Our Brexit and VAT series aims to offer the vital information and planning tips businesses operating cross border need. This week, we’re addressing fiscal representation in the EU. As the UK is now a third country from a VAT perspective, there are various urgent steps businesses must take.
Fiscal representatives are effectively an insurance policy for tax authorities, for whom they protect the ability to collect VAT. Member States in the EU have different positions on fiscal representation. Some require non-EU businesses to make a local appointment if the business requires a VAT registration.
Fiscal representatives are local businesses acting on behalf of non-EU companies. They often assume joint and several liability for VAT. Businesses who perform this role must meet a series of measures set out by the Member State in question. They often must be authorized to act by the relevant tax authority.
There are two common situations in which fiscal representatives are needed. The first is where a non-EU business registers in a Member State where fiscal representation is required. Fiscal representation is imposed in different ways, and at the Member State’s discretion – so in some countries it’s mandatory for all non-resident businesses liable to register, whilst in others it depends on the taxpayer’s activity. Equally, some tax authorities don’t require it, whilst others make it optional.
The second common scenario for fiscal representation is where the appointment of a fiscal representative offers a business access to a beneficial VAT regime, as is the case in the Netherlands in respect of the postponement of import VAT.
Post-Brexit, the UK will become a third country for VAT purposes. Most EU nations require fiscal representation for non-EU businesses – with some notable exceptions like Germany – so all businesses that choose or must remain registered in EU nations after 31 December must determine the position of the countries in which they operate.
As many companies restructure supply chains to mitigate the consequences of Brexit, situations arise where they require VAT registrations for the first time. If the country which requires registrations demands fiscal representation, then businesses must look to appoint a local fiscal representative.
UK businesses are in a particular and complex situation. Tax authorities are struggling under the weight of mass applications for fiscal representatives, as significant need has been generated in a relatively short time. As a result, some Member States are issuing specific guidance to UK companies, and others may follow suit. France, for example, has recently clarified that UK companies don’t need to appoint a fiscal representative. Though full details and guidance are yet to arrive, this should be cause for a sigh of collective relief for all UK businesses registered for VAT in France. But beware differing positions – Belgium previously advised all UK businesses who hold non-resident VAT registrations that they require fiscal representation before the end of 2020. They relaxed this position, with the authorities offering an extension until June 2021. The coming weeks may see other Member States taking similar approaches.
Whatever individual Member States’ positions, there are time considerations to be aware of. The amount of risk that fiscal representatives take on for a company is significant. So the process for securing fiscal representation is often lengthy and can involve financial guarantees.
Fiscal representation is here to stay – so planning now is fundamental. Regardless of Brexit, the process for establishing EU fiscal representation for VAT is time consuming. As a result, businesses must act fast to establish the necessary support needed in the countries where there is a requirement to register.
Essential steps are an urgent and ongoing review of different tax authority positions, and careful planning for the associated administrative and financial costs.
Goods, Services, and VAT Recovery Post-Brexit – What do Businesses Need to Know?
UK Border Controls Post-Brexit – What you Need to Know About Importing Goods
UK Postponed Import Accounting for VAT
Post-Brexit: Postponed and Deferred Import VAT Accounting in the EU
Keen to know how Brexit will impact your VAT compliance obligations? Register for our upcoming webinar Brexit and VAT: Protect your valuable supply chains and minimise costly disruptions to find out more.
As discussed in three key reasons to appoint a VAT managed service provider, the VAT compliance demands from tax authorities around the world continue to increase. They are only going to become more onerous to boost economic efficiency, combat fraud and reduce VAT gaps. The demands for more granular tax reporting are increasing for this to be in real-time. This includes Spain, Hungary, Italy, Turkey and Mexico. These growing demands are adding to the many other challenges faced by multinational companies today. This is why more companies are looking to managed service providers (MSPs). MSPs can ease the pain points of today’s VAT compliance obligations. They make sure they’re covered for fast approaching mandates looming on the horizon.
But how do you choose the right VAT compliance MSP? With so many providers offering a range of different services, making the right choice can be daunting. Do you choose localised individual solutions or opt for a central approach? Here are seven key areas you’ll want to evaluate:
You’ll want to take a strategic view of your IT environment and map tech investments to business goals. Using an VAT compliance MSP allows you to leverage their investment in software and in the ongoing training of their staff. They’ll have been doing this for many years for many clients. It’s what they do. It’ll also allow you to automate and streamline many of your manual processes which may also be a core business objective. Make sure the software is compatible and accessible to suit your needs in each of the locations where you trade not only today but in the regions you’re looking to enter in the future.
The move to digitise tax reporting all over the world has now led to IT security considerations being important when choosing any provider. Security can therefore relate not only to the transmission of data to a provider, but also in making sure it’s safely and securely stored during, and after transmission to revenue authorities. Here a centralised provider can provide some key benefits. Portals can be used to accept data from clients, and also all information can be securely stored on a consolidated cloud, with data centres in different regions as needed to comply with data retention policies globally.
Building and maintaining a team of specialists can be time consuming and costly. With the right VAT compliance MSP, you’ll have access to their team and can benefit from their specialist knowledge and experience. Let them ease the burden. Know they’ve got their finger on the pulse of regulatory changes so you don’t have to. You can then focus on what your company does best knowing that your VAT compliance is in safe hands.
You’ll want to choose a provider that can adapt as your business needs change. You may want the flexibility to outsource only part of your tax compliance obligations depending on inhouse resources, budgets, expertise etc but have the freedom to assess and change this at any time. A tailored approach that can be altered over time will ensure your compliance needs are covered today as well as in the future.
Hand in hand with flexibility, you’ll want a provider that’s able to grow with you. They’ll already have experience and in-depth knowledge of the markets you need help with today, but make sure they can cover other regions you may choose to enter in the future. Choosing local point solution providers for different markets can cause headaches down the line.
Your MSP is there to support and service your account and should feel like an extension of your own team. You’ll want a collaborative approach and partnership-feel. Ensure you get the most out of this relationship. Also be updated on new changes in the regulatory landscape well before they’re finalised. Find out about who your account team will be and if they’re in single or multiple locations in addition to if there are any language barriers.
Even though you’ve outsourced all or part of your VAT compliance, you’ll still want to keep track of it. To that end, check what access you’ll have to the software and who in your company will have full or partial access. Also ask if logins are restricted. A secure customer portal and centralized dashboard helps keep track, at a glance, of each stage of your tax compliance. This includes traffic lights to flag priorities and approaching deadlines.
Choosing to appoint a MSP for your VAT compliance will allow you to focus on what you do best. Take care to ensure your chosen provider not only suits your needs today but also has reach and experience in the regions you’ll enter in the future. Taking time to choose the right MSP will pay dividends in the future. The right partner will be at your side for the long haul.
To learn more about the benefits a managed service provider can offer to ease your VAT compliance burden, watch our recent webinar on demand VAT Reporting: Managing Change.
Businesses that trade cross border must turn their attention to the treatment of goods post-Brexit. Recently, we discussed postponed import VAT accounting in the UK. This week, we’re turning our attention to postponed import VAT accounting in the EU.
In theory, when goods enter the EU, import VAT is immediately due to the customs authorities at the relevant border. In practice, the EU VAT Directive gives Member States the ability to determine the conditions under which goods enter their territories. This is in addition to the ability to set detailed rules for payment of VAT in respect of goods imported. This means Member States can implement mechanisms for postponed accounting via the VAT return, or deferred payment schemes, or a combination of both.
Postponed accounting via the VAT return accounts and pays for import VAT due in the taxpayer’s periodic VAT return. If import VAT is deductible, it is recoverable on the same return. This creates the benefit of neutral cashflow impact as a result. Effectively, this accounts for VAT in a similar way as acquisition tax, in that there is no physical payment of VAT to the revenue authority.
Member States are able to determine the specifics of their own deferment scheme, which may apply to every importer or be limited to certain cases.
Import VAT can create significant cashflow issues. To mitigate this it’s essential to be aware of available reliefs. Therefore post-Brexit, make the necessary application for deferred or postponed VAT accounting in the country of import.
Goods, Services, and VAT Recovery Post-Brexit – What do Businesses Need to Know?
UK Border Controls Post-Brexit – What you Need to Know About Importing Goods
UK Postponed Import Accounting for VAT
Keen to know how Brexit will impact your VAT compliance obligations? Then watch our on-demand webinar Brexit and VAT: Protect your valuable supply chains and minimise costly disruptions to find out more.
On 30 September 2020, the European Commission published its “Explanatory Notes on VAT E-Commerce Rules,” to provide practical and informal guidance on the upcoming July 2021 e-commerce regulations. This “EU VAT e-commerce package” was initially adopted (under Directive 2017/2455 and Directive 2019/1995) and set to be implemented on 1 January 2021 but has since been delayed until 1 July 2021.
The Explanatory Notes set out to explain the practical aspects of the upcoming changes to place of supply rules and reporting obligations for certain online supplies in Europe: specifically, B2C distance sales of goods imported from third countries, intra-community distance sales of goods, and cross border supplies of services. The explanatory notes provide further guidance on the application of the new One Stop Shop (“OSS”) and import One Stop Shop (“iOSS”) regimes, including scenarios where Electronic Interfaces (such as marketplaces) are deemed liable for the collection and remittance of VAT relating to underlying suppliers transacting on their platforms.
The OSS scheme:
For EU-EU goods deliveries, suppliers are no longer compelled to register and file VAT returns in every EU Member States where distance selling thresholds are exceeded. Instead, a new EU-wide threshold of €10,000 applies, after which VAT must be collected and remitted based on the destination of the goods. Under the OSS, suppliers (or deemed suppliers) may elect to register once in their Member State of identification and file a single, simplified OSS return in respect of all their EU distance sales. A similar scheme known as the Mini One Stop Shop (“MOSS”) already exists for electronically supplied services by EU and non-EU suppliers. Its scope will be broadened so that it includes all B2C services where the VAT is due in a country where the supplier is not established.
B2C suppliers who choose to participate in OSS must use it for all supplies that fall under the scheme. This shouldn’t be seen as a drawback, however, because the OSS scheme is designed to reduce admin burdens wherever it’s used. For example, in addition to simplifying registration requirements, OSS imposes no obligation to issue a VAT invoice for B2C supplies. (An EU Member State may opt to impose invoice requirements relating to service invoices only, but not for goods).
The iOSS scheme:
Distance sales of goods imported from third countries, with an intrinsic value no greater than €150, may be subject to the new iOSS simplification regime, designed to facilitate a smooth and simple collection of VAT on B2C imports from outside the EU. With the concurrent repeal of the €22 low-value consignment relief (and the absence of an alternate threshold or de-minimus) this is an attractive option for suppliers looking to reduce administrative and compliance burden. Under this mechanism, a supplier (or deemed supplier) may elect to register – via an intermediary for non-EU suppliers – for iOSS in a single Member State, and collect VAT in the respective EU country of destination, and remit monthly iOSS VAT returns in support.
The explanatory notes to the new e-commerce rules emphasize the overriding goal of making VAT collection more effective, reducing VAT fraud, and simplifying VAT administration. Nevertheless, the new rules are massive in scope, and businesses must be careful to ensure that their internal systems are properly configured prior to the changes taking effect.
To learn more about the new EU e-commerce rules, listen to our on-demand webinar A Practical Deep Dive into the New EU E-Commerce VAT Rules
In our Brexit and VAT series, we delve into some of the most important issues of the day to bring you clarity and advice.
Last week we looked at goods, services, and VAT. This week, we address UK border controls post-Brexit and importing goods.
Currently, the concept of dispatches and acquisitions applies to goods that move between Great Britain and the EU. After 31 December, the movement of goods will be subject to export and import treatment. When it comes to exports, zero rating can apply if the relevant conditions are met. However, imports are liable to import VAT and potentially customs duty.
The path to post-Brexit clarity on imports has been long and winding. In February 2020, the UK Government introduced a range of measures to ease the potential impact of a hard Brexit. The introduction of Transitional Simplified Procedures (TSP) for customs entry into the UK intended to reduce burdens on business. The UK Government also announced postponed accounting for import VAT. This allows for the tax to be accounted for at the time of the return filing rather than at import.
After signing the transition deal, the Government abandoned these measures. Controversy around the removal of postponed accounting for import VAT and the catastrophic progress of the COVID-19 pandemic are likely to have affected the UK Government’s thinking. The Spring Budget in March reintroduced postponed accounting. Then in June, Downing Street introduced updated guidance and a phased implementation in three stages for border controls. This approach serves to mitigate, to some degree, the changes brought about by the pandemic and speaks to the capacity of the UK Government itself in the coming months.
As of stage one, controlled goods like alcohol and tobacco will be subject to checks. In the event there is no preferential agreement with the exporting country, for example a Free Trade Agreement with the EU, the new UK Global Tariff lists (UKGT) will apply. The UKGT is a worst-case scenario document, showing the tariffs that will apply to imported goods in the absence of a Free Trade Agreement. The sharp eyed among us will note the changes between the current UKGT and the 2019 temporary list. In the latter, 88% of goods were tariff free, whilst the new UKGT reduces the level to 60%.
In addition to the checks, controls and costs of imports, there are a series of changes to mechanisms for importing goods that businesses must consider post-Brexit. Customs Freight Simplified Procedures (CFSP); the existing electronic customs declarations system; and Entry In Declarants Records (EIDR) will be available without application until 30 June 2021. This is as long as businesses meet the relevant conditions. After this, they’ll require approval.
Postponed VAT Accounting, introduced by HRMC on 1 January 2021, will provide some respite for businesses. It will apply to both imports from the EU and those from outside of it, and crucially, it won’t require an application. However, it doesn’t free businesses from the payment of duties, which will be applicable in line with the UKGT list.
Hopes were high for positive change on Intrastat, the mechanism for EU-UK trade statistics. Renowned for its headache causing qualities and reliance on manual data manipulation, an end to Intrastat was expected by many to be a Brexit bonus. When publishing the Border Operating Model in July 2020, HMRC confirmed that Intrastat arrivals declarations will continue to be required from those businesses that have a liability to submit in 2020. There will be no requirement for dispatches to be submitted. It should be noted that the position for businesses in Northern Ireland will be different. This is due to the Northern Ireland protocol.
Understanding import obligations and preparing well in advance of each stage of the phased implementation for border controls post-Brexit is essential.
Keen to know how Brexit will impact your VAT compliance obligations? Watch our webinar on demand Brexit and VAT: Protect your valuable supply chains and minimise costly disruptions to find out more.
The sands of transition period time are draining away. As we edge ever closer to the final Brexit deadline, there are a raft of VAT related considerations for businesses to attend to.
Though uncertainty reigns about the shape of the trading relationship, most of the Brexit scenarios up for debate would render the UK a third nation for VAT purposes. This means there are VAT implications to Brexit which will be substantial and, in many cases, immediate.
Our Brexit and VAT articles in the coming weeks, will address some of the key areas of concern for business providing information, advice and actionable insights. Here, we tackle goods, services and VAT recovery post Brexit.
On 1 January 2021, the treatment of goods moving between Great Britain and the EU will change. At present, the concept of dispatches and acquisitions applies to GB-EU trade. Post 1 January, it will be replaced by exports and imports. Though zero rating for exports exists if the relevant conditions are met, crucially, imports are liable to import VAT and potentially customs duty.
To ease the impact of this, Member States including France, Belgium and the Netherlands implement postponed accounting, allowing for import VAT to be accounted for on VAT returns. This maximises cash flow, but may require an application or licence – both of which are conditional, can be revoked, and aren’t automatic like the current mechanism for accounting for acquisition tax. HMRC is implementing postponed import VAT accounting for goods arriving from the EU – this is automatic and will also be available for imports from countries outside the EU.
When it comes to the treatment of services, businesses can breathe a tentative sigh of relief. The UK is expected to maintain the application of VAT place of supply rules in line with the VAT Directive. However, businesses will need to consider the liability to be registered in the EU and the UK on an ongoing basis. With this in mind a word of advice – any business that engages in UK-EU trade of goods should review supply chains and contingency plan for all scenarios in the new year.
Getting VAT back is a primary concern for businesses. The bad news is that it’s likely to become more complex. If a UK company is registered in the EU it can continue to recover VAT via returns, but it may be necessary to appoint a fiscal representative. If a business is neither registered nor liable to register, recovery will be via the 13th Directive, which has many drawbacks. Firstly, it’s a paper-based system with its own unique time limits. Secondly, it may cause issues of reciprocity, potentially preventing UK businesses from making claims in some countries.
EU businesses registered for VAT in the UK can continue to recover input tax via the VAT return. However, if a business is neither registered nor liable to be, recovery will be via a paper-based system. It’s important to note that the UK currently applies the reciprocity principle if a UK business would be denied a claim in the country of the claimant. For EU businesses, this means running the risk that they are denied VAT returns if there is no reciprocity between their country and the UK.
Whatever the individual situation, planning must be a priority. Claims can be made for 2020 under the current mechanisms, but deadlines will be reduced. Claims under new processes must be evaluated to ensure that no recoverable VAT is lost.
As we move into the final phase of the Brexit process, time is of the essence. With the type and likelihood of a deal still unclear, the best steps for any business trading cross border are to proactively plan, review supply chains and consider registration liabilities.
Keen to know how Brexit will impact your VAT compliance obligations? Download our recent webinar Brexit and VAT: Protect your valuable supply chains and minimise costly disruptions to find out more.
With a VAT gap across EU countries estimated at €140 billion in 2018, tax authorities are continuing to take steps to boost revenues, increase efficiency and reduce fraud. As a result, VAT compliance obligations are becoming more demanding. Failure to comply can not only result in significant fines but also reputational damage.
Many multinational companies find successfully navigating VAT compliance a challenge. Even more so when trading cross-border where VAT registration and reporting requirements differ significantly between territories. As demands increase, more companies are realising the benefits from embracing a managed service approach. This is to all or part of their VAT obligations.
From conversations with our customers, we identified three reasons for appointing a managed service provider (MSP) for VAT compliance. They are varied and apart from cost, fall broadly into three categories.
Staffing, training and retaining a team of indirect tax specialists can be expensive and time consuming. Accessing external expertise allows you to benefit from wider and more detailed knowledge and experience in complying with local tax authority regulations. Understanding local rules requires fluency in both the local language and in understanding tax law plus its implications to interpret the rules accurately. This can be a huge benefit in helping to simplify the complexities of domestic obligations. It can apply to initial VAT registrations, ongoing filings, as well as correspondence with revenue authorities whenever reviews and/or audits occur. Why struggle with the headache of resourcing and keeping up with the changing compliance landscape when there are specialist providers to ease this pain?
While the future of VAT reporting is increasingly tech-enabled, building and maintaining your own in-house software is onerous and for many companies is the key driver to getting external help with their VAT compliance obligations. By using a technology enabled MSP, you’ll have access to their VAT compliance software. It will help you stay ahead of changing VAT rates and requirements as they happen wherever you do business. Using a MSP that is technology enabled allows them to take care of any real-time/continuous reporting requirements. This includes Spain’s SII. This should also be far more cost effective than doing this in-house. Automating at a regular cadence prevents being caught out by missed filings that need to happen all too frequently to be done cost effectively by a person.
Keeping up with the ever changing requirements of VAT rates, new mandates and reporting requirements can be daunting. The VAT compliance landscape will continue to shift as more tax authorities move to enforce continuous transaction controls. The aim is to boost economic efficiency and close VAT gaps. The right VAT compliance MSP will ensure your business is able to meet your current VAT compliance requirements. They should also have experience in markets you may want to enter in the future. They’ll be able to guide you through VAT registrations and filing requirements as well as interpreting local complexities where needed. A valued VAT compliance MSP will also ease the burden of audits. They’ll help you whenever an audit occurs but ultimately with robust processes in place, they should also be able to prevent disputes occurring.
VAT legislation is complex and constantly changing. Businesses need the support of both managed services and technology to meet their VAT compliance obligations. In addition to continue trading with confidence. Appointing an experienced global MSP blends human expertise and technology. This can provide the perfect balance to face the changing VAT landscape head on.
To learn more about the benefits a managed service provider can offer to ease your VAT compliance burden, watch our recent webinar on demand VAT Reporting: Managing Change.
Since 31 January 2020, the UK is officially no longer part of the EU but is considered a third country to the union although EU legislation will still apply to the country until the end of 2020. Although Northern Ireland is part of the UK, the region will remain under EU VAT legislation when it comes to the supply of goods also after 1 January 2021. The EU Commission has proposed an amendment to the VAT Directive creating a new country code for Northern Ireland to be used in tax identification numbers of Northern Irish companies.
An overall obligation for EU taxpayers to use and perform supplies under an EU-approved tax ID number exists. Thus, applying EU law to supplies performed to/from Northern Ireland demands an EU-compatible VAT identification number. Currently, EU Member States use a prefix country code following the ISO 3166-1 standard that assigns the country code “GB” to the UK and Northern Ireland.
From 1 January 2021, the indiscriminate use of the “GB” prefix in VAT numbers may pose a problem for supplies of goods to/from Northern Ireland. From that date, intra-community supplies and acquisitions of goods to/from Northern Ireland will remain in the scope of the EU VAT law. Consequently, Northern Irish taxpayers must hold a specific EU VAT number to be identified as such under the European rules. Provided that the country code “GB” will be used by the UK and assigned according to British legislation, the EU Commission has proposed a new country code “XI” to be attributed as a prefix of Northern Irish tax ID numbers.
A valid EU tax identification performs many roles, such as ensuring (or facilitating) the correct tax and customs treatment for intra-community supplies. The VIES platform, that runs the EU VAT Information Exchange System, is an example of the importance the EU gives to valid tax ID numbers. To ensure parties to a transaction can check each other’s tax ID numbers and are eligible to exemptions on intra-community supplies, the EU has established the VIES system, which will likely be the first EU mechanism directly affected by the creation of the new Northern Irish country code.
Such a proposal from the EU Commission may impact Member States’ systems. Upon adoption, the new Directive will require Member States to quickly adjust their apparatus to process “XI” invoices from January 2021. Countries operating some degree of continuous transaction controls, such as Italy, Hungary, and Spain, may be expected to update their platforms to comply with the amendment.
If passed, the proposal will impact taxpayers’ accounting and ERP systems which will need to process and recognize the “XI” country code in issued and received invoices as a Northern Irish indicator. Moreover, many systems allow the use of user-assigned country codes in customized transaction flows. User-assigned country codes are ISO codes that are freely assigned by users and used at their discretion, for example flows between supported and non-supported countries within an ERP system. So far, “XI” has been a user-assigned country code. Consequently, the proposal may force many IT departments to change internal policies regulating the use of user-assigned country codes.
Tax departments must also be aware of the tax treatment of “XI” invoices, given that EU VAT law won’t apply to supplies of services performed to/from Northern Ireland, but only to supplies of goods. Consequently, companies must create internal flows to deter the use or validation of the “XI” country code in supplies of services if unaccompanied by a valid “GB” country code.
The Council of the European Union is expected to deliberate about the proposal next on 9 September.
Talk to our tax experts for immediate help or keep up to date with the changing VAT compliance landscape, download Trends: Continuous Global VAT Compliance and follow us on LinkedIn and Twitter to stay ahead of regulatory news and other updates.
CLASS – short for Classification Information System – is the new single point access search facility from the European Commission. It provides access to tariff classification data of goods entering or leaving the EU and is the latest step in developing an integrated approach to managing customs information and procedures. When goods are declared at an EU entry point, they must be classified and declared on customs transit documents either according to the Combined Nomenclature (“CN”), or a Member State’s domestic classification. CLASS provides easy access to the correct rate of customs duty and details of any non-tariff measures that apply. It also provides:
Using CLASS should save businesses significant time in obtaining the required customs information without having to rely on multiple resources across different locations, formats, and languages. Time saving means reduced administration and cost as well as swifter supply chain decision making and ultimately a more efficient goods shipping process.
By coincidence, the UK government almost simultaneously to the launch of CLASS announced the blueprint for the UK Global Tariff (“UKGT”). UKGT is the UK’s replacement for the EU’s Common External Tariff once the Brexit transition period has ended (currently expected to be 31 December 2020). UKGT, which applies duty values in UK pounds instead of Euros, should make it simpler and cheaper for businesses to import goods into the UK from overseas. It features a reduction and simplification of over 6,000 tariff categories and rates (e.g. rounding rates to whole percentages), and a lower tariff regime than the EU’s Common External Tariff, including total elimination of tariffs on a wide range of goods. The goal is to ease customs administration for business, expand consumer choice, and enhance competitiveness for UK businesses trading globally. A controversial measure is the abandonment of the EU Measuring table, which removes over 13,000 tariff variations on food products that the government views as unnecessary. Remaining tariffs will be targeted to support specific strategic industries such as agriculture, automotive and fishing, where the UK is considered competitive, and are also intended to enhance competitiveness and the uptake of “green” energies and associated products.
The simplifications heralded by UKGT may offset the anticipated increase in customs administration costs to UK businesses post-Brexit. What is less clear is whether the strategic amendments undertaken to import tariffs will harm UK businesses as their products may not be subject to commensurate low rates on entry to EU countries, especially if there is a “No Deal” outcome to ongoing UK-EU trade negotiations. What is clear, however, is that all these changes should prompt any businesses seeking to import/export goods to/from the UK from next year to review their supply chains and re-examine the impact on their sales prices and profit margins. Since import VAT is calculated on duty-inclusive prices, there may also be consequences in import VAT accounting and cash flow.
To learn more about what we believe the future holds, download Trends: Continuous Global VAT Compliance and follow us on LinkedIn and Twitter to keep up to date with regulatory news and other updates.
On 22 June, the joint Ministerial Decision that sets forth the myDATA framework was published. The decision specifies, among other things, the scope of application and applicable exemptions, the data to be transmitted, transmission methods and procedures, applicable deadlines and how transactions should be characterized.
Starting from January 2021, the required data must be reported to the myDATA platform in real-time. For information relevant to the year 2020, taxpayers have been awarded more breathing room: until the end of this year, the required data can be reported within 5 days after the issuance of an invoice, but not later than the 20th of the following month.
The implementation of myDATA will be performed in a phased manner, with ERP-based reporting of outbound and inbound data with their respective classifications starting from 1 October 2020. If a myDATA accredited e-invoicing service provider (according to the rules of the new framework) is used for e-invoicing, the reporting to myDATA through a service provider is possible from 20 July 2020.
To encourage businesses to adopt e-invoicing, the Ministry of Finance, through a draft bill published on 19 June, provided a number of incentives for businesses to use e-invoicing facilitated through service providers until the end of 2022.
The incentives provided are:
Based on these recent developments, it is clear that the Greek government wishes to promote the adoption of e-invoicing in Greece but does not yet go so far as to make it mandatory. A decision specifying the details of the e-invoicing scheme is expected to be published by the IAPR in the very near future.
For companies operating in Turkey, 2019 was an eventful year for tax regulatory change and in particular, e-invoicing reform. Since it was first introduced in 2012, the e-invoicing mandate has grown, and companies are having to adapt in order to comply with requirements in 2020 and beyond. Turkey’s digital transformation and e-invoicing landscape continues to evolve.
According to the General Communique on the Tax Procedure Law (General Communique), more taxpayers now need to comply with the mandatory e-invoicing framework. The General Communique published on 19 October 2019 covers other e-documents such as e-arşiv, e-delivery note, e-self-employment receipts, e-producer receipts, e-tickets, e-note of expenses, e-Insurance Commission Expense Documents, e-Insurance Policies, eDocument of Currency Exchange, and e-Bank Receipts.
From 1 July 2020, taxpayers with a gross sales revenue of TL 5 million or above in fiscal years 2018 or 2019 must switch to the e-invoice system. Taxpayers who meet these requirements in 2020 or later, should switch to the e-invoice system at the beginning of the seventh month of the following accounting year.
Turkey’s tax authority has set some sector-based parameters for businesses operating in Turkey. Companies licensed by the Turkish Energy Market Regulatory Authority, middlemen or fruits or vegetable traders, online service providers facilitating online trade, importers and dealers are some of the taxpayers also required to switch to e-invoices, irrespective of their turnover.
E-arsiv fatura documents B2C transactions. But also in case the transacting counterparty is not registered with the TRA for e-invoicing. Similar to e-invoice, the e-arşiv invoice, became mandatory for intermediary service providers; online advertisers; and intermediary online advertisers who switched to the system from 1 January 2020.
Taxpayers not in scope for e-invoice and e-arşiv must issue e-arşiv invoices through the Turkish Revenue Administration´s portal. That is if the total amount of an invoice issued, including taxes, exceeds:
Turkey’s Government continues to tackle its VAT gap through digital transformation. By taking greater control of reporting and requiring more granular tax detail. So, businesses operating in Turkey need powerful e-invoicing strategies to comply with the growing demands for digital tax transformation.
Sovos has more than a decade of experience keeping clients up to date with e-invoicing mandates all over the world.
With two weeks to go until the first mandatory phase of the Indian e-invoicing reform go live, the GST Council slammed the breaks. Or at least, bring it to a significant temporary standstill of 6 months. As a result, the India e-invoicing reform is now postponed until 1 October 2020
Following a long list of complaints — both from the private sector toward the GST Council, as well as from the GST Council vis-á-vis the IT infrastructure provider that powers the GST Network, Infosys — the council decided to revisit the 1 April go-live in a recent meeting held today, Saturday 14 March.
The GST council made a number of important decisions, including most notably:
The decisions made in the 39th meeting of the GST Council will require either that the legislative framework (Notifications) published in early December be amended or entirely replaced with new ones to reflect the new reality. However, it wouldn’t be unreasonable to expect even further delays to the roll out of this reform. This given to the recent economic volatility triggered by the ongoing pandemic. Only once both global markets as well as the underlying technical platforms of the GST control reform seem to stabilize will the post-October timeline of the roll out be fully certain.
Anyone predicting Italy’s clearance model e-invoicing system, FatturaPA, would undergo further reform would be right. Agenzia delle Entrate – AdE, the Italian tax authority, has issued new technical specifications and schemas for Italian B2B and B2G e-invoices. But – what do these changes really mean? And what impact do they have on business processes?
Over recent weeks, three updates have been introduced:
The inclusion of withholding taxes (especially social contributions) is one of the new content requirements for the B2B and B2G XML formats. There are also 12 new document types (including self-billed invoices and integration documents) and a further 17 new nature of transactions options (such as reasons for exemptions and reverse charges).
These content updates now require Italian companies to have a deeper understanding of the Italian tax system. The changes impact the moment taxpayers classify their supplies: under the current model, Italian companies don’t have to worry about this until the submission of their VAT returns but under the new schema this classification will be performed in real-time. These updates are likely to impact business processes. They are a necessary next step in paving the way ahead of the upcoming introduction of pre-completed VAT returns, an initiative largely considered to eliminate administrative burden and make life easier for most Italian businesses.
In parallel, further changes resulting from the new versions of the FatturaPA formats have a technical impact on businesses, demanding IT implementation readiness. Among the technical updates are the inclusion of additional fields, length of content, permitted characters, shifting from optional to mandatory field fulfillment and vice-versa, and how often a field can be repeated.
The new technical specifications also introduced new validations that will be performed by the Sistema di Interscambio – SDI, the Italian government-platform responsible for clearance of e-invoices. Most of the new validations check the content of the e-invoice against document types and the indicated nature of the transactions and require taxpayers to eventually be able to understand, process and react accordingly to new errors.
The SDI platform will start processing B2B invoices in the new FatturaPA format from 4 May 2020, but the AdE will enforce use of the new schema on 1 October 2020, triggering new validations and errors only after this date as per the Provvedimento from 28 February 2020. Different deadlines apply to B2G invoices, unless of course the AdE publishes new transition rules for these invoices before that date. The enforcement of the new schema for B2G invoices is set to begin on 1 May 2020.
In practice, the effect of these deadlines mean that while the schemas for B2B and B2G invoices are indeed the same from a technical perspective, taxpayers will must be ready for different deadlines and be prepared to work with two different invoice schemas from 1 May until 4 May.
To find out more about what we believe the future holds, download Trends in Continuous VAT Compliance.
In Turkey, the Revenue Administration (TRA) published the long-awaited e-Delivery Note Application Manual. The manual clarifies how the electronic delivery process will work in addition to answering frequently asked questions. It addresses the application as well as its scope and structure, outlines important scenarios and provides clarity for companies who are unclear about the adoption of e-delivery notes.
The e-delivery note is the electronic version of the “delivery note,” currently printed on paper. As a result, it allows the TRA to regularly monitor the movements of delivered merchandise in the electronic environment.
Electronic delivery has the same legal qualifications as the delivery note but is issued, forwarded, retained, and submitted digitally.
According to the circular published by the TRA at the end of February, taxpayers in scope of the e-delivery note application are;
Taxpayers engaged in fruit and vegetable trade as brokers or merchants completed their transitions of January 1, 2020. Other taxpayers covered by the mandate must be ready by July 1, 2020.
Taxpayers deemed to be risky or at low levels of tax compliance by the TRA must complete their transition to the e-delivery note application within three months after being notified.
Besides explaining the basic concepts, the manual also details the previously announced scenarios providing answers to many areas that were confusing for taxpayers.
The main scenarios are:
In addition, other topics covered include:
Full details on the Turkey E-Delivery Application Manual are available in Turkish from the TRA e-Document website.
Sovos has more than a decade of experience keeping clients up to date with e-invoicing mandates all over the world.
A keystone of HMRC’s Making Tax Digital for VAT (MTD) regime is that the transfer and exchange of data between what HMRC define as “functional compatible software” must be digital whenever that data remains a component of the business’s digital records. This is to maintain a wholly digitally linked audit trail between systems.
When the MTD legislation was introduced, HMRC offered businesses a soft landing period of up to one year to incorporate digital links from the date they became obliged to adopt MTD. During this period, businesses wouldn’t be liable for non-compliance penalties. In practice, this meant:
Due to feedback on the difficulty in applying the new rules, HMRC recently announced it would consider written requests for an extension on a discretionary case-by-case basis where there are genuine reasons for non-compliance (for example, those operating large corporate groups with disparate legacy systems). However, it’s clear an extension will only be granted in exceptional circumstances and businesses will need to have:
After review, HMRC will either reject the request or grant a written Direction extending that “soft landing” period by up to 12 months.
Sovos provides VAT reporting technology that is fully compliant with Making Tax Digital (MTD), including digital link. Talk to an expert.
The upcoming tax reform in Greece is expected to manifest itself in three continuous transaction control (CTC) initiatives.
Earlier this month, new technical specifications were published for the online connection of cash registers with the government portal. From June 2020, all cash registers currently used in Greece must be updated to meet the new technical specifications (available in Greek) to be able to connect and transmit their transaction data to the government portal.
The technical specifications regulate two aspects:
These specifications are complementary to those published in late 2018, which mainly regulated the security and certification requirements of the new generation cash registers. This latest development is further proof that the Greek government is committed to moving forward with the CTC plans it initially outlined two years ago.
Sovos has more than a decade of experience keeping clients up to date with e-invoicing mandates all over the world.
Certification of e-invoice service providers is an important first step and milestone ahead of the implementation of e-invoicing in Greece. The Greek Government has now defined the regulatory framework for e-invoice service providers, their obligations, and a set of requirements needed to certify their invoicing software. Find out what you need to know about the accreditation scheme for e-invoicing service providers in Greece.
E-invoice service providers are entities the taxpayer authorises to issue invoices on their behalf electronically for B2B in addition to B2C transactions. They’re responsible for issuing, the authenticity and integrity, and the transmission of transaction data to the tax authority in real-time. Other outsourced functions include e-invoice delivery to the buyer directly and archiving on behalf of the issuer.
The service provider’s software must meet a number of requirements. It must for example be able to guarantee integrity and authenticity of the invoice according to the SHA-1 algorithm, provide real-time connection with the customer’s software, and make the invoice available to the customer in electronic (or, upon request, in paper) form. Any software which meets these criteria recieves a “Suitability Permit”, which is valid for five years.
Service providers must be a Greek registered entity or permanently established in Greece. They must also meet certain technical, security and financial criteria and the invoice data must be stored within the EU. Other obligations also include making a user manual available to the customer; notifying the tax authority of each outsourcing contract they have entered into; and addressing privacy-related matters.
The transmission method to the myDATA will be the myDATA REST API and the format of the e-invoice exchanged between the parties is based on the EN norm, as defined by law just a few days ago. The myDATA website will publish any details and further legislation.
Through this Decision, the Greek Government is introducing the long-awaited secondary legislation, as mandated in the budget law 2020 earlier this year. Precisely how these provisions will work together with the myDATA scheme, scheduled to be fully operational on 1 April 2020, is still to be defined by the authorities. However, Greece requires further legislation, as well as a formal derogation decision from Brussels. This is if the Greek government wishes to mandate e-invoicing in the country. As such a reform would deviate from principles laid out in the EU VAT Directive.
Need more information on the accreditation scheme for e-invoicing in Greece? Sovos has more than a decade of experience keeping clients up to date with e-invoicing mandates all over the world.
Back in June this year, many heads were turned when the French Minister of Public Accounts and Action, Gérald Darmanin, went on record stating that the French Government has the intention of making e-invoicing mandatory also for B2B transactions. Now it seems that the Government – spearheaded on this topic by Minister Darmanin as well as by the Minister of Finance Bruno Le Maire – has moved from word to action. The French Finance Bill for 2020, formally presented after the meeting of the Council of Ministers on 27 September, codifies the plan to extend the B2G e-invoicing obligation in force today to cover also B2B e-invoices.
In just three short paragraphs, the draft finance law outlines the major principles for the budding reform. While much is left to be clarified by later decrees, art. 56 of the Finance Bill introduces the main rule that electronic form for invoices will be mandatory and that, as a result, paper invoices will no longer be permitted. It also introduces language that means that e-invoices most likely also will be cleared by the tax authority, or otherwise have the data transmitted to the tax authority to enable control of the VAT on the invoice. France will effectively, and not surprisingly, be joining the ranks of other countries such as Mexico, Turkey, Italy and Brazil, who have implemented measures to tackle its VAT gap through real-time VAT control mechanisms.
The timeline of the roll-out of the mandate will, just like the roll-out of the B2G mandate currently in force, be scheduled in stages; gradually becoming applicable for companies depending on the size of the business. The first stage of the mandate will begin on 1 January 2023, and according to the bill the entire economy should be up-and-running under the new e-invoicing system no later than 1 January 2025.
The Government also states that it, during the course of next year, will present a report to parliament, the Assemblée Nationale, presenting how the reform will be carried out as well as the underlying analysis of which method and what regulations constitute the most appropriate technical, legal and operational solution, particularly as regards the clearance/transmission of invoice data to the tax administration.
In addition to the analysis and drafting of both laws and reports that the Government announced, it’s also clear that one more critical element needs to be covered before the reform becomes a reality: Brussels.
Ever since Italy went down this same path and became the first EU country to introduce mandatory clearance B2B e-invoicing, many parallels have been drawn between the two countries. They share a similar situation in terms of VAT gap and IT infrastructures, which have made many experts (rightly) assume that France would follow down the path Italy set out. However, in order to lawfully do so, Italy had to seek and obtain permission from the EU Council to deviate from the provisions of the EU VAT Directive (2006/112/EC). The French Government has acknowledged that it will need to do the same.
Want to learn more? For a continued and in-depth analysis of the French e-invoicing reform and its challenges, please join a webinar hosted by Christiaan van der Valk, e-invoicing expert and VP of Strategy at Sovos, on this topic on 3 October.
Inscrivez-vous ici si vous désirez rejoindre le webinaire de Christiaan van der Valk le 3 Octobre.