In a blog post earlier this year, we wrote about how several Eastern European countries have started implementing continuous transaction controls (CTC) to combat tax fraud and reduce the VAT gap. However, it’s been an eventful year with many new developments in the region, so let’s take a closer look at some of the changes on the horizon.
Latvia has recently revealed its new CTC regime plans. The Latvian government approved a report prepared by the Ministry of Finance to implement an electronic invoicing system in the country. The concept described in the report envisages the introduction of electronic invoicing as mandatory for B2B and B2G transactions from 2025 under the PEPPOL framework. The details about the system, including the legislation and technical documentation, are expected in due course.
Serbia is another country moving rapidly towards a CTC framework, and apparently, various stakeholders find this movement rather quick. The Ministry of Finance recently announced that upon the request for a transition period to adapt to the new system of e-invoices, they have decided to postpone the date for entry into force of CTC clearance for B2G transactions until the end of April 2022. It must be noted that there has been no delay concerning B2B transactions.
According to the revised calendar:
Slovenia is also looking to introduce CTCs. In June 2021, the Ministry of Finance submitted a draft law to the Slovenian parliament, aimed at introducing mandatory B2B e-invoicing in the country. According to the draft regulation, all business entities would be obliged to exchange e-invoices exclusively in their mutual transactions (B2B). In the case of B2C transactions, consumers could opt to receive their invoices in electronic or paper form. However, the Ministry of Finance withdrew the draft law due to disagreement with various stakeholders but intends to review it by simplifying the process and reducing the administrative burden on businesses.
Discussions around the introduction of CTCs in the country continue among various stakeholders, e.g., the local Chamber of Commerce. However, seeing as national elections are expected in Slovenia in April 2022, the CTC reform is not expected to gain much traction until summer 2022 at the earliest.
Earlier this year, we reported that the Slovakian Ministry of Finance had prepared draft legislation to introduce a CTC scheme. The aim was to lower Slovakia’s VAT gap to the EU average and obtain real-time information about underlying business transactions. Public consultation for the draft law was completed in March 2021. However, no roll-out timeline was published at the time.
Over the past months, the Slovakian government has launched the CTC system and published new documentation. The CTC system is called Electronic Invoice Information Systems (IS EFA, Informačný systém elektronickej fakturácie) and is a unified process of electronic circulation of invoices and sending structured data from invoices to the financial administration. The timeline for the gradual roll-out of entry into force looks as follows:
There have been serious developments regarding Poland’s CTC framework and system, the Krajowy System e-Faktur (KSeF). The CTC legislation was finally adopted and published in the Official Gazette on 18 November 2021. Starting from January 2022, KSeF goes live as a voluntary system, meaning there is no obligation to use this e-invoicing system in B2B transactions. It is expected that the system will be mandatory in 2023, but no date has been set yet for the mandate.
For more information see this overview about e-invoicing in Poland or VAT Compliance in Poland.
With the largest VAT gap in the EU (34.9% in 2019), Romania has also been moving towards introducing a CTC regime to streamline the collection of taxes to improve and strengthen VAT collection while combating tax evasion. In October 2021, 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 basic technical specifications of the CTC e-invoicing system. While the Romanian e-Factura went live as a voluntary system on 6 November 2021, no timeline has yet been published for a mandate. 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.
For more information see this overview about e-invoicing in Romania or VAT Compliance in Romania.
Contact us or download VAT Trends: Toward Continuous Transaction Controls to keep up with the changing regulatory landscape.
Several EU Member States have been introducing continuous transaction controls (CTCs), aiming to close their VAT gaps, increase revenue and have more control over the data of their economy. However, the CTC regimes adopted by those countries are far from uniform. So far, Italy is the only country that obtained a derogation from the VAT Directive to introduce mandatory e-invoicing in domestic flows. Other countries, such as Hungary and Spain, instead adopted an e-reporting approach, which avoids the need for a derogation from the European Council as it does not mandate e-invoicing.
These national movements towards CTCs have not passed unnoticed by the European Commission which commissioned a study to assess the current CTC landscape and analyse different scenarios involving new technologies and digitization of business processes. This project is broadly called “VAT in the Digital Age”. It includes the analysis of CTC regimes, the VAT treatment of the platform economy, and the creation of a single EU identification number.
Although the final study is yet to be published, preliminary findings have been discussed in some forums. The study has found that CTCs exist in Europe, with southern and central-eastern Europe at the forefront of local implementations. That also means that the Member States have implemented local flavours of CTCs in a non-uniform and non-standardised way, often creating a burden to multinational companies and cross-border commerce.
One of the study’s goals is to assess the cost-benefit for tax authorities and businesses trading under CTC rules. The study investigates a few approaches, including real-time reporting, mandatory e-invoicing, and periodical reporting (including SAF-T schemes). It is expected that the research will consider EU-wide standards/platforms for CTC models and analyse the possibility of leaving things as they are (but removing the need for the Member States to ask for a derogation before the implementation of mandatory e-invoicing schemes).
The “VAT in the Digital Age” initiative is not the sole CTC project on the EU’s agenda. Italy has also asked the European Council to extend the country’s derogation for its e-invoicing mandate. The ongoing discussion, which includes Italian data estimating an increase in public revenue of more than EUR 2 billion might considerably influence the conclusions of the “VAT in the Digital Age” initiative.
After the study’s publication, the European Commission is expected to open a public consultation to debate the future of CTCs in Europe, a single EU VAT registration, perhaps expanding the One-Stop-Shop (OSS) scheme for transactions and subjects currently out of scope and the VAT treatment of the platform economy. The public consultation is expected to open before the end of this quarter.
Get in touch or download VAT Trends: Toward Continuous Transaction Controls for an essential guide VAT compliance.
Electronic invoicing is rapidly becoming a standard business process. Governments are pushing for the adoption of B2G invoicing to optimize the public procurement process and also to provide a boost to the adoption of e-invoicing between businesses.
Apart from countries that have introduced general e-invoicing mandates to improve fiscal controls – most of which have so far been in Latin America – countries in Europe and some in Asia are looking towards the PEPPOL framework to generate both business process and fiscal benefits through standardization.
PEPPOL was established to simplify interoperability, initially for public procurement transactions, but it is being built upon to encompass fiscal reporting or invoicing ‘clearance’ concepts as well.
As part of harmonizing and digitizing public procurement processes within the EU, governments and other public bodies under Directive 2014/55/EU are required to be able to send and receive electronic invoices in accordance with the European Standard EN-16931.
All EU Member States’ public administrations had to be able to receive e-invoices at least for public procurement transactions either by November 2018 or by April 2019, with the possibility for Member States to extend the deadline by one extra year for sub-central authorities.
Several countries have taken the opportunity to generally mandate B2G electronic invoicing when implementing the Directive 2014/55/EU, so that both the public sector and private sector supplier will be obliged to send invoices electronically in B2G transactions.
Examples of countries that have introduced B2G mandatory e-invoicing are Sweden, Croatia, Estonia, Lithuania and Slovenia, and there is an upcoming mandate in Portugal that will come into force for all companies by January 2022. Finland is aiming for the same effect through a buyer-initiated mandate for the supplier to send e-invoices.
The PEPPOL project was initiated in 2008. One of its main objectives was standardization of the public procurement process in European governments. PEPPOL is a set of artifacts and specifications created to enable cross-border e-procurement, supported by a multi-lateral agreement structure which is owned and maintained by the OpenPEPPOL association.
PEPPOL aims to remove complexity around interoperability, as all parties that use PEPPOL will adhere to the same regulations and technical standards to exchange e-documents. Through the PEPPOL network, companies can exchange electronic procurement documents including e-Orders, e-Advance Shipping Notes, e-Invoices and e-Catalogues via access points based on what is known as a four-corner model – meaning that suppliers and buyers are represented by service providers that process data on their behalf.
While PEPPOL is known to have its initial focus in Europe, it is expanding beyond the EU to Asia and recently has also received more attention in the Americas. Singapore was the first country in Asia and the first outside Europe to establish a PEPPOL Authority, facilitating the framework on a national level, but was soon followed by other countries.
Currently, there are OpenPeppol members in 31 countries. In addition to countries in Europe, these include Australia, Canada, China, Japan, Mexico, New Zealand, Singapore and USA, with Japan being the newest addition.
As explained above, several EU Member States took the opportunity when transposing the Directive 2014/55/EU to make B2G e-invoicing mandatory.
More countries are now following that path:
Developments in B2G e-invoicing can no longer be considered separate from B2B e-invoicing. After all, many companies supply goods or services to public authorities, and investments in complying with government customer requirements under schemes like PEPPOL will drive the use of these same standards and rules in the business-to-business sector.
This also means that initiatives towards business-to-business electronic invoicing as a way for tax administrations to receive VAT-relevant data in real-time or near-real-time are increasingly influenced by concepts from the public procurement world.
This spillover goes well beyond conceptual inspiration. In Italy, for example, support for mandatory e-invoicing for VAT control purposes in 2019 was built on a massive data processing platform that was initially designed to facilitate public procurement. France and Poland are far down the path of similar architectures for their continuous transaction controls plans.
As PEPPOL becomes more popular as a standard to make country-specific public procurement methodologies more easily accessible for suppliers abroad, its concepts will increasingly penetrate the broader worlds of electronic invoicing, electronic trade and fiscal compliance.
Need to ensure compliance with the latest e-invoicing regulations? Get in touch with our tax experts.
Update: 25 June 2024 by Dilara İnal
The German Ministry of Finance (MoF) released a draft guideline on 13 June 2024, detailing the upcoming B2B e-invoicing mandate which will roll out on 1 January 2025.
Although the current law only obliges taxpayers to issue and receive e-invoices for domestic B2B transactions, the MoF plans to introduce an e-reporting system for invoice details at a later stage, with no set date.
The highlights from the guidelines are:
The final version of the guideline is expected by Q4 2024.
Update: 26 March 2024 by Dilara İnal
The German parliament passed the Growth Opportunities Act (Wachstumschancengesetz – the Act) concerning various tax matters on 22 March 2024, including a nationwide B2B electronic invoicing mandate.
The Act was originally scheduled for a vote at the end of 2023, with enforcement planned for January 2024. However, the lack of consensus between the Bundestag and Bundesrat – lower and upper houses of the parliament, respectively – in various provisions of the Act delayed its finalisation.
The Mediation Committee of the Bundestag and Bundesrat concluded its negotiations about the Act on 21 February 2024, and the Bundestag approved the amended text on 23 February. The Bundesrat’s vote on 22 March completed the parliamentary process.
The implementation timeline for this mandate has been confirmed as follows:
Mandatory receipt of e-invoices for domestic B2B transactions will be required for all businesses. Additionally, businesses will have the option to issue e-invoices that are compliant with the approved syntaxes based on CEN 16931 voluntarily, without the Buyer’s consent.
Following this parliamentary approval, the Act will be signed by the President and subsequently published in the official gazette.
Acceptable invoice formats to issue in following years:
| Domestic B2B Invoices | 2024 | 2025 | 2026 | 2027 | 2028 |
| Paper Invoices |
Allowed |
Prohibited for large taxpayers |
Prohibited for all |
||
| E-invoices in EN 16931 format |
Allowed with Buyer’s consent |
Allowed |
Mandatory for large taxpayers |
Mandatory for all |
|
| EDI invoice not EN 16931 format |
Allowed with Buyer’s consent |
Allowed if are interoperable with the CEN, if the required information can be extracted into CEN | |||
| Other invoices in e-form (e.g. PDF, JPEG) |
Allowed with Buyer’s consent |
Allowed if are interoperable with the CEN, if the required information can be extracted into CEN** Please note that exchange on EDI is permitted if the e-invoice aligns with European standards. |
|||
Is your organization unprepared for the upcoming mandate? Our expert team can help.
Update: 6 November 2023 by Dilara İnal
In October 2023, The Federal Ministry of Finance (MoF) released additional information regarding electronic invoicing, one of the proposed tax measures included in the Growth Opportunities Act.
If the MoF’s proposal, with the details provided in the preceding updates, becomes law, the following will be applicable:
Besides MoF clarifications, the upper house of the German Federal Parliament, Bundesrat, addressed the Act during its session on 20 October. While the Bundesrat supports the introduction of mandatory e-invoicing, it has proposed a two-year delay so the mandatory receipt of electronic invoices commences on 1 January 2027.
In the next steps of the process, the lower house of the Parliament, Bundestag, is expected to vote on the Growth Opportunities Act in mid-November. The upper house’s vote should take place in mid-December.
Looking for more information on the global adoption of e-invoicing? Read our definitive E-invoicing guide.
Update: 20 September 2023 by Dilara İnal:
On 30 August, the German Federal Government approved the draft act known as the “Growth Opportunities Act,”. The act consists of several provisions on different tax matters, including the introduction of a nationwide B2B e-invoicing mandate.
Key dates for implementation of the mandate include:
The draft bill approved by the government does not change the previously communicated framework, however it extends the voluntary phase by one year. The voluntary phase will last until January 2027 for small companies with annual turnover of 800,000 EUR or less in 2025.
The Federal Parliament and the Federal Council are expected to give their approval to this reform by the end of 2023.
Looking for additional guidance on invoicing in Germany? Speak with our team of experts.
Update: 4 August 2023 by Dilara İnal
The German Federal Ministry of Finance (the Ministry) shared the draft “Growth Opportunities Act” with significant German business associations on 14 July 2023. This act introduces amendments to VAT law to implement mandatory e-invoicing, along with other national and international tax-related proposals.
Currently, issuing an electronic invoice requires the buyer’s consent. Proposed amendments will change this, with invoices for transactions between German resident taxpayers – known as domestic B2B transactions – required to be electronic.
The act also introduces a new definition for e-invoices. An electronic invoice is defined as an invoice issued, transmitted and received in a structured electronic format that enables electronic processing. An e-invoice must also comply with the eInvoicing standard of the European Committee for Standardization (CEN), EN 16931.
The Ministry previously shared its plan to roll out mandatory e-invoicing as of January 2025. This date remains the same in the amendment proposals, with transitional measures giving taxpayers some time and flexibility to comply with the new requirements:
Even though this act does not include any provisions for a transaction-based reporting system, it notes that such a reporting system for B2B sales will be introduced later.
The European Council authorised Germany to introduce special measures regarding mandatory electronic invoicing with its decision dated 25 July 2023.
Germany received the derogation from the VAT Directive from 1 January 2025 to 31 December 2027 or, if an EU directive is adopted earlier than planned, until the national transposition of the VAT in the Digital Age (ViDA) directive into German law.
Looking for additional guidance on invoicing in Germany? Speak with our team of experts.
Update: 21 April 2023 by Anna Norden
The German Federal Ministry of Finance sent a discussion proposal for the introduction of mandatory B2B e-invoicing in Germany on 17 April to significant German business associations.
The business associations are requested to provide their opinion on matters such as the following by 8 May:
The proposed e-invoicing mandate is a step toward implementing a real-time transaction-based reporting system for creating, verifying and forwarding e-invoices. This system is not part of the current proposal, but – as this is directly related to an e-invoice mandate – the ideas for such a system are laid out at a high level by the Ministry of Finance.
The final aims to provide a uniform electronic transaction-based reporting system for national and cross-border B2B transactions. The invoice exchange would be done via a central or private platform.
No verification of the full invoice content would be performed or interruption of forwarding of the invoice – however, the issuer’s platform would check (“Plausibilitätsprüfungen”) that all mandatory fields are present, whether structure and syntax are EN-compliant and so on.
The reporting of the invoice would be in real-time at the same time as the invoice is sent so that the supplier would not have to initiate two transactions.
The Ministry of Finance states the aim is for the new system to be aligned with ViDA but that Germany counts on having to use a derogation from the provisions of the VAT Directive to introduce the e-invoice mandate, should ViDA not be adopted in time.
While many have speculated around Germany going down the path of the Italian e-invoicing system, the message from the Ministry of Finance seems rather to be that the cues are taken from the French system, with the use of a centralised platform complemented with private service providers who serve to channel the invoices.
Need to discuss how Germany’s proposal to introduce continuous transaction controls could affect your business? Speak to our tax experts.
Update: 3 November 2021 by Joanna Hysi
There’s been increased discussion among different institutions about the introduction of continuous transaction controls (CTCs) in Germany to combat tax fraud and boost the competitiveness of the German market in Europe.
Proponents of the introduction of CTCs in Germany include, among others: the parliamentary group of the business-friendly Free Democratic Party (FDP), the German Association for Electronic Invoicing (VeR) and an independent judiciary body, the German Bundesrechnungshof (Federal Audit Office).
Recently, we’ve seen this topic included in tax policy negotiations of the coalition partners that emerged from the recent German government elections (the Social Democratic Party (SPD), FDP, and the Green Party).
While the discussions remain at a conceptual level, the new potential coalition parties display political will for reform in this area.
Specifically, the German Bundesrechnungshof proposed to the Ministry of Finance a real-time reporting system leveraging blockchain technology as an efficient system to combat VAT fraud. However, their proposal wasn’t accepted on the grounds that a cost-benefit analysis is required before such measures are proposed and implemented.
As part of a parliamentary process the FDP called for “an electronic reporting system comparable to the Italian SDI to be introduced nationwide as quickly as possible, for the creation and testing and forwarding of invoices”. The leading German industry association, the VeR, welcomed this proposal recognising its numerous advantages to companies and the German economy.
A VeR study on whether the Italian model can be used as a blueprint for Europe explains that although it doesn’t seem to have contributed significantly to reducing Italy’s VAT gap, the advantages of e-invoicing to companies and the Italian economy are convincing. It concludes that the Italian clearance system can serve as a model for the digitization of VAT in Germany, if not in Europe. In addition, the VeR experts offer their knowledge to develop such a CTC system in Germany.
It seems that the idea of introducing a CTC system in Germany – following in the footsteps of fellow Member States like Italy, France and Poland – is gaining traction and might not be far from becoming reality if the coalition partners indeed manage to reach a coalition agreement to succeed the currently ruling party.
To 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.
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.
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.
Moving goods from one place to another is a quintessential part of business. Manufacturers, wholesalers, transporters, retailers and consumers all need to carefully orchestrate the shipping and handling of raw materials, parts, equipment, finished goods and other products to keep business flowing. This supply chain harmony is what makes production and trade possible in society.
In Canada, the United States and most European countries, tax administrations don’t intervene much in these trade processes. Until recently, the same could be said about most countries of Latin America. But, with the rise and expansion of electronic invoicing mandates in the region, this is rapidly changing.
Most governments with mature e-invoicing mandates are now recognizing that these mechanisms and government platforms can be used as vehicles to understand where, what, how and when goods are being moved. The traditional electronic invoice, is no longer enough – and tax authorities are requiring businesses to report goods movements in real-time.
The implications are serious too. Goods moved on public roads without those documents are very likely to be seized by the authorities, and the owners and transporters will be subject to fines and other sanctions.
The country with the most sophisticated system in place is arguably Brazil. The MDF-e (or Manifesto Eletrônico de Documentos Fiscais) is a mandatory document required by the tax administration in order to audit the movement of goods in Brazil.
This purely digital document combines the information of an electronic invoice (NF-e) and the electronic documents that hauling companies issue to their clients (CT-e). This system became mandatory in 2014 and has since been expanded and modernized with a vast grid of electronic sensors and transponders placed in the public highways of Brazil, intended to ensure that every truck moving goods already has the corresponding MDF-e, NF-e and CT-e. In most cases, the authorities don’t need to stop the trucks to verify the existence of the document.
Mexico recently issued a new resolution requiring taxpayers delivering goods, or simply redistributing them, to have the corresponding authorization from the tax administration (SAT). Products delivered by road, rail, air or waterways need to have what is known as the CFDI with the Supplement of Carta Porte.
CFDI is the acronym for an electronic invoice in Mexico. That supplement of Carta Porte is a new attachment to the electronic invoice of transfer (Traslado) issued by the owners delivering products or to the CFDI of Income (Ingresos) issued by the hauling companies. Carta Porte will provide all the details about the goods being transported, the truck or other means being used, the time of delivery, route, destination, purchaser, transporter and other information. This new mandate will become effective on 30 September 2021. As is in Brazil, noncompliance with this mandate will result in hefty penalties.
Chile also has a mandate requiring the delivery of goods to be pre-authorized by the tax administration. These tax authorized documents are locally known as Guias de Despacho (or dispatch guides) and since January 2020 they can only be issued in an electronic format.
There are some exceptions where the dispatch guide can be issued temporarily on a paper format by certain taxpayers. Also, in cases of contingency, taxpayers may be authorized to issue paper versions of the guide; however, that will not exempt the issuer of regularizing the process once the contingency is complete.
The content of the dispatch guide will vary depending on who issues it and the purpose of the delivery (sales, consignment, returns, exports, internal transfers etc.) but in general, delivery of goods in Chile without the authorized dispatch guide will be subject to penalties from the tax administration (SII).
Argentina has a federal level VAT and a provincial level gross revenue tax. To control tax evasion, both levels of governments exercise certain levels of control in the process of dispatching goods within their jurisdictions.
The tax authority’s system for controlling the flow of goods in public ways is not as encompassing as in Brazil, Chile and Mexico, but it is getting closer. Only the provinces of Buenos Aires, Santa Fe and Mendoza, plus the City of Buenos Aires, require authorization from the fiscal authority to move goods that originated in, or are destined to, their jurisdictions. For that, they require the COT (or Transport Operations Code) where all the data related to the products, means of transport and other information is included once the authorization is provided. The provinces of Salta, Rio Negro and Entre Rios are working on similar regulations.
At federal level, the AFIP (Federal tax administration) only requires pre-authorization for the delivery of certain products such as meat and cereals. But at this level too, the regulatory environment is changing.
The AFIP, along with the Ministry of Agriculture and the Ministry of Transportation have issued a joint resolution 5017/2021 that mandates the use of a digital bill of lading (Carta Porte Electronica) whenever there is a transfer of agricultural products on public roads in Argentina. This change will become effective on 1 November 2021. In 2022, this federal requirement may expand to other products.
The requirement of authorization for moving goods in LatAm is not limited to the largest economies of the region. Smaller countries with electronic invoicing systems have expanded, or are in the process of expanding their mandates to require taxpayers to inform the tax authority, before goods are moved as result of a sale or any other internal distribution.
For instance, Peru requires the Guias de Remision from taxpayers before they start the delivery of their products. This electronic document should be informed to and authorized by the tax administration (SUNAT) using the digital format established for that purpose and will include all the information about the product delivered, issuer, recipient, means of transport, dates and more.
Uruguay has the ‘e-Remitos’ which is an electronic document authorized by the tax administration (DGI). It is required for any physical movement of goods in Uruguay. As in other countries, this document will provide all the information about the goods being transported, the means used, the issuer, the recipient and additional data. It is electronically delivered and authorized by the tax administration using the XML schemas established for that purpose.
Lastly, in Ecuador the tax administration (SRI) requires the ‘Guias de Remision’ (Delivery Guide) for any goods to be transported legally inside the country. As the infrastructure to support the electronic invoice is not fully developed in Ecuador, in some cases the tax administration allows the taxpayer to comply with this part of the mandate by having the electronic invoice issued by the retailer delivering the goods to his clients. Even though Colombia and Costa Rica do not require a separate electronic document to authorize the transport of goods, it is expected that in the future, this requirement will come into effect, mirroring what has happened in many other countries of the region.
The common element of all these mandates in Latin America, is that all of them are closely knitted to the electronic invoicing system imposed in each country. They are basically seen as another module of the electronic invoice system where information regarding goods being transported by public roads, waterways, by rail or air should be submitted to the tax administration, via the XML schemas established for that purpose.
Tax administrations in the region are actively enhancing their systems to ensure that movements of goods are properly controlled in real time. In some cases, tax administrations have provided online solutions aimed at taxpayers with small numbers of deliveries. But for all other taxpayers, a self-deployed solution is required.
Enforcement of the mandate is made not only by the tax administration, but also by the police and the public roads authorities, both of which routinely seize goods for non- compliance. Since these mandates have proven to be successful to control tax avoidance and smuggling, it’s safe to say that the Remitos, Dispatch Guides, Carta Porte or COTs are here to stay for good and taxpayers doing business in Latin America have no option but to comply with this new regulatory requirement.
To 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.
More than 170 countries throughout the world have implemented a VAT system, and some of the most recent adopters are the Gulf countries. In a bid to diversify economic resources, the Gulf countries have spent the past decade investigating other ways to finance its public services.
As a result, in 2016 the GCC (Gulf Cooperation Council), consisting of Saudi Arabia, UAE, Bahrain, Kuwait, Qatar and Oman, signed the Common VAT Agreement to introduce a VAT system at a rate of 5%.
Following the VAT agreement, Saudi Arabia and UAE implemented VAT in 2018. Bahrain followed with a VAT regime in 2019. Most recently Oman enforced a 5% VAT from April 2021, and looking ahead both Qatar and Kuwait are expected to enact VAT laws within the next year.
After the implementation of VAT and the increase of VAT rate from 5% to 15%, Saudi Arabia has taken the next step to digitize the control mechanisms for VAT compliance.
The E-invoicing Regulation enacted in December 2020 sets out an obligation for all resident taxable persons to generate and store invoices electronically. This requirement will be enforced from 4 December 2021.
Saudi Arabia has made considerable progress since it first introduced VAT in 2018. The Saudi E-invoicing Regulation is expected to not only encourage digitization and automation for businesses, but also to achieve efficiency in VAT controls and better macro-economic data for its tax authority, a development which will likely be replicated by other GCC countries soon.
Considering the efforts involved in the digitization of government processes and the VAT implementation timeline, the next candidate for similar e-invoicing adoption would likely be the UAE. While there are currently no plans for a mandatory framework, the UAE has announced bold plans for general digitization. According to the UAE government website, “In 2021, Dubai Smart government will go completely paper-free, eliminating more than 1 billion pieces of paper used for government transactions every year, saving time, resources and the environment.”
The spread of VAT digitization is typically the second reform following VAT adoption. As Bahrain and Oman also have VAT systems in place, introduction of mandatory e-invoicing in the next a few years in these countries would not come as a surprise. The adoption of e-invoicing in Qatar and Kuwait would depend on the success of VAT implementation, therefore it is not easy to estimate when their VAT digitization journey will begin but there is no doubt that it will happen at some stage.
After the adoption of e-invoicing, the Gulf countries may continue to digitize other VAT processes, including VAT returns. Pre-population of VAT returns using the data collected through e-invoicing systems is another trend that the countries are moving towards.
Regardless of the shape and form of digitization, there will be many moving parts in terms of VAT and its execution. Businesses operating in the region should be prepared to invest in their VAT compliance processes to avoid unnecessary fines and reputational risk for non-compliance.
To 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.
A current mega-trend in VAT is continuous transaction controls (CTCs), whereby tax administrations increasingly request business transaction data in real-time, often pre-authorising data before a business can progress to the next step in the sales or purchase workflow.
When a tax authority introduces CTCs, companies tend to view this as an additional set of requirements to be implemented inside ERP or transaction automation software by IT experts. This kneejerk reaction is understandable as implementation timelines tend to be short and potential sanctions for non-compliance significant.
But businesses would do better to approach these changes as part of an ongoing journey to avoid inefficiencies and other risks. From a tax authority perspective, CTCs are not a standalone exercise but part of a wider digital transformation strategy where all data that can be legally accessed for audit purposes is transmitted to them electronically.
In many tax authorities’ vision of digitization, each category of data is received at ‘organic’ intervals that follow the natural cadence of data processing by the businesses and data needs of governments.
Tax administrations use digitization to access data more conveniently, on a more granular level, and more frequently.
A business that doesn’t consider this continuum from the old world of reporting and audit to the new world of automated data exchange risks over-focusing on the ‘how’ – the orchestration of messages to and from a CTC platform – rather than keeping a close eye on the ‘why’ – transparency of business operations.
Data received quicker and in a structured, machine-exploitable format is infinitely more valuable for tax administrations as it gives them an opportunity to perform deeper analysis of both varying taxpayer and third-party sources of data.
If your business data is incomplete or faulty, you are likely exposing yourself to increased audits, as your bad data is under scrutiny and more transparent to the taxman.
Put differently, in a digitized world of tax, garbage-in will translate to garbage-out.
Many companies already have the magic formula to fix these data issues at their fingertips. Start by preparing for this wave of VAT digitization with a project to analyse internal data issues and work with upstream internal and external stakeholders – including suppliers – to fix them.
Tools designed to introduce automated controls for VAT filing processes can help achieve better insight into the upstream data issues that need ironing out. These same tools can also help you through the CTC journey by re-using data extraction and integration methods set up for VAT reporting for CTC transmission, thereby creating better data governance and keeping a connection between these two naturally linked processes.
A lot of bad data stems from residual paper-based processes such as paper or PDF supplier invoices or customer purchase orders. Taking measures now to switch to automated processes based on structured, fully machine-readable alternatives will make a big difference.
Improving invoice data is not the only challenge. With the inevitable broadening of document types to be submitted under CTC rules (from invoice to buy-side approval messages, to transport documents and payment status data) tax administrations will cross-check more and more of your data, as well as trading partners’ and third parties’ data — think financial institutions, customs, and other available data points.
Tax administrations are unlikely to stop their digitization efforts at indirect tax. Mandates to introduce The Standard Audit File for Tax (SAF-T ) and similar e-accounting requirements show how quickly countries are moving away from the old world of tax and onsite audits.
All this data, from multiple sources with strong authentication, will paint an increasingly detailed and undeniable picture of your business operations. It is just a matter of time before corporate income tax returns will be pre-filled by tax administrations who expect little to no legitimate changes from your side.
‘Substance over form’ is a popular aphorism in the world of tax. As more business applications and data streams become readily accessible by tax administrations, you need to start considering data quality and consistency as a first step towards thriving in the world of digitized tax enforcement.
In the end, tax administrations want to understand your business. They don’t just want data, they want meaningful information on what you do, why you do it, how you trade, with whom and when. This is also exactly what your owners and management want.
So the ultimate goals are the same between businesses and tax administrations – it’s just that businesses will often prioritise operational efficiency and financial objectives whereas tax administrations focus on getting the best, most objective information possible.
Tax administrations introducing CTCs as an objective may be a blessing in disguise, and there are benefits of introducing better analytics to your business to comply with tax administration requirements.
The real value lies in real-time insight into business operations and financial indicators such as cash management or supply chain weaknesses. This level of instant insight into your own business also enables you to always be one step ahead, leaving you in control of the picture your data is providing to governments.
CTCs are the natural next step on a journey to a brave new world of business transparency.
Download VAT Trends: Toward Continuous Transaction Controls for other perspectives on the future of tax. Follow us on LinkedIn and Twitter to keep up-to-date with regulatory news and developments.
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.
The Turkish Revenue Administration (TRA) has published updated guidelines on the cancellation and objection of e-fatura and e-arsiv invoice. Two different guidelines are updated: guidelines on the notification of cancellation and objection of e-fatura and guidelines on the notification of cancellation and objection of e-arsiv.
The updated guidelines inform taxable persons about the new procedures for objection against an issued e-fatura and e-arsiv invoice. And how this must be notified to the TRA. Due to changes in the objection procedure, the e-arsiv schema has also changed. There has not yet been a change in the e-fatura schema, however it could also change in the near future. The updated guidelines state that the TRA platform can be used to notify the TRA about objection requests made against an issued e-fatura and e-arsiv invoice.
From July 2021, electronically issued documents won’t be mentioned in the so called ‘BA and BS forms’. The BA and BS forms are generated to periodically report issued or received invoices when a total invoice amount is 5.000 TRY or more. All limited liability and joint stock companies are obliged to create and submit the forms to the TRA even if they don’t have any invoices to report.
The TRA recently published a new provision stating that electronically issued documents will not be shown in BA and BS forms and instead will be reported directly to the TRA in the clearance (e-fatura) and reporting(e-arsiv) process. Considering that the TRA receives the invoice data for electronically issued invoices in real-time, relieving taxpayers from reporting invoices through BA and BS forms creates a more efficient system in which the relevant data will be collected only once from taxpayers.
At its current stage, e-documents won’t be mentioned in these forms. However, in order for the TRA to have accurate invoice data about each taxpayer, it needs to be notified which are the final invoices and disregard any objected or cancelled documents when evaluating taxpayer data.
Although the cancellation process is already performed through the TRA platform for basic e-fatura and e-arsiv, objection requests are made externally (through a notary, registered letter or registered e-mail system), meaning the TRA does not have visibility of all objections. There could therefore be a risk that the TRA considers a cancelled document (due to objection) as issued which could result in discrepancies between the taxpayer records and the data that the TRA considers relevant for tax collection.
Therefore, taxpayers must now notify the TRA about objection requests to avoid any discrepancies between their records and BA and BS forms. The final goal of this application is that the BA and BS forms will be completely auto populated by the TRA in future.
According to the Turkish Commercial Code, any objections or cancellation requests must be made within eight days. Suppliers and buyers can raise an objection request which must be made externally (through a notary, registered letter or registered e-mail system) and registered in the TRA system.
For e-arsiv application, there are two ways for suppliers to notify the TRA about the objection request. They can either use the e-arsiv schema (automated) or register the request in the TRA portal. Buyers can see this request on the TRA platform and may respond, although they are not obliged to. Because e-self-employment receipts are also reported through e-arsiv application, the same objection rules apply.
For e-fatura, since there is no change in the schema, it is not possible for suppliers or buyers to notify the TRA using e-fatura schema. Currently, they can only notify the TRA about e-fatura objections through the TRA platform. Taxpayers can also respond to objection requests only through the platform.
The TRA has taken a step towards the digitalization of cancellation and objection requests. However, there is still not an automated way to perform these actions. Before the digitized objection process becomes reality in the country, the authorities must take a more sophisticated approach towards automating the process as well as introducing or amending applicable legislation.
Get in touch to find out how Sovos tax compliance software can help you meet your e-transformation and e-document requirements in Turkey.
An amendment in the General Communiqué No. 509 has announced healthcare service providers and taxpayers providing medical supplies and medicines or active substances must use the e-invoice application from 1 July 2021.
Published in the Official Gazette the implementation will cover healthcare service providers who have signed contracts with the Social Security Institution (SSI) and all taxpayers providing medicines and active substances and medical supplies.
This includes:
Within this scope, organisations must use the e-invoice application as of 1 July. Organisations signing contracts with SSI after this date must use e-invoice prior to their issue of invoices to SSI.
From 1 January 2020 all organisations included in the e-invoice application scope have to apply the e-arşiv invoice on the date of e-invoice application. Any healthcare organisations included in the amendment will then have to apply the e-arşiv invoice on 1 July.
The digitisation process will minimise physical contact, a significant benefit following the Covid-19 outbreak. Furthermore, organisations will no longer have to prepare or store physical documents as they are stored electronically.
For organisations that issue invoices to SSI, transactions such as payment terms will become faster and more efficient via the e-invoice and e-arşiv invoice applications. In addition to the transfer of all invoice-related processes to the digital environment.
Organisations that carry out the e-issuance process via the TRA Portal or via a third-party integrator will benefit from easy access to documents, improved efficiency, and business continuity as a result.
Get in touch to find out how Sovos tax compliance software can help you meet your e-transformation and e-document requirements in Turkey.
Italy postpones e-document legislation until 2022. In September 2020, Italy introduced major changes to the country’s rules on the creation and preservation of electronic documents. These new requirements were expected to be enforced on 7 June 2021 however the Agency for Digital Italy (AGID) has now decided to postpone the introduction of the new rules until 1 January 2022.
The new ‘Guidelines for the creation, management, and preservation of electronic documents’ (“Guidelines”) regulate different aspects of an electronic document. By following the Guidelines, businesses benefit from the presumption that their electronic documents will provide full evidence in court.
The postponement of the introduction of the Guidelines is a reaction from the AGID to claims of local organizations who have particularly expressed concern about the obligation to associate metadata with e-documents. The Guidelines set forth an extensive list of metadata fields for keeping alongside e-documents in a way that will enable interoperability.
In addition to delaying the introduction of the new e-document legislation, the AGID has also modified metadata requirements. They included new pieces of metadata and changing the description of some fields. The AGID has also corrected references – especially to standards – and rephrased statements to clarify some obligations.
The updated Guidelines and their corresponding Appendices are available on the AGID website.
Get in touch to discuss e-invoicing requirements in Italy.
It’s good to see light at the end of the tunnel. Nonetheless, it’s too little, too late for many smaller – but also plenty of larger – companies. Thousands couldn’t weather the storm because they were particularly dependent on human contact. Others were affected disproportionally simply because COVID-19 hit them just as they traversed a difficult period in their life cycle. As we see the first successes of anti-COVID-19 vaccines, businesses and markets are gaining confidence that by the last quarter of 2021, countries will be back at a new cruising speed. With a few notable exceptions, many of the world’s strongest economies will take years to recover from the aftermath.
As with all crises, the past year has accentuated weaknesses and accelerated failures. Whilst it must be acknowledged that the COVID-19 crisis would have been far worse without the internet and the current state of technology adoption worldwide, remaining pockets of legacy processes where companies were lagging in their digital transformation have become highlighted as employees struggled to balance health concerns with the imperative to keep things running in deserted offices and data centers.
One area where inefficiencies have been exposed is on-premises software. Many companies have started adopting cloud-based software to support different categories of workflows and connections with trading partners; however, many larger companies have been reluctant to move core enterprise systems – such as ERPs, logistics or reservation systems – to the cloud. The reason behind this reluctance is often that legacy systems have been highly customized. Whilst many enterprise software vendors offer public-cloud versions that present many benefits over on-premises deployment in theory, the practical challenges of adapting organizations and processes to ‘canned’ workflows designed around standard best practices have often outweighed them.
Another set of challenges are more intricate. Manual processes still dominate in order and invoice management across companies of all sizes globally. Where workflow software allows accounting personnel to access the system remotely, approvals and postings could be managed from home offices, but the prevalence of paper in many vendor and customer relationships still required people to manage scanning, printing, and mailing or – yes – faxing key documents from offices with limited access.
These problems will be harder to overcome, as expensive industrial-strength machines for the processing of paper documents cannot easily be put in home offices. The answer to this challenge doesn’t lie in creative ways to convert people’s kitchens into scan or print centers, but in finally taking the big leap towards end-to-end data integration.
Interestingly, if COVID-19 isn’t enough of a reason to take that automation leap, businesses can expect a helping hand from tax administrations. Many countries had already started large-scale programs to push continuous transaction controls (CTCs). Such as mandatory real-time clearance of digital invoices. The current global health crisis is pushing tax administrations to accelerate these programs. We have seen announcements of plans towards such compulsory e-invoicing or digital reporting of accounting data in countries like France, Jordan and Saudi Arabia. In addition to several countries including Poland and Slovakia who stated their intent to follow in the footsteps of countries in Latin America and also European frontrunners like Italy and Turkey. Even in Germany, which has long resisted the call of CTCs, a significant political party has proposed decisive action in this direction.
These initiatives are still often motivated by the need to close tax gaps. However the need for resilience in revenue collection is clearly another driver. Also, examples from countries like Brazil have shown that CTCs massively improve governments’ ability to track and monitor the economic effects of a crisis down to the smallest sectoral detail. This gives them granular data that can be used for surgical fiscal policy intervention to guide the most severely affected activities through a crisis.
With all circumstances conspiring to give businesses a reason to get across that last mile towards full automation – the interface between their and their trading partners’ sales and purchasing operations – you would think that companies are now putting plans in place to get ready for a fully digital, much more resilient set of processes and organizational structures.
Unfortunately, the way that CTC mandates get rolled out and the way that companies respond to them have historically rather slowed down investment in business process automation and the adoption of modern cloud-based enterprise software.
CTC mandates are unbelievably diverse, ranging from a full online second set of accounting books to be maintained through – among other things – additional classification of supplies in the government-hosted system in Greece, to a completely different setup including service providers and transaction payment reporting being designed in France. Representatives from China are talking about blockchain-based invoicing controls, whilst countries like Poland and Saudi Arabia prepare for centralized, government-run invoice exchange networks. Mandate deadlines tend to be too short, and tax administrations make countless structural adjustments – each typically also with short deadlines and only available in local language – during implementation periods and for years thereafter.
Tax administrations could however claim with some legitimacy that deadlines are always too short, almost regardless of how much transition time taxpayers are granted, because many businesses structurally prepare too late. The global trend towards CTCs, SAF-T and similar mandates has been apparent to companies for years, yet many are ill-prepared; particularly many multinational businesses continue to consider that VAT compliance is a matter to be resolved by local subsidiaries, which step by step creates a massive web of localized procedures which rather than corresponding to corporate best practices were designed by tax administration offices.
Which brings us back to why companies aren’t adopting flashy new releases of enterprise software packages in public cloud mode. Or further automating their trading partner exchanges, more quickly. All parties in this equation want the same thing. That is seamless and secure sharing of relevant data among businesses, and between businesses and tax administrations. However kneejerk reactions to regulatory mandates by businesses, and lack of tax administrations’ familiarity with modern enterprise systems, are creating the opposite effect. Companies panic-fix local mandates without a sufficient understanding of the impact of their decisions. Neither on their future ability to innovate and standardize. The enterprise resources come first to put systems in place post-haste. They then manage the problems stemming from adopting a patchwork of local tax-driven financial and physical supply chain data integration approaches. This comes from IT budgets that then don’t get spent on proper automation.
Several things can break this vicious circle. Businesses should change their way of addressing these VAT digitization changes as revolutionary rather than evolutionary. By being well informed and well prepared, it is possible to adopt a strategic approach to take advantage of CTC mandates rather than suffer from them. Tax administrations must do their part by adopting existing good practices in designing, implementing, and operating digital platforms for mandatory business data interchange purposes. The ICC CTC Principles are an excellent way to give the world economy that much-needed immunity boost, allowing businesses and governments to improve resilience while freeing up resources locked up in inefficient manual business and tax compliance processes.
To find out more about what we believe the future holds, download VAT Trends: Toward Continuous Transaction Controls and follow us on LinkedIn and Twitter to keep up-to-date with regulatory news and other updates.
Find out why it makes sense to invest in tech and automation to streamline tax processes and alleviate the burdens finance teams face.
The shift towards digitisation necessitates a radical adaption and shift in existing tech for industries across the board. As this occurs, tensions and anxieties rise around automation and job losses. With Oxford Economics predicting that 12.5 million manufacturing jobs will be automated in China by 2030, a partially automated workforce is indeed on the horizon.
But human expertise and technology can go hand in hand, with tech supporting teams and boosting productivity tenfold. As a result, for businesses, the only way to thrive in an increasingly digital world is to invest in the right technology.
For organisations operating globally, this is of particular importance as an extensive knowledge of governmental financial legislation in many countries is needed. Financial frameworks are complex to navigate and are constantly changing. Real-time VAT reporting is increasingly prevalent worldwide, with continuous transaction controls (CTCs) tightly constricting many different jurisdictions. Without automation, the hours required to manually keep pace with new rules would far exceed realistic human capacity.
For global companies, manually submitting the paperwork for audits and reports is neither sustainable nor sensible. But an additional problem for those operating in multiple jurisdictions is how to keep pace with ever changing rules and government regulations required for business transactions.
Global governments are reviewing how they measure and collect tax returns. The aim is to improve economic standards in their countries. Digitising return processes gives way for a much more forensic and accurate view of a nation’s economic health. So it’s unsurprising that automated invoicing and reporting has pushed its way to the top of the agenda in recent years.
How the approach is taken to upgrading many transactions and interactions is contingent on specific country viewpoints – certain jurisdictions enforce varying levels of CTCs, real-time invoicing, archiving and reporting of trade documentation. Therefore those operating internationally will feel the additional pressure to accurately track and comply with multiple and complex laws with threatening hefty non-compliance fines. Trading and operating within the law now requires intelligent technology and infrastructure.
Approaches across the globe differ; Latin America pioneered mandatory B2B clearance of e-invoices, and Brazil requires full clearance through a government platform. In Europe, the EU-VAT directive prohibits countries from introducing full e-invoicing – though Italy bucked this trend in 2019, following a lengthy derogation process. As economies shift to a data-driven business model, the move towards a digital tax regime is inevitable.
The VAT gap continues to confound governments across the globe. Therefore to combat it, many nations have created their own systems. In turn, this makes a patchwork of mechanisms unable to communicate with each other. To add to this, the slow adoption of e-invoices in many countries has caused a completely fractured picture – VAT information is still being reported periodically in many countries, with each jurisdiction setting its own standard. We’re a long way from consistency in global digitisation.
As more countries develop their own specific take on digitising invoicing, things look increasingly complex. New regulatory legislation continues to surface and keeping track can cause headaches and accidental noncompliance. Global firms must maintain a keen eye on developments as they happen in all the countries where they operate and its essential they apply systems which can track and update new legislation as it happens.
But tech also needs to give an accurate reflection of an entire business’ finances. It needs to link together all the different systems to accurately report tax. This is why flexible APIs are the first order of priority. Programmes with sophisticated APIs enable tax systems to ‘plug in’ to a business and gather vital information. In turn allowing firms to showcase the necessary data, display accurate results and avoid government penalties. It’s essential that technology can integrate with a number of billing systems, ERPs, and procure-to-pay platforms when approaching sensitive government interactions. The volumes of data created and handled are enormous, and increasingly out of the realms of human possibility.
Likewise, tech can assist in formatting information as per the requests of each country, which is essential for digital reporting. Technology exists to monitor and adjust invoice formats. For example, to suit the country a business is operating in and avoid non-compliance penalties. With time usually of the essence and in short supply, tools that automate admin and free up time for strategic elements of business finance pay for themselves in dividends. Effectively, as machines are increasingly ingrained in operations, manual analytics become more challenging. Both governments and businesses are leaning on automation and advanced technology to ease the resulting administrative burdens.
A truly digital future is in the grasp of many economies, but it comes at a price. To capitalise on the rapid wave of digital transformation, businesses must arm themselves with technology. It’s time to manage the increasing realm of complex and data-driven regulations. It makes sense to invest in tech and automation to handle labour-intensive analysis and research, streamline processes, and alleviate the burdens faced by finance teams. That is without the need for costly expert staff or outsourced support. On the verge of a fully digital way of working, manually submitting the paperwork for audits and reports is no longer practical.
It is important to carefully select technology to synchronise and communicate vital information across a business’ IT infrastructure. In the current recession driven context, the pressure on finance teams is intense. The pressure to perform at their best, safeguard against any financial leaks and strictly monitor expenses and outgoings. In the face of adversity, tech can guide and support us – and could become business critical.
Investing in automation and tech doesn’t have to cost finance jobs. It can instead go hand in hand with human expertise. It can manage arduous and complex tasks. While also freeing up time and energy so businesses can concentrate on what they do best.
Find out how Sovos can help you central, standardize and automate your VAT and fiscal reporting obligations.
France is introducing continuous transaction controls (CTC). From 2023, France will implement a mandatory B2B e-invoicing clearance and e-reporting obligation. With these comprehensive requirements, alongside the B2G e-invoicing obligation that is already mandatory, the government aims to increase efficiency, cut costs, and fight fraud. Find out more.
France shows a solid understanding of this complex CTC subject, but some questions remain.
France announces VAT changes spurred on by international reforms for continuous controls of VAT transactions (“Continuous Transaction Controls” or “CTCs”). The French government aims to increase efficiency, cut costs and fight fraud through the roll-out of mandatory B2B e-invoice clearance. This coupled with an e-reporting obligation gives the tax administration all relevant data for B2B and B2C transactions. This will start with large companies.
In the report ‘VAT in the Digital Age in France’ ( La TVA à l’ère du digital en France), la Direction General des Finances Publiques – or DG-FIP – describes its aim to implement this mixed solution. Whereby mandatory clearance of e-invoices (ideally for all invoices, without exceptions such as threshold amounts etc) will lay the foundation.
This will provide the tax authority with data relating to any domestic B2B transaction. However, in order to effectively be able to combat fraud, including the carousel type, this is not enough; they need access to all transaction data. Therefore, data that the tax authority will not receive as part of the e-invoice clearance process – notably B2C invoices and invoices issued by foreign suppliers that will not be subject to a domestic French mandate, as well as certain payment data – will be subject to a complementary e-reporting obligation. (The requirement to report this latter data electronically does not mean that the underlying invoices must be e-invoices; parties can still transmit in paper between themselves.)
The report describes how the DG-FIP has considered two potential models for the e-invoice clearance process. This is via the central Chorus Pro portal (currently the clearance point for all B2G invoices). These are the V and the Y model.
In the V model there is one public platform that serves as the clearance point; the central Chorus Pro platform is the only authorized platform via which the invoice can be transmitted to the buyer, or where applicable, the buyer’s service provider.
The Y model includes in addition to the central platform certified third-party service providers, which are authorized to clear and transmit invoices between the transacting parties. This alternative is the preferred option by the service provider community. For that reason – and as this model is more resilient because it is not exposed to a single point of failure – the report appears to favour the Y model.
As to the timeline, starting in January 2023, all companies must be able to receive electronic invoices via the centralized system. When it comes to issuance, a similar roll out as for the B2G e-invoice mandate is envisaged, starting with large companies.
The report lays a good foundation for the deployment of this mixed CTC system. However many issues will need to be clarified to allow for smooth implementation. Some of which quite fundamental.
The report proposes a progressive and pedagogical deployment. This will ensure that businesses will manage this -for some radical – shift to electronic invoicing and reporting. The ICC’s practice principles on CTC are referenced, specifically noting the importance of early notice and ICC’s advice to give businesses at least 12-18 months to prepare. The first deadline comes up in just over two years’ time. It leaves only 6-12 months for the French tax administration to work out all details and get the relevant laws, decrees and guidelines adopted. This is if business should have what ICC believes is a reasonable time to adapt.
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.