For an overview about other VAT-related requirements in Spain read this comprehensive page about VAT compliance in Spain.
In our earlier article, Optimising Supply Chain Management: Key B2B Import Considerations, we looked at the possibility of UK suppliers establishing an EU warehouse to facilitate easier deliveries to customers. In this article, we look at this one solution in more depth – again from the perspective of B2B transactions.
When looking to set up a warehouse facility in the EU, the first consideration should be whether the warehouse will create a permanent establishment (PE) or not. Permanent establishment is a direct tax concept, but creating one can have VAT consequences if that permanent establishment is also considered a fixed establishment.
The OECD defines a permanent establishment as a fixed place of business through which the business of an enterprise is wholly or partly carried on.
The EU defines a fixed establishment as the permanent presence of the human and technical resources necessary to facilitate a supply.
However, the trend towards local warehousing, ‘just in time deliveries’, the gig economy with local contractors and other developments are causing tax authorities to adapt these definitions.
For example, with regards to warehousing, the traditional view is that a taxpayer would need to own or lease a warehouse and employ the staff for it to be considered a fixed establishment for VAT purposes. However, one tax authority has ruled that a fixed establishment can also be created where a warehouse keeper makes a defined area within a warehouse exclusively available to a taxpayer and also provides the warehouse staff.
Creating such a permanent establishment that is also considered to be a fixed establishment will have both advantages and disadvantages. On the plus side, the supplier will be required to charge VAT on local sales involving the fixed establishment, and VAT registration can be used to deduct import VAT paid. Additionally, the supplier may not be required to appoint an indirect customs agent to act as the declarant for imports. On the negative side, the business will incur local VAT on some supplies that would otherwise attract a reverse charge in the UK and may be a liability to direct tax.
As this is a blog on VAT, we will not dwell on the above, but clearly the possible use of a warehouse is one consideration in the supply chain setup.
In deciding whether and where to establish an EU warehouse there are several considerations. For the purposes of this blog, we will first consider a UK supplier looking to set up a warehouse to service customers in Spain.
Spain considers that a third-party warehouse can constitute a permanent establishment where the supplier has exclusive access to a defined area of the warehouse. Therefore it will be important to carefully review the warehouse contract for VAT consequences before signing it.
Spain has a reverse charge for domestic B2B sales. Therefore, a UK supplier importing goods into Spain and making only domestic B2B sales will not be required to charge local VAT. There will also be no requirement to submit a local VAT return, and therefore import VAT will be recovered via the 13th Directive. This will potentially be a significant negative cash flow.
To avoid this, the UK supplier could change where the goods are imported as follows:
When sending the goods to Spain, the import occurs in France. The UK supplier will declare the goods for import into France and then report a transfer of own goods from France to Spain when the goods arrive in the Spanish warehouse. Where the goods are moving by lorry, this should not be too much of an issue.
Since 1 January 2022, France has a compulsory reverse charge for import VAT, and therefore there is no issue with recovering the import VAT paid so long as the conditions are met. The supplier will need a French VAT number to report a dispatch from France and report an acquisition in Spain. The supplier will also require a Spanish VAT number to report acquisitions, but will not be required to submit a VAT declaration since all sales from the Spanish warehouse are under the extended reverse charge.
Alternatively, the goods could be imported into a French warehouse from which the UK supplier can make intra-EU deliveries to its Spanish customers, thereby avoiding the need for a Spanish VAT number and the need for SII reporting should the threshold be breached.
VAT is a transactional tax, and once a transaction has happened, it cannot be undone. Therefore, it is important to fully understand the VAT consequences of a proposed transaction before a contract is signed. Once a contract is signed, the parties are committed to the VAT consequences unless the contract can be renegotiated before the goods are shipped. Once the goods are shipped, the VAT consequence is crystallised and cannot be changed.
Get in touch with our tax experts to discuss your supply chain VAT requirements or download our e-book Protecting Global Supply Chains.
In the European Union, the VAT rules around supplies of goods, as well as ’traditional’ two-party supplies of services, are well-defined and established. Peer-to-peer services facilitated by a platform, however, do not always fit neatly into the categories set out under the EU VAT Directive (Council Directive 2006/112/EC). There are ambiguities around both the nature of the service provided by the platform operator, and the status, for tax purposes, of the individual service provider (i.e., a driver for a ride-sharing service, or an individual offering their property for rent on an online marketplace). This creates a unique challenge for VAT policymakers.
The EU Commission has recently opened a public consultation on VAT and the platform economy to address these issues. We have previously discussed other initiatives proposed by the Commission including a single EU VAT registration and VAT reporting and e-invoicing. This blog will discuss the underlying challenges policymakers face and the specific proposals set out in the consultation, which could significantly impact digital platform operators and users.
A threshold question for the VAT treatment of digital platforms is whether the platform merely connects individual sellers with individual customers – i.e., acts as an intermediary – or whether it actively provides a separate service to the customer. This question is significant because services rendered to a non-taxable person by an intermediary, under Article 46 of the VAT Directive, are sourced to the location of the underlying transaction.
In contrast, services provided to a non-taxable person under a taxpayer’s name are sourced either to the supplier’s location or, in certain circumstances, to the customer’s location. Whether a particular platform is acting as an intermediary can be very fact-specific and can depend, for example, on the level of control exercised by the platform over pricing or user conduct.
To further muddy the waters, there are potential ambiguities for VAT involving:
A final source of ambiguity is whether an individual service provider qualifies as a taxable person when making only occasional supplies; this could raise the question of whether said supplies would attract VAT.
These ambiguities present an obvious challenge to the consistent VAT treatment of platforms across the Member States.
As part of its public consultation on “VAT in the Digital Age”, the EU Commission has proposed several solutions to the challenges listed above. Of these, three proposals directly address the ambiguous nature of services provided via platforms:
These proposals aim to provide clear guidelines to Member States on how platform services should be categorised, and, therefore, which VAT rules should apply under the Directive. Perhaps the most direct is the “deemed supplier” proposal, which would attach VAT liability to platform operators under defined circumstances.
A “deemed supplier regime” already exists for platforms that facilitate sales of low-value goods in the EU, so it is likely the Commission will seriously consider this option. Notably, the public consultation solicited comments on three different permutations of the deemed supplier regime, differing only in the scope of services covered.
Whichever direction the EU ultimately goes in, it is clear that a significant change is on the horizon for digital platforms. Platform operators and platform users should pay close attention to these ongoing consultations in the coming months.
Get in touch about the benefits a managed service provider can offer to help ease your business’s VAT compliance burden.
Update: 05 January 2023 by Andres Landerretche
Since Paraguay started implementing its National Integrated System of Electronic Invoicing (SIFEN) plan in 2017, the Undersecretary of State for Taxation of Paraguay (SET) has carried out the process.
The different phases are:
Due to the arrival of SET resolution 105/21, numerous companies have been voluntarily incorporated into the system. This is to prepare for mandatory electronic invoicing in 2023. SET resolution 105/21 provides measures for the issuance of electronic tax documents and an implementation calendar for 10 groups of taxpayers.
More than 80 million electronic documents have been issued since the system started operating. With resolution 105/2021 coming into force, it is expected that over 5,000 taxpayers must issue their receipts electronically by 2023.
The SIFEN is oriented towards large and medium-sized invoice issuers, whether they join voluntarily or are mandatorily designated by the Sub-Secretary of State for Taxation (SET).
The system contemplates two moments in its operation flow:
In the first moment, because of the commercial operation, the obliged taxpayer issues the digitally signed electronic document and sends it to the buyer or receiver in XML format. The issuer must make available a graphic representation of the document (KuDE) that supports the transaction in a physical or digital format if the buyer or recipient is not operating under the SIFEN.
The second moment comprises taxpayers’ transmission of the digitally signed XML document to the SET for its approval process.
SIFEN’s operating model is deferred, meaning that the issuer of an electronic invoice must transmit the electronic documents in an XML file for their respective validation. This needs completing within 72 hours of the electronic document’s signature – any later and it will be considered as extemporaneous transmission and subject to penalties.
Electronic documents acquire the nature of Electronic Tax Documents (DTE) with legal validity and tax incidence once signed and authorised by the Tax Administration by means of an approval transaction number.
Resolution 105/2021 expands the list of those required to advance with the mass use of electronic invoicing, establishing the dates from which 10 groups of taxpayers must electronically issue all tax documents.
In accordance with the calendar established by the resolution, the companies participating in the pilot phase and voluntary adhesion became mandatory for electronic invoicing as of 1 July 2022.
The other taxpayers made up of groups 3 to 10 must implement electronic invoicing according to the schedule that begins with group 3 on January 2 January 2023, and ends with Group 10 on 1 October 2024.
More information on the taxpayer groups is available on the SIFEN web portal.
Voluntary adoption is possible for all taxpayers who wish to issue invoices electronically via the SIFEN. The minimum requirements are for companies to use software that integrates with the SIFEN and holds a valid Digital Signature certification.
Still have questions about Paraguay e-invoicing? Speak to our team of experts.
Update: 25 March 2022 by Victor Duarte
The electronic invoicing system in Paraguay has been in development since 2017 according to the plan carried out by the Undersecretary of State for Taxation (SET) to modernise and improve tax collection and minimise the incidence of tax fraud.
The introduction of the Integrated National Electronic Invoicing System (Es. Sistema Integrado de Facturación Electrónica Nacional -SIFEN –) meant the introduction of a new e-invoicing regime in the country. The adoption of this new system is currently in its voluntary adhesion phase, which began in 2019, and has allowed entrepreneurs, merchants, and companies to issue e-invoices optionally. However, from July 2022, the use of the system will gradually become mandatory for certain taxable persons.
Taxpayers in Paraguay can use the SIFEN to issue Electronic Tax Documents (Es. Documento Tributario Electrónico – DTE). The DTE is a digital version of the invoice and other traditional documents, which has tax and legal validity. The DTE has become a modern, effective, secure and transparent form to issue and manage e-invoices for distinct types of business operations.
The DTEs are validated upon issuance by the SAT to support the VAT deductions and transactions related to income tax. Among the distinct types of DTE in Paraguay, we find:
The e-invoices issued by the taxable persons that have adhered to the SIFEN are generated in XML format. The authenticity and integrity of each document are guaranteed through the digital signature and the control code that DTEs include. Each document must be sent electronically to the tax administration for its clearance.
The SIFEN is responsible for verifying and validating each document. Once it is established that the DTE meets all the requirements, it becomes a legal e-invoice. The taxable persons issuing the e-invoice then receive the verification results through the web service system.
After the e-invoice is cleared, suppliers can send the DTE to their buyers via email, data messaging or other means.
The Paraguayan Undersecretary of State for Taxation recently published a General Resolution providing administrative measures for the issuance of DTEs. This resolution also established a phased schedule of implementation, in which certain taxable persons will be required to issue e-invoices and other DTEs using the SIFEN.
The implementation schedule consists of ten stages starting on 1 July 2022 with all taxpayers who joined the pilot program to adopt the SIFEN. From January 2023, the mandate will include more taxpayers. However, it is not yet defined which companies will start in that stage. The SET aims to cover all taxpayers carrying out economic activities in the country by October 2024.
Companies in Paraguay must get ready to issue e-invoices under the requirements of the SIFEN. From 1 July 2022, all companies in the country will be able to use this system voluntarily. The list of taxpayers required to comply with the mandate will be available on the SIFEN website and on the SET website (www.set.gov.py). The SET will notify affected taxpayers via the Paraguayan Tax Mailbox known as “Marandu.”
Get in touch with our team of experts today to ensure compliance with the latest Paraguayan e-invoicing regulations.
Governments throughout the world are introducing continuous transaction control (CTC) systems to improve and strengthen VAT collection while combating tax evasion. Romania, with the largest VAT gap in the EU (34.9% in 2019), is one of the countries moving the fastest when it comes to introducing CTCs. In December 2021 the country announced mandatory usage of the RO e-Factura system for high-fiscal risk products in B2B transactions starting from 1 July 2022, and already now they are taking the next step.
For more information in general see this overview about e-invoicing in Romania or see this overview on VAT Compliance in Romania.
The Ministry of Finance recently published a draft Emergency Ordinance (Ordinance) introducing a mandatory e-transport system for monitoring certain goods on the national territory starting from 1 July 2022. The RO e-Transport system will be interconnected with existing IT systems at the level of the Ministry of Finance, the National Agency for Fiscal Administration (ANAF) or the Romanian Customs Authority.
According to the draft Ordinance, the transportation of high-fiscal risk products will be declared in the e-transport system a maximum of three calendar days before the start of the transport, in advance of the movement of goods from one location to another.
The declaration will include the following:
The system will generate a unique code (ITU code) following the declaration. This code must accompany the goods that are being transported, in physical or electronic format with the transport document. Competent authorities will verify the declaration and the goods on the transport routes.
The first question that comes to mind is what the definition of high-fiscal risk products is. The Romanian Ministry of Finance had already established a list of high-fiscal risk products for mandatory usage of the RO e-Factura system. However, it is still unknown if the high-fiscal risk product list will be the same. The Ministry of Finance will establish a subsequent order defining the high-fiscal risk products in the coming days.
If the transportation includes both goods with high-fiscal risk and other goods that are not in the category of high-fiscal risk, the whole transportation must be declared in the RO e-Transport system.
The RO e-Transport system is established to monitor the transportation of high-risk goods on the national territory.
This includes the following:
The carriage of goods intended for diplomatic missions, consular posts, international organisations, the armed forces of foreign NATO Member States or as a result of the execution of contracts, are not in the scope of the RO e-Transport system.
The draft Ordinance is expected to be published in the official gazette in the coming days. Following the publication, the Ministry of Finance will establish subsequent orders to define the categories of road vehicles and the list of high-fiscal risk products for the RO e-Transport system. Moreover, as of 1 July 2022, using the RO e-Transport system will become mandatory for transporting high-fiscal risk products.
Noncompliance with the rules relating to the e-Transport system will result in a fine reaching LEI 50,000 (approx. EUR 10,000) for individuals and LEI 100,000 (approx. EUR 20,000) for legal persons. In addition, the value of undeclared goods will be confiscated.
Need to ensure compliance with the latest regulations in Romania? Get in touch with our tax experts. Follow us on LinkedIn and Twitter to keep up-to-date with regulatory news and updates.
The European Commission’s “VAT in the Digital Age” initiative reflects on how tax authorities can use technology to fight tax fraud and, at the same time, modernise processes to the benefit of businesses.
A public consultation was launched earlier this year, in which the Commission welcomes feedback on policy options for VAT rules and processes in a digitized economic EU. In an earlier blog post, Sovos explored the aspects of a single EU VAT registration. It’s one of the main initiatives proposed by the Commission to adapt the EU VAT framework to the digital age. Another critical issue is VAT reporting obligations and e-invoicing, discussed in this blog.
The Commission sees a need for modernising VAT reporting obligations and is considering the possibility of further extending e-invoicing. The term Digital Reporting Requirements was introduced by the Commission for any obligation to report transactional data other than the obligation to submit a VAT return, i.e. reporting transaction by transaction. This means that Digital Reporting Requirements include various types of transactional reporting requirements (e.g. VAT listing, Standard Audit File/SAF-T, real-time reporting) and mandatory e-invoicing requirements.
These measures have been implemented in various fashions in different EU Member States over the past couple of years resulting in diverse rules and requirements for VAT reporting and e-invoicing across the EU. The current Commission initiative is an opportunity for the EU to obtain harmonisation in this area. Its public consultation is asking for input as to which road to take.
The public consultation contains several policy options to consider. One would be to leave things as they currently stand with no harmonisation and the continued need for Member States to request a derogation if they wanted to introduce mandatory e-invoicing. At the other end of the scale, a further option would be to introduce full harmonisation of transactional reporting for VAT for both intra-EU and all domestic transactions.
And sitting between these extremes, are several other routes. Instead of making a harmonised solution mandatory such a solution could be simply recommended and voluntary, coupled with the removal of the need to request a derogation ahead of introducing B2B e-invoicing mandates. Another way is to have taxpayers keep all transactional data and make it available on request by the authorities. And one final option could be to adopt partial harmonisation where the VAT reporting for all intra-EU supplies is aligned and mandatory but where domestically it remains optional.
While these policy options formally remain open to public consultation until 5 May here, they must now be viewed in the light of the European Parliament resolution of 10 March 2022 with recommendations to the Commission on fair and simple taxation supporting the recovery strategy.
In its resolution, the European Parliament calls upon the Commission to take actions regarding e-invoicing and reporting, to reduce the tax gap and compliance costs. Among the measures recommended are to set up a harmonised common standard for e-invoicing across the EU without delay and establish the role of e-invoicing in real-time reporting. Furthermore, the European Parliament proposes that the Commission explore the possibility of a gradual introduction of obligatory e-invoicing by 2023, where state-operated or certified systems should administrate the invoice issuance. In both cases focus should be on a significant reduction of costs of compliance, especially for SMEs.
It remains to be seen how the Commission will manage to align the European Parliament’s recommendations with their policy options and Member States where in several cases solutions have already been implemented.
Need more information? Sovos’ VAT Managed Services can help ease your business’s VAT compliance burden. Contact our team to learn more.
Making Tax Digital for VAT – Expansion
Beginning in April 2022, the requirements for Making Tax Digital (MTD) for VAT will be expanded to all VAT registered businesses. MTD for VAT has been mandatory for all companies with annual turnover above the VAT registration threshold of £85,000 since April 2019. As a result, this year’s expansion is expected to impact smaller businesses whose turnover is below the threshold but who are nonetheless registered for UK VAT.
What is MTD for VAT – A refresher
Under MTD, businesses must digitally file VAT returns using “functional compatible software” which can connect to HMRC’s API. Companies must also use software to keep digital records of specified VAT-related documents. Stored records must include “designatory data,” such as the business name and VAT number, details on sales and purchases, and summary VAT data for the period. The use of multiple pieces of software is permitted. For example, companies can use accounting software to store digital records. Additionally, “bridging software” can be used to establish the connection with HMRC’s API and to submit the VAT returns.
Since April 2021, businesses must also comply with the digital links requirement. Under this requirement, a digital link is required whenever a business uses multiple pieces of software to store and transmit its VAT records and returns under MTD requirements. A digital link occurs when a transfer or exchange of data can be made electronically between software programs, products, or applications without the need for or involvement of any manual intervention.
Hospitality reduced rate expiration
In 2020, in response to the COVID-19 pandemic, the British government introduced a 5% reduced rate on specified hospitality services. This reduced rate was increased to 12.5% starting 1 October 2021. The reduced rate is currently scheduled to expire at the end of March. As a result, the following services will return to being taxed at the standard rate beginning in April:
The expiration of this reduced rate will impact businesses in both the UK and the Isle of Man.
Get in touch with Sovos’ team of experts about the benefits a managed service provider can offer to help ease your company’s VAT compliance burden.
In November 2021, a Draft Royal Decree was published by the Chancery of the Prime Minister of Belgium, aiming to expand the scope of the existing e-invoicing mandate for certain business to government (B2G) transactions by implementing mandatory e-invoicing for all transactions with public administrations in Belgium. This obligation was already in place for suppliers of the centralised public entities of certain regions (Brussels, Flanders, Wallonia). However, going forward, it will include all public entities in all Belgian regions.
More specifically, the roll-out for mandatory issuance of e-invoices by the suppliers of public institutions in Belgium will be carried out in the following phased approach:
As a result of the transposition of the Directive 2014/55/EU, all Belgian government bodies are already obliged to be able to receive and process e-invoices within public procurement. This new national legislation expands the Directive’s scope and mandates the issuance of e-invoices by all suppliers to the federal government.
These B2G developments are not the end of the story. They are just the beginning. The Belgian Minister of Finance, Vincent Van Peteghem, announced in October 2021 that the government intends to extend the existing B2G e-invoicing obligation to also cover B2B transactions. Nevertheless, official sources have not yet communicated formal information specifying details of the mandate and its following implementation. Rumour has it that a legislative proposal for the B2B e-invoicing mandate was going to be published during 2022 with the implementation process happening in 2023.
However, considering the European Parliament Resolution last week which strongly favours harmonised and mandatory e-invoicing in the EU, Belgium will likely hold its horses at least until the Commission produces a proposal for how to manage e-invoicing and reporting in the Union.
Need to ensure compliance with the latest Belgian e-invoicing requirements? Speak to our team. Follow us on LinkedIn and Twitter to keep up to date with the latest regulatory news and updates.
Registering for Insurance Premium Tax (IPT) with tax authorities across Europe can be challenging and complex, particularly when multiple territories are involved. There are many elements businesses must consider when registering for IPT. What are the required supporting documents? Who can sign? Do documents need to be legalised? Is there a two-step process? These are just a few of the questions you may ask yourself during the registration process.
Based on common pain points we come across with our IPT customers, we’ve put together our five top tips to help make your IPT registration journey easier:
Your company is likely already writing business in the territories you need to register with. Therefore, it’s important the registration is completed promptly to avoid sanctions that some tax authorities may impose. We recommend signing and returning the documents as soon as possible to avoid such complications.
European tax authorities are very specific with their requirements, and depending on the EU Member State, the rules may be different. Generally, supporting documents should be dated within the last six months and clearly legible. Some tax authorities require documents to be notarised and apostilled, some accept electronic signatures and some do not. The registration process can be delayed when supporting documents are incorrect, or templates are completed incorrectly. To avoid delays in your registration submission, be sure to pay close attention to the instructions provided.
Whilst some requested information may seem intrusive and personal, there is always a reason for the request. We will never ask you to provide anything more than what the tax authorities require to complete an IPT registration. Your personal data is always treated with the strictest confidentiality, security and complies with GDPR standards.
Timelines for IPT registration in EU Member States can vary. Some tax authorities, such as Germany, confirm registration within a week of submission, whereas Greece can take 8-12 weeks. Don’t be concerned if your registration is not confirmed as fast as you had expected.
We are keen to have your registration completed as efficiently and swiftly as possible. If you have any queries, your registration representative is always here to help. We can address your questions by email or arrange a call to go over the entire process if this is preferable to you.
Sovos’ IPT Managed Services provides support from our team of experts using software that is updated in real-time. Additionally, our team of regulatory specialists monitor and interpret global IPT regulations, so you don’t have to.
Contact our team of experts to discover how your business can benefit from a complete end-to-end IPT offering, or download our e-book, IPT Compliance: A Guide for Insurers, to learn more about IPT across Europe.
Poland has been moving towards introducing the CTC framework and the system, the Krajowy System e-Faktur (KSeF), since early 2021. As of 1 January 2022, the platform has been available for taxpayers who opt to issue structured invoices through KSeF and to benefit from the introduced incentives.
As the taxpayers have been using KSeF for a while, let’s take a closer look at what has been happening and will happen in the future regarding Poland’s CTC reform.
Initially presented as a draft act by the Ministry of Finance in November 2021, the regulation on the use of KSEF was finally adopted and published in the Official Gazette on 30 December 2021 after several reiterations.
The regulation covers mainly the categories of authorisations, methods of authentication, and information required to access the structured invoices.
According to the regulation, taxpayers using KSEF are required to authenticate using one of the following methods: Qualified Electronic Signature, Qualified Electronic Seal, Trusted Signature, or Token.
A trusted signature confirms the identity assigned to a specific Polish Identification (PESEL) number. The token method can be used to grant authorisations in the KSeF once the taxpayer has been authenticated.
The Polish tax authority has published new information on its website about KSeF features including FAQs and further documentation.
The FAQs include information regarding the scope and operational side of the system, whereas the sample XML files and the information brochure shed light on the logical structure of e-invoices and mapping requirements.
Although the tax authority continues to make every effort to clarify the many aspects of the new CTC system in Poland, we still have a long way to go regarding the full implementation of KSeF.
For instance, during the public consultation of the draft act the Ministry of Finance stated taxpayers would be able to download structured invoices via API in XML or PDF format. As of today, there is no technical information available regarding the PDF generation within the system using the API. The tax authority has published the technical documentation related to the outbound process but there is still no documentation available on the inbound side.
More importantly, a decision authorising Poland to introduce special measures derogating from Articles of the EU VAT Directive is yet to be obtained from the EU Council for roll-out of the e-invoicing mandate for all B2B transactions. The current Polish VAT Act requires the buyer’s acceptance to receive structured invoices. As the Polish authorities aim to make the KSeF mandatory in 2023 an amendment of this provision is expected once the special measures have been authorized by the EU Council.
Need to ensure compliance with the latest CTC requirements in Poland? Get in touch with our tax experts.
For more information see this overview about e-invoicing in Poland, Poland SAF-T or VAT Compliance in Poland.
Update: 11 April 2023 by Gabriel Pezzato
The trend of tax authorities pre-filling VAT returns using data gathered in continuous transaction controls (CTCs) is persisting across many countries.
CTCs see transactional data sent in real-time through e-invoices or e-reports auto-populate VAT returns and ledgers. Below is the status of the countries that either make available pre-filled returns or have projects to do so:
Disproving returns created by the tax authorities using transactional data sent by the taxpayer is a challenging task. Tax authorities assume they either have all the data they need for an assessment or the taxpayer has failed to submit it in good time.
Therefore, it is imperative to maintain complete electronic records that pre-filled VAT returns can reconcile. Possessing analytics solutions that can perform such analysis in an automated way might also help taxpayers to identify mismatches and correct errors.
For more information on the rollout of pre-filled VAT returns, contact our team of experts.
Update: 9 March 2022 by Charles Riordan
We have previously written about the growing trend of tax authorities “pre-filling” VAT Returns using data from electronic invoices – a trend that began in Latin America and has since spread to several European countries. These pre-filled returns, when accurate, can serve as a simplification measure for taxpayers, who can fulfill their reporting obligations simply by approving what has been generated for them. At the end of 2021, two European countries, Italy and Spain, introduced pre-filled VAT Returns, with Hungary and Portugal planning to introduce them in some capacity.
The landscape for pre-filled VAT Returns has changed significantly in 2022. Hungary and Portugal have both postponed their plans to introduce them. The Hungarian tax authority (NAV) has reversed its decision to introduce pre-filled returns after delaying the eVAT project for several months due to the ongoing COVID pandemic. NAV will instead focus on enhancements to its real time invoice reporting model (RTIR). Because any efforts to pre-fill VAT Returns are dependent on the state of RTIR, it would not be surprising to see NAV revive the eVAT project down the line.
Portugal, meanwhile, had planned to potentially pre-fill sections of its annual VAT Return with data from the so-called “Accounting SAF-T,” which was due to become a mandatory filing in 2022. However, following a rejection of the state budget, the Portuguese tax administration is now stating that Accounting SAF-T will become a mandatory filing from 2024.
On the other side of the ledger, 2022 has seen France introduce pre-populated data into its VAT Returns, while Greece is considering using its myDATA system to pre-fill VAT Returns for taxpayer approval.
France is a particularly interesting case, as it has no e-invoicing regime to pull data from. Instead, auto-population of data on the French VAT Return is limited to information on imports, based on electronic customs declarations. France plans to introduce mandatory B2B e-invoicing in 2024, which may end up widening the scope of pre-population. This new approach was spurred on by a transfer of responsibility from French Customs authorities to French tax authorities for collecting VAT due on imports. Notably, only the VAT due to the authorities, as settled in the VAT Return, is pre-filled; corresponding input VAT amounts must be populated by the taxpayer (likely because some taxpayers won’t be able to claim full deductions).
Greek plans to introduce pre-filled VAT Returns are more undetermined, but some reports claim that a pilot program will be introduced at some point during 2022.
It is clear that, despite delays in Hungary and Portugal, European tax authorities are demonstrating a continuing interest in utilising pre-filled VAT returns. In fact, from a tax authority perspective, pre-filled VAT returns are the natural evolution from a mandatory e-invoicing system or a real-time invoice data reporting system – the data is already at their disposal. From the taxpayer standpoint, it is therefore imperative to maintain accurate and complete electronic records that can be reconciled with pre-filled VAT Returns. This will help taxpayers to correct any errors or raise any necessary challenges to VAT assessments. A high-quality accounting software program can be a useful tool to achieve this end.
Get in touch about the benefits a managed service provider can offer to ease your VAT compliance burden
Many businesses will now be involved in “cross border” transactions meaning that a business in one territory will sell and, often, deliver goods to a customer located within another territory. The existence of two or more tax territories in the transaction, and the possibility that there may be a customer in the EU and a supplier in a third country such as the UK, will inevitably lead to VAT challenges with varying degrees of complexity.
Different challenges will be faced by suppliers involved in B2B transactions compared to B2C transactions – although there will also be some common issues. This article will focus on B2B transactions.
Let’s consider a UK supplier with a contract to supply goods manufactured in the UK to customers within the EU.
The first point to recognise is that to deliver the goods to the EU customer the goods must pass through an EU customs border. And here is the first point for supply chain management.
Who will import the goods into the EU and what are the considerations?
The customer’s starting point is likely to be that they will want the supplier to import the goods and a salesperson, eager to please their customer, is likely to agree. Is this a problem for the supplier? OH YES!
A salesperson returns triumphant with an order with Incoterms of DDP (Deliver Duty Paid) – but is this a cause for celebration?
Deliver Duty Paid means that the supplier must deliver the goods to the territory of the customer from which, for VAT purposes, a local sale will be made. This will require the UK supplier to import the goods into the EU and this creates the first issue.
Under the Union Customs Code (UCC) the person presenting the goods to the customs authority (the declarant) must be established within the EU. An EU established business importing goods can be both the importer and the declarant. A business established outside the EU can be the importer but not the declarant. In this case the non-EU importer must appoint an EU established business to act as its “indirect customs agent”. This agent is jointly and severally liable for the import duties that are due and there are not too many businesses which provide such a service because of the risk. So the seller could find itself unable to satisfy a contractual obligation because it cannot find someone to act as its indirect customs agent in time to make the required delivery – or at all.
If a supplier successfully manages to overcome this hurdle then there is the issue of dealing with local VAT on the sale – must the supplier register for VAT and apply it to the sales invoice – or does the reverse charge apply? And will the customer pay the non-refundable duty costs incurred by the supplier at the border?
The takeaway here is that a contract concluded under DDP terms may be much easier for the sales team to achieve but it can create serious issues down the line. UK suppliers should seek to agree any Incoterm other than DDP wherever possible.
To reduce the possibility of delays some UK suppliers have set up warehouse facilities within the EU from which deliveries can be made. One issue which can affect both VAT and direct taxes is whether the warehouse creates a permanent or fixed establishment. For the purposes of this article we assume no – although creating a permanent establishment could avoid the need to appoint an indirect customs agent.
Once the UK supplier has successfully brought the goods into an EU warehouse it will make deliveries to customers. One big consideration here is how the import VAT is dealt with. Several Member States offer the possibility to postpone import VAT to the VAT return via a reverse charge. In such circumstances import VAT deduction is guaranteed so long as the formalities are followed and the business is able to fully recover VAT. Where goods are imported into a Member State where import VAT must be first paid and then deducted consideration as to how this will happen is important. Where there is a VAT registration in place, the VAT can normally be recovered via the VAT return. However, where the Member State of import has a reverse charge mechanism for domestic sales, a non-EU supplier will need to make 13th Directive claims to recover import VAT. One Member State where this will arise is Spain which has reciprocity rules in place so not all businesses are able to make 13th Directive claims.
Therefore if a supplier is considering utilizing an EU warehouse or making sales on a DDP basis, they should first map out all of the likely flows and then determine the VAT treatment to understand if any negative VAT issues will arise. The planning opportunities and potential pitfalls that arise from such a warehouse will be considered in a later article.
Get in touch with our tax experts to discuss your supply chain VAT requirements or download our e-book Protecting Global Supply Chains.
Unlike many other country initiatives that we have seen in the e-invoicing space recently, Australia does not seem to have any immediate plans to introduce continuous transaction controls (CTC) or government-portal involvement in their B2B invoicing.
Judging from the recent public consultation, current efforts are focused on ways to accelerate business adoption of electronic invoicing. This consultation builds on the government’s previous outreach undertaken in November 2020 on “Options for the mandatory adoption of e-invoicing by businesses”, which led to a serious government effort to enhance the value of e-invoicing for businesses and increase business awareness and adoption.
In addition to a decision to make it mandatory for all commonwealth government agencies to receive PEPPOL e-invoices from 1 July 2022, the Australian government seeks to also boost e-invoicing in the B2B space, but without the traditional mandate for businesses to invoice electronically. Instead, the proposal is to implement the Business e-Invoicing Right (BER).
Under the government’s proposal, businesses would have the right to request that their trading parties send an e-invoice over the PEPPOL network instead of paper invoices.
To make and receive these requests, businesses need to set up their systems to receive PEPPOL e-invoices. Once a business has this capability, it would be able to exercise its ‘right’ and request other companies to send them PEPPOL e-invoices.
According to the current proposal, BER would be delivered in three phases, with the first phase to include large businesses, and the later stages to include small and medium-sized businesses. The possible rollout of BER would be as follows:
The objective of the Australian BER initiative to boost the adoption of B2B e-invoicing is complemented by a proposal for several other initiatives supporting businesses in this direction. One measure would be the enabling of PEPPOL-compatible EDI networks. As EDI networks represent a barrier to broader adoption of PEPPOL e-invoicing, particularly for small businesses that interact with large businesses that use multiple EDI systems, the proposal to enable PEPPOL-compatible EDI networks could ultimately reduce costs for businesses currently interacting with multiple EDI networks. Furthermore, the government is contemplating expanding e-invoicing into Procure-to-Pay. Businesses may realise more value from adopting e-invoicing if the focus grows to embrace an efficient and standardised P2P process that includes e-invoicing.
Finally, integrating e-invoicing with payments is another proposed means to boost e-invoicing. This would allow businesses to efficiently receive invoices from suppliers directly into their accounting software and then pay those invoices through their payment systems.
How efficient the proposed measures will be in accelerating adoption of e-invoicing, and whether the Australian government will feel it was the right decision not to introduce a proper e-invoicing mandate, as is becoming more and more common globally, remains to be seen.
Need help staying up to date with the latest VAT and compliance updates in Australia that may impact your business? Get in touch with Sovos’ team of experts today.
On 24 February 2022, the Indian Central Board of Indirect Taxes and Customs (CBIC) issued a notification (Notification No. 01/2022 – Central Tax) that lowered the threshold for mandatory e-invoicing.
In India, e-invoicing is mandatory for taxpayers when exceeding a specific threshold (businesses operating in certain sectors are exempted). The current threshold for mandatory e-invoicing is 50 Cr. Rupees (approximately 6.6 million USD). From 1 April 2022, taxpayers with an annual threshold of 20 Cr. Rupees (approximately 2.65 million USD) or above must comply with the e-invoicing rules.
E-invoicing has been mandatory in India since October 2020. The IRP must approve and validate e-invoices before being sent to the buyer. Therefore, the Indian e-invoicing system is categorised as a clearance e-invoicing system, a type of continuous transaction controls (CTC).
From the beginning, the Indian tax authority clearly expressed their intention to gradually expand the scope of e-invoicing. In line with its message, the threshold limit has been lowered twice; in January 2021 (from 500 CR. To 100 Cr.) and April 2021 (from 100 CR. To 50 Cr.). Once again, the threshold limit is reduced to require more taxpayers to transmit their transactional data to the tax authority’s platform.
One important thing to be noted in this context is that voluntary adoption of e-invoicing is still not possible. Taxpayers cannot opt in to use the e-invoicing system and transmit their invoices to the IRP voluntarily. Given the recent developments, this might change in the future.
Suppliers in the mandatory scope of e-invoicing must generate e-waybills relating to B2B, B2G and export transactions through the e-invoicing platform because their access to the e-waybill platform is blocked for generating e-waybills relating to these transactions. E-waybills relating to transactions outside of the scope of e-invoicing can still be generated through the e-waybill platform.
Therefore, it would be advisable for taxpayers who are getting ready to implement e-invoicing to consider this aspect.
Get in touch with our team of tax experts to learn how Sovos’ tax compliance software can help meet your e-invoicing requirements in India.
Update: 7 December 2023 by Carolina Silva
The long-awaited Royal Decree, establishing invoicing and billing software requirements to secure Spanish antifraud regulations, has been officially published by the Spanish Ministry of Finance.
The taxpayers and SIF developers, defined further below in this article, must be aware of several new official deadlines set forth by the Spanish tax authority in the Royal Decree:
Therefore, companies that fall within scope must ensure their computer systems are adapted to this regulation as of 1 July 2025.
Looking for more information on tax compliance in Spain? This page can help.
Update: 10 February 2023 by Carolina Silva
The Spanish government is pursuing various routes for digitizing tax controls, including introducing software requirements on the billing system.
In February 2022, Spain published a Draft Royal Decree establishing invoicing and billing software requirements to secure Spanish antifraud regulations.
The Draft Decree ensures billing software meet the legal requirements of integrity, conservation, accessibility, legibility, traceability and inalterability of billing records. It sets standards for systems known as SIF (Sistemas Informaticos de Facturación).
To comply with SIF standards, taxpayers may use a Verifactu system – a verifiable invoice issuance system which is further detailed later in this article.
Since publishing the Draft Decree and concluding its public consultation, the Spanish tax authority has released draft technical specifications for the Verifactu system and a list of modifications to be introduced to the Draft Decree. One is the estimated date of entry into force of the billing software requirements.
Among the many SIF requirements established in the Draft Decree is the capability to generate a billing record in XML format for each sale of goods or provision of services. This needs to be sent to the tax authority simultaneously or immediately before the issuance of the invoice.
The Draft Decree establishes two alternative systems taxpayers can adopt to comply with the technical standards of the SIF: the ordinary SIF and the Verifactu system.
A Verifactu system is a verifiable invoice issuance system, and its adoption is voluntary under the Draft Decree. Taxpayers who use computer billing systems to comply with invoicing obligations may choose to continuously send all the billing records generated by their systems to the tax authority.
A Verifactu billing system complies with all the technical obligations imposed by the Draft Decree., Taxpayers use the system to effectively send all billing records electronically in a continuous, automatic, consecutive, instantaneous, and reliable manner.
A taxpayer opts for a “verifiable invoice issuance system” by systematically initiating the transmission of billing records to the tax authority. If the systems are Verifactu, invoices must include a phrase stating so.
There are several benefits for taxpayers who decide to opt for a Verifactu system:
Taxpayers and SIF developers must be aware of several deadlines set forth by the Spanish tax authority. These are still part of the draft development of the SIF and official deadlines are outstanding:
Although still in draft form, it’s expected there will be official publication of the Draft Royal Decree – along with a Ministerial Order detailing the technical and functional specifications of the billing systems. Official publication of the Verifactu technical specifications is to come.
The Draft Decree explicitly states that its implementation is compatible with an electronic invoicing mandate which is also underway in Spain. Therefore, taxpayers must ready themselves to comply.
For further information on the incoming changes to tax in Spain, speak with a member of our expert team.
For an overview about other VAT-related requirements in Spain read this comprehensive page about VAT compliance in Spain.
Update: 24 February 2022 by Victor Duarte
The Spanish Ministry of Finance has published a draft resolution that will – once adopted – establish the requirements for software and systems that support the billing processes of businesses and professionals. This law will have a significant impact on the current invoice issuance processes. It will require implementing new invoice content requirements, including a QR code, and the generation of billing records by January 2024.
The regulation is also intended to adapt the Spanish business sector, especially SMEs, micro-enterprises, and the self-employed, to the demands of digitization. For this, it is considered necessary to standardise and modernise the computer programs that support the accounting, billing, and management of businesses and entrepreneurs.
The regulation establishes the requirements that any system must meet to guarantee the integrity, conservation, accessibility, legibility, traceability and inalterability of the billing records without interpolations, omissions or alterations.
The new rules established in the regulation will apply to:
Companies that do not fall within the above categories do not need to comply, but those who do must ensure their computer systems are adapted to this regulation as of 1 January 2024.
Invoices generated by the computer systems or electronic systems and programs that support the billing processes of businesses and professionals must include an alphanumeric identification code and a QR code, generated per the technical and functional specifications established by the Ministry of Finance.
The computer systems that support billing processes must have the capability to:
To achieve these ends, all computer systems must certify that they ensure the commitment to comply with all the requirements established in this regulation through a “responsible statement”. The Ministry of Finance will establish the minimum content of this statement later in a new resolution.
The billing records must comply with several content requirements laid down by the regulation.
The taxpayers using computer systems to comply with their invoicing obligations may voluntarily send all its billing records generated by the computer systems to the AEAT automatically by electronic means. The response of a formal acceptance message from the AEAT will automatically mean that these records have been incorporated into the taxpayer’s sales and income ledgers.
The AEAT may appear in person where the computer system is located or used and may require full and immediate access to the data record, obtaining, where appropriate, the username, password and any other security key that is necessary for full access.
The AEAT may request a copy of the billing records, which companies may provide in electronic format through physical support or by electronic means.
The regulation doesn’t include any specific rule for the B2B e-invoice mandate draft decree currently being discussed in Congress and waiting for approval. However, if the mandate is approved, all the B2B e-invoices issued under this draft decree will have to comply with all the new rules established in this regulation.
While this new regulation does not seem to take Spain further down the continuous transaction control (CTC) route, the proposal has clear similarities with Portugal’s invoice requirements.
The draft resolution establishing these is currently open for public consultation until 11 March 2022. Once this resolution is approved, the Ministry of Finance will publish the technical and functional specifications needed to comply with the new requirements and the structure, content, detail, format, design and characteristics of the information that companies must include in the billing records.
The Ministry of Finance will also publish the specifications of the signature policy and the requirements that the fingerprint or ‘hash’ must meet. Once these details are published, it will be clearer whether Spain is going down the Portuguese route or carving out its own path.
Need help staying up to date with the latest VAT and compliance updates in Spain that may impact your business? Get in touch with Sovos’ team of experts today.
In 2020, the European Commission (EC) adopted a four-year plan to develop a fairer and simpler taxation framework. The Action Plan aspires to tighten up the tax system, ensure that digital platforms are made to follow transparency rules and utilise data better, reducing tax fraud and evasion.
In 2021, the Commission implemented e-commerce changes – another step in the modernisation process. Beginning in July of 2021, the Mini One Stop Shop (MOSS) system was expanded to the One Stop Shop (OSS) and Import One Stop Shop (IOSS).
The implementation of OSS expanded the use of the union and non-union schemes. This allows European and non-European business-to-consumer sellers of digital services and goods to simplify their reporting practices. Meanwhile, IOSS allows businesses to register and import goods into the EU with a value not exceeding €150.
In 2022, there are plans to release legislation under the “VAT in the digital age” Action Plan. Much like its predecessors in 2020 and 2021, the core purpose of this plan is to tackle the issue of fraud and improve the way businesses engage with the VAT system. The Commission has announced three points it seeks to address in its legislation:
Specifically, one point of interest is the single EU VAT registration point, which aims to facilitate compliance among Member States. With this, the European Commission is requesting feedback on how businesses think the I/OSS implementation has gone and on other potential legislative options for the future, including:
The European Commission began a period of public consultation on 21 January regarding adapting VAT rules in a digital economic landscape. They are seeking feedback on how the EC should adapt VAT tax processes and how they can incorporate technology to solve principal issues in tax, such as fraud and the complexity of its systems. The Commission is accepting feedback in this public consultation period until 15 April 2022 – submissions can be made here.
Sovos will continue to monitor the development of this legislation throughout the year as more information about its structure and impact is released, as these changes are sure to be impactful upon the European VAT landscape.
Need more information? Sovos’ VAT Managed Services provide a full IOSS and OSS service for your business. Contact our team to learn more or read more about VAT in the Digital Age in this guide.
South Korea has an up-and-running e-invoicing system that combines mandatory e-invoicing with a continuous transaction controls (CTC) reporting obligation. This mature and well-established system, launched over a decade ago, is seeing its first significant changes in years.
Presidential Decree No. 31445 (Decree) has recently amended certain provisions of the Enforcement Decree of the Value-Added Tax Act. Among other changes, the scope of e-invoicing has been expanded and a new timeline and threshold limits introduced. This means that more taxpayers in South Korea must comply with e-invoicing rules in accordance with the timelines.
In South Korea, e-invoicing has been mandatory for all corporate businesses since 2011. From 2012, individual businesses (entrepreneurs) have also been required to comply with e-invoicing obligations if they meet the threshold limits which have been updated a couple of times over the years. Currently, an individual business whose aggregate supply value (including transactions that are tax exempt) for the immediately preceding tax year is KRW 300,000,000 or more, is required to comply with the country’s e-invoicing rules.
After the recent amendments, the current threshold is now lowered to KRW 200,000,000 and the new threshold limit will be applicable from 1 July 2022. The tax authority has already communicated further adjustments, announcing that from 1 July 2023, the threshold will be reduced further to the limit of KRW 100,000,000. The Korean tax authority aims to enhance the transparency of tax sources by requiring more businesses to comply with the e-invoicing rules.
The expansion of the scope of e-invoicing obligations does not come as a surprise. Like in many other CTC jurisdictions, transactional data collected from a larger number of taxpayers provides greater insight to the tax authority about VAT, market trends and more.
Due to its success and maturity, e-invoicing in South Korea continues to inspire other countries in the Asia Pacific region. The Philippines tax authority is in the process of launching an e-invoicing pilot for the country’s 100 largest taxpayers from 1 July 2022. When designing their e-invoicing system, the Philippines tax authority had several meetings with its South Korean counterparts to benefit from Korean expertise and experience. Therefore, the Philippines is introducing a relatively similar CTC system to the Korean one.
Need to ensure compliance with the latest e-invoicing requirements in South Korea? Get in touch with our tax experts. Follow us on LinkedIn and Twitter to keep up-to-date with regulatory news and updates.
Whilst the UK leaving the European Union (EU) on 31 December 2020 seems like a long time ago, UK businesses still have to deal with changes to the processes in place when importing goods from suppliers in the EU.
Throughout 2021, goods imported into Great Britain from the EU were subject to several easements from a customs perspective. This was to reduce the burden of completing full customs declarations and dealing with all of the consequences of importing goods that were previously not subject to import documentation and controls.
UK businesses were unprepared, partly due to impacts from the COVID-19 pandemic, so these simplifications were extended a few times during 2021. As of 1 January 2022, goods moving between the EU and Great Britain will be subject to full customs declarations and controls. Subsequently, there is no longer the ability to defer customs declarations as was previously the case.
Additionally, any customs duty due on goods will be due at the time of entry rather than when the customs declaration is submitted, as was the case in 2021. Businesses can achieve delayed payment of the customs duty by applying for a duty deferment account with HMRC. In some instances, it can be achieved without the need for a financial guarantee to be lodged, so it is worth considering.
Due to the negotiations between the UK government and the EU on the Northern Ireland Protocol, imports of non-controlled goods from Ireland and Northern Ireland will not be subject to these changes. The previous easements will still apply. This means that customs declarations can be delayed for up to 175 days. The UK government will make further announcements once the discussions on the Protocol have been completed. We will update further when that happens.
Regarding import VAT, Postponed Import VAT Accounting (PIVA) remains available and, whilst not compulsory, it is recommended, as it provides a valuable cashflow benefit. It applies to imports from all countries and not just the EU. Unlike in some EU countries, it is not automatically applied and has to be claimed when the import declaration is submitted. Therefore, the importer must advise whoever submits the declaration to complete it accordingly. If it is not claimed, import VAT is payable at the time of entry and will have to be recovered on the VAT return – HMRC continues to issue the C79 certificate when VAT is paid at the border, and it is required evidence to recover VAT.
Businesses will also need to remember to download the monthly PIVA statement from HMRC’s website – this is required to determine the amount of import VAT payable on the VAT return. This needs to be done within six months as it is not available after that time.
Another change is regarding Intrastat reporting for imports into Great Britain from the EU. Arrivals declarations were required during 2021 to provide the UK government with trade statistics, given that importers could delay submitting full customs declarations. Intrastat arrivals are now only required for goods moving from the EU to Northern Ireland – this is because Northern Ireland is still considered part of the EU for goods.
The EU-UK Trade and Cooperation Agreement provisions have to be considered when importing goods from the EU especially regarding the origin of the goods and whether the import is tariff-free. This has been in place since 1 January 2021, but there are practical changes that are considered further in our article which discusses the origin of goods and claiming relief on trade between the EU and UK. These changes mean that imports from the EU are treated in the same way as imports from any other country, except for goods from Ireland and Northern Ireland, which are still subject to special arrangements.
Keen to know how changes between the EU and UK will impact your VAT compliance obligations? Contact us to find out more.
The EU-UK Trade and Cooperation Agreement (TCA) provides for tariff-free trade between the United Kingdom (UK) and the European Union (EU) but does not work in the same way as when the UK was part of the EU.
Before Brexit, if the goods were in free circulation within the EU, they could be moved cross-border without incurring any additional customs duty. Therefore, the origin of the goods was not relevant for this intra-EU movement. If the goods originated from outside the EU, customs duty would have been paid as required when they first entered into free circulation but was not payable again.
This difference creates issues for UK businesses where they import finished goods into the UK first before being sold to the EU. As the goods are not being processed in the UK, they cannot be of UK origin and will be subject to double duty unless specific duty mitigations measures are taken.
The same tariff-free trade between the EU and the UK can be achieved under the TCA, but it depends on meeting the detailed rules within the agreement. The key is in the origin of the goods and whether they qualify under the terms of the TCA. This ensures that only eligible goods are tariff-free and removes the risk of goods entering from outside the Free Trade Area without paying customs duty.
The requirement for goods to be of relevant origin to benefit from zero tariffs on imports under the TCA has been in place since 1 January 2021.
If goods meet the appropriate rules of origin, preference can be claimed on the customs declaration when they are imported. Thus, the claim is made by the importer of the goods. However, it is not as simple as completing the appropriate box on the declaration; there is a requirement for the proper evidence to be held.
To claim tariff preference, the importer needs to have one of the following proofs of origin:
If they are relying on a statement of origin, the exporter will have to prove that the goods are of appropriate origin to qualify.
In 2021, there was a light touch approach towards holding evidence when the customs declaration was made. The TCA allowed for a declaration to be made and the evidence to be obtained later to reduce the burden on business. There is still a requirement to provide the appropriate evidence on request, so businesses must ensure that it will be available if necessary.
There may be checks that the goods are of appropriate origin to be free of duty under the TCA. With effect from 1 January 2022, there is a need to have the appropriate evidence that the goods meet the origin requirements when the declaration is lodged. Therefore, businesses will need to ensure that the appropriate documents are immediately available should they be requested.
Businesses should note that it is not obligatory to claim preference at the time of entry of the goods as claims can be made up to three years later, as long as there is valid proof of origin. It is beneficial to claim preference at the earliest possible time to benefit cash flow and provide certainty of the cost of the goods.
Therefore, businesses will need to ensure that they determine origin of goods correctly and have the appropriate evidence to support the goods being tariff-free.
It’s important to remember that the rules for trade between Northern Ireland and the EU are different because of the Northern Ireland Protocol.
Get in touch with Sovos to discuss your company’s obligations for cross-border trade.