More than six months ago the Greek authorities announced their intention to introduce mandatory e-invoicing and e-bookkeeping rules, and enough information is now available to assess what the proposed rules will mean for Greece.
Although formal legislation has yet to be published, it’s expected the new e-invoicing measures by the Independent Public Revenue Authority, the Greek authority responsible for all tax matters (AADE; in Greek, “ΑΑΔΕ”), will be mandated by January 2020.
The Director of AADE recently stated that e-invoicing is incomplete without e-reporting, so the proposed rules must encompass both areas of tax compliance. By January 2020 the goal is for reporting to occur in real-time at the same time as the invoice is issued. The new rules would make e-invoicing and e-reporting mandatory, with a real-time connection from the invoicing system (by transmission of all relevant invoice data) to the electronic system (TaxisNet) of the Greek tax authorities.
So far, no real action has been taken regarding the implementation of the new e-invoicing system, e.g. the e-invoicing process, e-invoice format requirements and the software systems to connect to the tax authority have not yet been defined. However, the Ministry of Finance recently published a Decision establishing certification requirements and describing the certification process and responsibilities for e-invoicing service providers, who would be able to perform services of issuance, delivery and archiving on behalf of the taxable person.
By comparison, more progress has been made for implementing real-time reporting. AADE has published the technical specifications for transmission of invoice data – however, the scope of the reporting framework covers other tax as well as invoice data – e.g. income tax – to the government portal (TaxisNet) and invoice data will need to be reported on a daily basis (instead of periodically as currently). These technical specifications apply to the connection from the so-called Greek “electronic fiscal devices” – which is the most commonly used compliant method for issuing (and ensuring integrity and authenticity of) B2C invoices in Greece – to TaxisNet, as well as the data transmission software operated by e-invoicing service providers.
For B2B invoices, whose integrity and authenticity can be guaranteed by any method of the EU Directive, no technical specifications have been published yet. Further clarification and legislative action by the tax administration is required. Details about service providers’ software systems and the government infrastructure are expected to be finalised by mid-2019.
Until the implementation of the new reporting framework whereby invoice data will be reported in real-time at the same time as the invoice is issued, AADE is working on the alternative that invoice data will be reported on a regular basis by the issuer only, and not the buyer, which should minimise the overall reporting workload and ensure uniqueness of data. The buyer will be able to amend the relevant reporting field on TaxisNet where there is insufficient invoice data from the supplier.
On 29 October 2018 the Government published a Bill to transpose the Directive 2014/55/EU on e-invoicing in public procurement; it however still needs to be approved. The Bill makes e-invoicing mandatory for both the supplier and the buyer/government in public procurement scenarios as of 1 April 2019.
AADE has clearly stated that mandatory e-invoicing would be incomplete without some type of combined transactional reporting; data should be created once and not several times as is currently the case. Therefore, we expect a type of “clearance” e-invoicing model in Greece, however at this stage it’s still too early to categorise the reform as being similar to Italy (“real” clearance e-invoicing) or more like Hungary (real-time reporting as soon as the invoice has been issued). Clearly, Greece is in line with the EU paradigm shift towards increased governmental control over transactional data and recognises the benefits of tighter tax compliance and in taking steps to close its tax gap.
Even if the new measures aren’t particularly welcomed by many individuals in Greece – much in the spirit of a well-held opposition against EU austerity measures which have led to riots and social unrest in the past – these new measures are well positioned to provide the Greek tax administration and government with an opportunity for structural change. The use of technology will enable more effective tax controls and enforcement as well as a more efficient tax environment for business, leading to a positive knock-on effect for future restructuring and rebuilding of the Greek economy.
Find out how Sovos can keep companies compliant with e-invoicing regulations in Greece and around the world.
Companies struggling to meet Italy’s electronic invoicing deadline of January 1 will get some relief from financial penalties if they can’t immediately issue invoices at the moment of supply, but it seems the Italian Tax Authority will not delay rolling out the system.
The government had stated that invoices that did not comply with the new mandate after January 1 would be subject to penalties ranging from 90 to 180 percent of the applicable tax. The tax authority will consider invoices not correctly formatted or not issued through the new SDI reporting system to be non-compliant.
But many businesses, especially smaller firms, have had trouble transitioning from their existing processes to the new e-invoicing framework that requires real-time e-invoice clearance through the state-operated Sistema di Interscambio, or SDI, platform.
In response to business concerns, the government is opening up to a grace period of sorts: Instead of postponing the e-invoicing roll-out as such, Italy will waive penalties for delayed clearance transmission. Furthermore, as of July 2019, Italy will loosen the main rule for when an invoice must be issued, which effectively will allow businesses more flexibility in the e-invoicing process.
The new rules on penalties allow for a short grace period. The tax authority will not apply penalties for e-invoices that are issued and cleared by the SDI within the VAT liquidation period to which the invoice belongs – in other words, by the 15th of the following month in which the invoice should be issued and consequently cleared (according to Decree n. 100 from 1998, updated in 2018). For e-invoices that the SDI issues and clears by the end of the following VAT liquidation period (usually the end of the following month), the tax authority will reduce the penalty by 80 percent.
For example, if a business can’t transmit invoices in compliance on January 1, it can delay the clearance transmission of an invoice that should have been issued to February 15 without any penalties for the delay. If the business still needs more time, it can delay the clearance transmission of invoices through the SDI until March 15 and pay an 80 percent reduction of the regular penalty.
Italy is also loosening its requirement for the timing of issuing an invoice. Since 1972, Italian VAT law has stated that suppliers must issue invoices to the government at the point of supply. However, beginning in July, suppliers will be able to issue invoices through the SDI platform within 10 days of supply. Invoices not cleared by SDI are not valid for fiscal purposes, so taking 10 days to issue an invoice could cause delays in receiving payment.
For companies doing business in Italy, the relief is welcome, but it is also a sign that Italian e-invoicing is moving forward on schedule. That means companies with Italian operations need to get their systems ready to comply with the new mandate or face penalties by mid-February.
What is also clear from the latest developments is that e-invoicing regulations in Italy can change at any time. The problem becomes exponentially more difficult to solve when businesses figure in similar changes happening all over the world. Adopting a system that automates e-invoicing and provides a single source of truth for data in both accounts payable and accounts receivable is essential.
Sovos has been keeping companies in compliance in Italy for more than a decade. Find out how Sovos saves clients from penalties, cancelled shipments and other potentially expensive e-invoicing pitfalls.
Companies dealing with complex sales and use tax determination, VAT regulations and other tax challenges across the globe know that SAP alone is not equipped to support the varying requirements from country to country. As SAP sunsets support and updates for ECC and R3, companies must move to HANA to keep their systems up to date. With this inevitable change to S/4HANA or HANA Enterprise Cloud, now is the perfect time to step back and develop a comprehensive strategy to managing tax worldwide.
SAP users must migrate to HANA by 2025, but a majority have not yet started the process. Since the move requires major changes to ERP infrastructure, SAP users with global operations should take advantage of the unique opportunity to be more strategic in their implementation. With the right approach, companies can future-proof their solutions in a way that ensures they can keep pace with constant changes in tax regulations throughout Latin America, Europe and beyond.
Learn how to minimise business disruption during an SAP S/4HANA upgrade project in the wake of modern tax: Read Preparing SAP S/4HANA for Continuous Tax Compliance and don’t let the requirements of modern tax derail your company.
Governments around the world are implementing technology for tax enforcement. In order to keep up, companies must make the digitisation of tax a core pillar of their HANA migrations.
In the move to HANA, companies must consider the new world of tax, which includes:
The move to S/4HANA or HANA Enterprise Cloud requires companies to move all of their processes, customisations and third-party add-ons to the new platform. As such, there are several critical considerations.
Since most companies’ SAP ERP systems have been built and customised over many years, many will benefit from a phased approach to HANA implementation. The less customised modules, such as Financial Accounting (FI) and Controlling (CO) will be easier to move than Materials Management (MM) or Sales and Distribution (SD), which will need a long-term plan for customisations.
Many SAP configurations have become a patchwork of customised code and bolt-on applications. This is especially true when it comes to sales and use tax determination, e-invoicing, and VAT compliance and reporting, since requirements are vastly different in every jurisdiction a company operates. The move to HANA gives companies the opportunity to consolidate, eliminating local configurations in favour of a global strategy. Companies that proactively plan can help to ensure that the next 15 years are simplified, without the constantly changing configurations needed in the previous 15 years as governments have gone digital.
With an upcoming migration to SAP HANA, businesses must consider a solution that maintains SAP as the central source of the truth while keeping pace with constant regulatory change. Learn how Sovos is helping companies do just that, safeguarding the value of their HANA implementation here.
Countries within the European Union (EU) are losing billions of euros in value-added tax (VAT) every year because of VAT fraud, VAT evasion, VAT avoidance and inadequate tax collection systems. As of 2016, the VAT gap in the EU was 159.5 billion euros, or 14% of the total expected VAT revenue for the EU. As a result, EU countries have been introducing several measures to increase VAT compliance and make their VAT systems more fraud-proof. One such measure is the split payment mechanism.
The split payment mechanism changes how VAT is generally collected by making the payment for the tax base (i.e., product price net of VAT) separate from that for the VAT amount. There are variations of the split payment mechanism, but generally, an invoice is paid by the customer to two separate accounts: The net amount is paid to the supplier’s business bank account, and the VAT amount is paid directly to a dedicated bank account of the supplier, called a VAT account. In practice, a single payment will be made and it will be divided by the bank.
Split payments are regarded as a measure to combat VAT fraud and non-compliance by removing the opportunity for suppliers to charge VAT and disappear without declaring or paying it to the tax authority (‘missing trader fraud’). It digresses from the mainstream of VAT collection in the EU, which relies on vendor-based collection of VAT and on periodic remittance of VAT by registered traders.
The European Commission completed a comprehensive study of split payments in December 2017 to design and assess legally and technically feasible scenarios for a split payment mechanism as a VAT collection tool. The study found:
“….no strong evidence that the benefits of split payment would outweigh its costs. The main identified effects were that a wider scope of split payment would potentially provide a larger decrease of the VAT gap, but would also significantly increase the related administrative costs.” [source]
Despite the European Commission’s inconclusive assessment, split payment mechanisms are currently in place around the world, primarily outside of the EU. In the EU, Italy and Romania have implemented split payment mechanisms while Poland plans to implement it, and the UK has started to consider it.
Italy has employed a split payment mechanism since January 1, 2015 for payments to public authorities under Law 23/12/2014, n. 190 (Stability Law). It has been expanded several times, most recently on January 1, 2018. Currently, it applies to supplies of goods and services rendered to several categories of public bodies, such as public economic entities, special companies, foundations and their subsidiaries, as well as companies included in the FTSE MIB index. As per the design of the system in Italy, suppliers charge Italian VAT on goods and services made to the entities listed above. These customers then “split” the payment of the invoice: they pay the taxable amount to the suppliers and pay the VAT to an allocated VAT bank account of the treasury.
In Poland, split payments are scheduled to be implemented as of July 1, 2018. Unlike Italy, Poland’s scheme will not require customers to make two separate payments. Instead, Poland will require a single payment executed to the bank who will then split the payment into two separate bank accounts: one account for the amount net of VAT to be paid to the supplier’s business bank account, and the other account for the VAT amount to be paid directly to a dedicated VAT bank account of the supplier.
The scope of Poland’s split payment mandate is much broader than Italy’s as it will apply to all VAT registered businesses. On the other hand, the Polish split payment mechanism will be optional as the buyer may but does not have to apply it.
In Romania, a split payment mechanism has been implemented since January 1, 2018 for companies which exceed certain thresholds for outstanding VAT liabilities. Under the Romanian split payment mechanism, obligated VAT registrants are required to open separate bank accounts for the collection and payment of VAT. The VAT split payment applies to all their taxable supplies of goods and services, for which the place of supply is in Romania. Similar to Italy but unlike Poland, the split payment mechanism is mandatory. The suppliers charge Romanian VAT on goods and services, then the split payment is made by the business customer, who transfers the VAT directly to the VAT bank account of the supplier. The VAT bank account of the supplier can only be used for output and input VAT payments.
The UK has held a public consultation on adopting anti-VAT fraud split payment mechanism for eCommerce. The split payment mechanism would require the VAT due on online supplies to be paid directly to the UK tax authorities at the time of purchase. The UK is debating several issues:
HMRC has made an initial proposal with respect to how the split payment mechanism would function, titled “Alternative method of VAT collection – split payment,” and is seeking public comment until June 29, 2018. HMRC’s proposal would have the merchant identify and make the split payment for transactions relating to UK residents, and have payment service providers identify and fulfill the split payment for transactions relating to non-UK residents. There would be an approved register of payment companies (both merchants and payment service providers) who could split payments. With respect to overseas sellers, for each payment, the card issuer would check if an approved payment company will be responsible for splitting that payment. If so, the card issuer would pass the payment in full to the payment company. The payment company would then split out the VAT, pay it directly to the HMRC, and pass on the balance to the overseas seller’s bank account. If not, then the card issuer would have to split out the VAT, pay it directly to the HMRC, and pass on the balance to the unapproved payment company which would then pass on that amount to the overseas seller’s bank. Finally, the HMRC would credit the seller’s UK VAT bank account with the output VAT thus collected.
Under a split payment mechanism, suppliers may suffer negative cash flow. Although funds within the VAT account belong to the supplier, the supplier will not be able to use them freely. Such funds may be spent only in specific ways prescribed by the regulatory regime. In Poland, businesses can use the funds only to pay invoiced VAT to the VAT account of the invoice issuer, and to pay VAT to the tax authorities.
In Italy, a large delay has been observed on processing refunds to businesses (up to 90 days after quarterly VAT refund request). This hiatus allows authorities to hold input VAT for a longer period of time, earning interest for the government, while affecting the cash flow of Italian businesses. To fully estimate the cash flow implications of a split payment system, one must consider the costs of borrowing for the businesses and for the government.
The European Commission considered a variety of factors and models of split payment mechanism to determine impacts on businesses. The impact of split payments on different types of businesses varies depending on a number of factors, including the type of transaction, where the liability lies for the payment, whether the transaction is cross-border, and compliance costs that businesses will bear to implement split payment best practices.
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Split payments are emerging as a new VAT collection mechanism in the European Union. Businesses need to continue to stay alert and adaptive in the ever-changing landscape of VAT compliance. Contact us to know how we can help your business to stay on top of VAT Compliance landscape.