an unsatisfactory audit into context.
The UK is an example of where a behaviour-based approach to determining penalties is used, with the highest level of penalties reserved for cases of deliberate and concealed undeclared tax where the authority itself has prompted the declaration.
Lower penalties (or indeed no penalties at all) will be levied where reasonable care is taken, and reasonable care will be far more likely to be considered to have been taken where records are kept in the ways described.
Audits can happen at any time so it’s important insurers have taken the necessary steps to ensure information and data to demonstrate compliance is available to the tax authority when requested.
Ensuring the accurate and timely submission of tax returns is likely to reduce the possibility of a targeted audit. The IPT managed services team at Sovos has a huge amount of experience with tax filings in the UK and across Europe and has assisted many insurers with unexpected audits.
Get in touch with Sovos today about the benefits a managed service provider can offer to ease the burden of IPT compliance.
For anyone relatively new or unfamiliar with insurance premium tax (IPT), an understanding of each of the core components is key to ensuring compliance. They also sit in a logical sequence of five distinct areas.
1.Location of risk rules
This essentially is having a clear understanding of where the risk lies to determine in which jurisdiction the premium taxes should be declared. The rules can be complex and vary across different territories but having a clear process will help.
You’ll need to determine:
Next, check which rules apply. The EU’s four rules determine the correct jurisdiction depending on the nature of the risk:
Download our recent location of risk rules webinar to learn about the rules in more detail.
2.Class of business
A class of business is basically the category the risk falls under. Within the EU there are 18 classes of non-life business, ranging from accident and motor to miscellaneous financial loss and general liability.
The EU provides brief descriptions of each of these classes as well as some specific examples. The information is used by local tax authorities as guidance when implementing their own tax legislation.
Local rules vary so it’s important to understand your insurance policies to ensure the correct and relevant class of business is applied. Some policies may include more than one class of business which will affect the proportions of the premium that relate to each business class.
Our blog, Three Key Steps to Apply IPT on New Lines of Business is a useful resource.
3.Calculating taxes
Having determined the location of risk and the correct class of business the next step is to determine the taxes that apply and need settling.
Tax rates across the EU are fragmented and there are even more variations when you look at the varying tax rates within a jurisdiction. For example, in Spain you have an IPT rate applied at 6% yet you might also have some extraordinary risks surcharges calculated at 0.0003%.
Also consider who must carry the cost of these taxes. Is it the insured or the insurer? In most cases it’s the insurer’s responsibility, however it can fall to the policyholder.
Key to being able to determine which taxes and what rate to apply is having access to reliable software.
Register for our upcoming ‘Back to basics’ webinar, to learn more about how to calculate taxes.
4.Declaration and payment
Here again the rules vary country by country around the frequency for declaring and settling liabilities. They can be monthly, quarterly, bi-annually and annually. Failure to declare within the deadline will result in penalties and/or interest so knowing the deadlines for each return and when payment must be made are crucial.
Some tax authorities have strict rules and are quick to enforce them. Others are more lenient dealing with penalties on a case by case basis, and some (such as the UK) take a behaviour led approach where full disclosure and cooperation could lead to a far reduced penalty.
5.Additional reporting – will IPT follow where VAT leads?
Tax authorities across the world are taking a more granular approach to tax reporting to prevent fraud and reduce the tax gap. With VAT mandates in place across Latin America and more recently spreading into Europe and Asia, the VAT gap is reducing. So as governments transition to digital tax compliance wanting more data and faster, you can expect IPT will in time follow. The Spanish authorities, for example, have already started on this journey with the introduction last year of new digital reporting requirements for Extraordinary Risk Surcharges.
To stay ahead of the curve, the more prepared you are today the easier it will be to face the challenges that lie ahead as the pace of change in digitising tax compliance increases.
Keep up to date with ever changing rules by subscribing to our blogs and following us on LinkedIn and Twitter. We also host regular webinars with our in-house specialists who are on hand to help.
Progress has been made in the roll-out of the Polish CTC (continuous transaction control) system, Krajowy System of e-Faktur. Earlier this year, the Ministry of Finance published a draft act, which is still awaiting adoption by parliament to become law. Draft e-invoice specifications have been released and there has been a public consultation on the CTC system.
In June, the Ministry of Finance announced it had reviewed all comments submitted by the public and Polish ministers on the CTC system and decided to take the following actions:
In the announcement, the Minister outlined the benefits of adopting the CTC system for taxpayers. These include: quicker VAT refunds; security of the stored invoice in the tax authority’s database until the end of the mandatory storage period; certainty about the invoice delivery to the recipient through the CTC platform and therefore quicker invoice payments; automation of the invoice processing and exchange due to the adoption of a standardized e-invoice format.
In addition, as a result of the new e-invoicing rules upcoming changes in the SLIM VAT 2 package will trigger further relief measures, e.g. around the handling of duplicates and corrective invoices.
The Polish authorities are making good progress in the implementation of the Krajowy System e-Faktur. It is positive to see that the public consultation has proven useful in defining next steps and the authorities’ intent for transparency and timely documentation will hopefully continue throughout the entire CTC roll-out.
To find out more about what we believe the future holds, download Trends: Towards Continuous Transaction Controls.
For more information see this overview about e-invoicing in Poland, Poland SAF-T or VAT Compliance in Poland.
Update: 23 March 2023 by Dilara İnal
Japan is moving closer to the roll-out of its Qualified Invoice System (QIS), which will happen in October 2023.
Under QIS rules, taxpayers will only be eligible for input tax credit after being issued a qualified invoice. However, exceptions exist where taxpayers do not require a qualified invoice to take input credit.
The new system does not entail mandatory e-invoice issuance, though QIS introduces the following requirements for invoices:
While only taxpayers can register and obtain a QIIN, a supplier exempt from Japanese Consumption Tax (JCT) can register under the QIS – provided that it voluntarily applied to become a taxpayer.
In line with the implementation of the new invoicing system, the Japanese government’s 2023 Tax Reform introduces new measures for the QIS transition. It is implementing efforts to reduce the tax liability amount for three years.
The measures will also lessen the administrative burden on businesses below a specific size for six years. The government will allow companies to take an input tax deduction for book purposes, but only for small-amount transactions.
Need assistance preparing for Japan’s QIS? Our expert team is ready and waiting to speak with you.
Update: 13 July 2021 by Coskun Antal
Japan is in the middle of a multi-year process of updating its consumption tax system. This started with the introduction of its multiple tax rate system on 1 October 2019 and the next step is expected to be the implementation of the so-called Qualified Invoice System as a tax control measure on 1 October 2023.
Through this significant change, the Japanese government is attempting to solve a tax leakage problem that has existed for many years.
The Japanese indirect tax is referred to as Japanese Consumption Tax (JCT) and is levied on the supply of goods and services in Japan. The consumption tax rate increased from 8% to 10% on 1 October 2019. At the same time, Japan introduced multiple rates, with a reduced tax rate of 8% applied to certain transactions.
Currently, Japan doesn’t follow the common practice of including the applicable tax rate in the invoice to calculate consumption tax. Instead, the current system (called the ledger system) is based on transaction evidence and the company’s accounting books. The government believes this system causes systemic problems related to tax leakage.
A new system – the Qualified Invoice System – will be introduced from 1 October 2023 to counter this. The key difference when compared to an invoice issued today is that a qualified invoice must include a breakdown of applicable tax rates for that given transaction.
Under the new system, only registered JCT payers can issue qualified tax invoices, and on the buyer side of the transaction, taxpayers will only be eligible for input tax credit where a qualified invoice has been issued. In other words, the Qualified Invoice System will require both parties to adapt their invoicing templates and processes to specify new information as well as the need to register with the relevant tax authorities.
A transitional period for the implementation of the new e-invoicing system applies from 1 October 1 2019 until 1 October 2023.
In order to issue qualified invoices, JCT taxpayers must register with Japan’s National Tax Agency (“NTA”). It will be possible to apply for registration from 1 October 1 2021 at the earliest, and this application must be filed no later than 31 March 2023, which is six months in advance of the implementation date of the e-invoicing system. Non-registered taxpayers will not be able to issue qualified invoices.
The registered JCT payers may issue electronic invoices instead of paper-based invoices provided that certain conditions are met.
The introduction of the Qualified Invoice System will affect both Japanese and foreign companies that engage in JCT taxable transactions in Japan. To ensure proper tax calculations and input tax credit, taxpayers must make sure they understand the requirements, and update or adjust their accounting and bookkeeping systems to comply with the new requirements in advance of the implementation of the Qualified Invoice System in 2023.
Get in touch with our experts who can help you prepare for the Japanese Qualified Invoice System.
Turkey’s e-transformation journey, which started in 2010, became more systematic in 2012. This process first launched with the introduction of e-ledgers on 1 Jan 2012 and has since reached a much wider scope for e-documents.
The Turkish Revenue Administration (TRA), the leader of the e-transformation process, has played an important role in encouraging companies to embrace the digitalization of tax and created a successful model for following tax-related procedures.
You can read more about Turkey’s e-transformation in our e-book Navigating Turkey’s Evolving Tax Landscape.
The process was further accelerated with new requirements for e-documents.
The TRA continues to widen the scope of e-documents and the types of e-documents in use are:
Many taxpayers have voluntarily adopted the new system since the TRA launched this whole process and TRA’s latest updates for e-documents are critically important to monitor for tax-related procedures.
As e-documents become more popular, any income loss arising from tax procedures will reduce. E-documents offer additional advantages for public institutions and private businesses, such as saving time, minimising costs and improving productivity. It’s certain that the scope of e-documents in Turkey will keep expanding in the future, which will affect taxpayers and tax procedures.
Get in touch to find out how Sovos tax compliance software can help you meet your e-transformation and e-document requirements in Turkey.
Since 1993, supplies performed between Italy and San Marino have been accompanied by a set of customs obligations. These include the submission of paperwork to both countries’ tax authorities.
After the introduction of the Italian e-invoicing mandate in 2019, Italy and San Marino started negotiations to expand the use of e-invoices in cross-border transactions between the two countries. Those negotiations have finally bore fruit, and details are now available.
Italy and the enclaved country of San Marino will abandon paper-based customs flows.
The Italian and Sammarinese tax authorities have decided to implement a “four-corner” model, whereby the Italian clearance platform SDI will become the access point for Italian taxpayers, while a newly created HUB-SM will be the SDI counterpart for Sammarinese taxpayers.
Cross-border e-invoices between the countries will be exchanged between SDI and HUB-SM. The international exchange system will be enforced on 1 July 2022, and a transition period will be in place between 1 October 2021 and 30 June 2022.
HUB-SM’s technical specifications are now available for imports from Italy to San Marino, and exports from San Marino to Italy. The countries have also decided to choose FatturaPA as the e-invoice format, although content requirements for export invoices from San Marino will slightly differ from domestic Italian FatturaPA e-invoices.
The SDI and HUB-SM systems will process e-invoices to and from taxpayers connected to them, or under each country’s jurisdictions.
In other words, Italian taxpayers will send and receive cross-border invoices to or from San Marino via the SDI platform, while Sammarinese taxpayers will perform the same activities via HUB-SM.
Both platforms will deliver invoices to the corresponding taxpayers through the Destination Codes assigned by the respective tax authorities. This means HUB-SM will also assign Destination Codes for Sammarinese companies.
Inspired by the Italian methodology for fiscal controls in cross-border transactions, San Marino will require Sammarinese buyers to fill out an additional integration document (similar to a “self-billing” invoice created for tax evidence reasons) upon receipt of the FatturaPA. This document will be filled out in a new XML-RSM format created by the enclave and sent to HUB-SM.
After the larger rollout of the SDI for B2B transactions in 2019, the platform has proven capable of adapting to new workflows and functionalities.
Since last year, e-purchase orders from the Italian National Health System have been exchanged through the NSO, an add-on to the SDI platform. In January 2022, the FatturaPA replaces the Esterometro as a cross-border reporting mechanism.
SDI has already debuted in the international arena through the acceptance of the e-invoices following the European Norm, which are mapped into a FatturaPA before being delivered to Italian buyers. This integration between SDI and HUB-SM might also reveal the early steps of interoperability between both tax authorities’ platforms for cross-border trade.
Get in touch with our experts who can help you understand how SDI and HUB-SM will work together.
Download VAT Trends: Toward Continuous Transaction Controls to find out more about the future of tax systems around the world.
Norway announced its intentions to introduce a new digital VAT return in late 2020, with an intended launch date of 1 January 2022. Since then, businesses have wondered what this change would mean for them and how IT teams would need to prepare systems to meet this new requirement. Norway has since provided ample guidance so businesses can begin preparations sooner rather than later.
With this new VAT return, the Norwegian Tax Administration (Skatteetaten) seeks to provide simplification in reporting, better administration, and improved compliance.
This new VAT return provides for an additional 11 boxes, increasing the count from 19 to 30 boxes which are based on existing SAF-T codes to allow for more detailed reporting and flexibility. It’s important to note that the obligation to submit a SAF-T file will not change with the introduction of this new VAT return.
This change is for the VAT return only – with the SAF-T codes being re-used and re-purposed to provide additional information. Businesses must still comply with the Norwegian SAF-T mandate where applicable and must also submit this new digital VAT return.
Skatteetaten has created many web pages with detailed information for businesses to look through over the next few months including the following:
Norway is encouraging direct ERP submission of the VAT return where possible. However, the tax authorities have announced that manual upload via the Altinn portal will still be available. Login and authentication of the end user or system is carried out via ID-porten.
Additionally, Norway has provided a method for validation for the VAT return file, which should be tested before submission to increase the probability that the file is accepted by the tax authorities. The validator will validate the content of a tax return and should return a response with any errors, deviations, or warnings. This is done by checking the message format and the composition of the elements in the VAT return.
Businesses should begin preparations for the implementation of this new VAT return, as there will likely be challenges along the way.
In addition to the new VAT return, Norway has also announced plans to implement a sales and purchase report, which is currently in an early proposal stage in review with the Ministry of Finance. The next phase is mandatory public consultation which is when a desired launch date will be set. Skatteetaten notes that implementation time will be considered when determining an introduction date for the report.
Get in touch to find out how we can help your business prepare for Norway’s 2022 Digital VAT Return requirements. Follow us on LinkedIn and Twitter to keep up-to-date with the latest regulatory news and updates.
In Poland, the Ministry of Finance proposed several changes to the country’s mandatory JPK_V7M/V7K reports. These will take effect on 1 July 2021. The amendments offer administrative relief to taxpayers in some areas but create potential new hurdles elsewhere.
The JPK_V7M/V7K reports – Poland’s attempt to merge the summary reporting of a VAT Return with the detailed information of a SAF-T – have been in effect since October 2020. Taxpayers must submit these reports (V7M for monthly filers, V7K for quarterly filers) in place of the previously-used VAT Return and JPK_VAT files.
The JPK_V7M/V7K reports require taxpayers to designate within each file the invoices subject to special VAT treatment. For example, invoices representing transfers between related parties or invoices for transactions subject to Poland’s split payment regime.
Split payment designations are particularly complex for taxpayers to manage. Poland’s split payment regime is broadly applicable. In some cases can be exercised at the buyer’s option. This makes it difficult for sellers to predict which of their invoices should be marked.
As a result of these complexities, and in response to taxpayer feedback, the draft amendment for 1 July would abolish the split payment designation. This would significantly reduce the administrative burden on taxpayers.
The draft amendment does, however, give rise to an additional complexity in the reporting of bad debts. Under the amended rules, taxpayers need to indicate the original due date of the payment for an unpaid invoice. For which the taxpayer is seeking a VAT relief. This is intended to help the tax authority verify bad debt relief claims. This could potentially present difficulty for taxpayers who do not maintain such information or cannot easily access it in their accounting systems.
Finally, the draft amendment would modify reporting of cross-border business to consumer (B2C) supplies of goods. This is as well as similar supplies of electronic services. These supplies are at the heart of the European Union’s One-Stop Shop regime that takes effect 1 July 2021, and as such, the current invoice designations for these supplies in JPK_V7M/V7K would be consolidated into a single, new invoice designation under the amended rules.
Poland’s JPK_V7M/V7K filings are enormously ambitious in scope. It is clear from these latest proposals that the tax authority is willing to make substantial adjustments to the structure of these filings, at very short notice. In such a dynamic landscape, it is critical that businesses stay on top of regulatory developments in order to remain compliant.
Need to ensure compliance with the latest Polish VAT regulations? Get in touch with our tax experts.
For more information see this overview about e-invoicing in Poland, Poland SAF-T or VAT Compliance in Poland.