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.

A phased approach

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:

• September 2022: e-invoices for public contracts more than EUR 214,000 must be issued within six months after the publication of the decree in the Belgian Gazette and on the first of each month.
• March 2023: e-invoices for public contracts equal to or greater than EUR 30,000 must be issued within 12 months after the publication of the decree in the Belgian Gazette and on the first of each month.
• September 2023: e-invoices for public contracts less than EUR 30,000 must be issued within 18 months after the publication of the decree in the Belgian Gazette and on the first of each month.
• Contracts with a value of less than EUR 3,000 are exempt.

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.

The journey continues towards a B2B e-invoicing mandate

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.

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: 

• Don’t put off until tomorrow 

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. 

• Ensure you provide the correct documents the first time 

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. 

• Don’t be overwhelmed by information overload 

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. 

• Know your timelines 

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.   

• Use your registration representative 

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. 

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.

Publication of regulation on the use of KSeF

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.

New information and documentation published by the Polish tax authority

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.

What will happen next?

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.

Update: 22 January 2024 by Tânia Rei

Pre-Filled VAT Returns: Updates in 2024

In recent years, tax authorities worldwide have embraced digital transformation to streamline compliance processes, particularly through the increasing implementation of pre-filled VAT returns.

Below we explore the countries that currently provide pre-filled VAT returns or are actively working on projects to implement them:

• Albania:The Fiscalization system in Albania automatically fills in VAT returns and the books of sales and purchases based on invoices submitted to the central tax administration.
• Azerbaijan: The State Tax Service has prioritized the implementation of a pre-filling system for VAT returns, with plans for its rollout in the near future.
• Chile:For some time now the VAT return is pre-filled using data from the sales and purchases ledgers which receive their data through the SII system.
• Croatia:The Croatian tax authority has expressed the wish to make pre-filled returns available with information from the e-Racun platform, which is expected to become the e-invoicing platform.
• France: Since 2022, VAT returns in France have been pre-populated with information on imports based on electronic customs declarations. The use of data from the e-invoicing regime, initially planned for 2024, has been delayed until September 2026.
• Greece:Greece has made pre-filled VAT returns available since December 2022 based on data transmitted by taxpayers to the myDATA platform.
• Hungary: Hungary’s National Tax and Customs Administration (NAV) has launched the eVAT platform, offering taxpayers pre-filled VAT returns based on real-time invoice data.
• India: India has implemented auto-populated GST returns, where data from invoices and other filings such as GSTR-1 and GSTR-2B is used to pre-fill details in GSTR-3B. From January 2025, India’s GST system introduces hard locking of GSTR-1 data, preventing post-filing edits.
• Indonesia:The introduction of e-faktur v3.0 in October 2020 enabled the auto-population of VAT returns for taxpayers in the scope of the local e-invoicing mandate.
• Italy:Since 2021, the Italian tax authority has made pre-populated periodic returns available. The authority made pre-populated annual returns available to taxpayers using data transmitted to the SDI platform in 2023.
• Kenya: Kenya introduced pre-filled VAT returns from February 2024 tax period.
• Peru:Peru pre-fills Book of Sales, Income and Expenses using data provided by taxpayers through transactional reporting to SUNAT.
• Portugal: Portugal pre-populates VAT returns for certain taxpayers using data transmitted to the tax authority’s platform since July 2020. The country is expected to pre-complete the annual IES declaration based on information provided in the accounting SAF-T file, which will be a mandatory periodic obligation from the fiscal year 2025.
• Romania:Pre-filled VAT Returns are implemented in Romania since August 1, 2024, for transactions carried out beginning July 1, 2024, by taxable persons registered for VAT purposes.
• Serbia: Starting from January 2026, Serbia will implement pre-populated VAT returns that will be generated through the System of Electronic Invoices (SEF).
• Spain:Spain introduced pre-filled Modelo 303 using data gathered from the SII platform in 2021.

For more information on the rollout of pre-filled VAT returns, contact our team of experts.

Update: 11 April 2023 by Gabriel Pezzato

The adoption of Pre-Filled VAT Returns so far

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:

• Albania: Since July 2022, the Fiscalization system automatically fills in VAT returns and the books of sales and purchases based on invoices submitted to the central tax administration.
• Chile: For some time now the VAT return is pre-filled using data from the sales and purchases ledgers which receive their data through the SII system.
• Croatia: The Croatian tax authority has expressed the wish to make pre-filled returns available with information from the e-Racun platform, which is expected to become the e-invoicing platform.
• France: Since 2022, VAT returns have been pre-populated with information on imports based on electronic customs declarations. France is expected to use data from the e-invoicing regime rolled out in 2024.
• Greece: Greece has made pre-filled VAT returns available since December 2022 based on data transmitted by taxpayers to the myDATA platform.
• Indonesia: The introduction of e-faktur v3.0 in October 2020 enabled the auto-population of VAT returns for taxpayers in the scope of the local e-invoicing mandate.
• Italy: Since 2021, the Italian tax authority has made pre-populated periodic returns available. The authority made pre-populated annual returns available to taxpayers using data transmitted to the SDI platform in 2023.
• Peru: Peru pre-fills Book of Sales, Income and Expenses using data provided by taxpayers through transactional reporting to SUNAT.
• Portugal: Portugal pre-populates VAT returns for certain taxpayers using data transmitted to the tax authority’s platform since July 2020. The country is expected to pre-complete the annual IES declaration based on information provided in the accounting SAF-T file, which will be a mandatory periodic obligation from the fiscal year 2024.
• Spain: Spain introduced pre-filled Modelo 303 using data gathered from the SII platform in 2021.

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

Pre-Filled VAT Returns – New Developments in 2022

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.

Pre-filled VAT returns across Europe

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.

The future of pre-filled VAT returns

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.

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.

Importing goods into 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!

Customs considerations

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.

Understanding local VAT issues

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.

EU warehouse facilities

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.

How to deal with import VAT

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 13^th 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 13^th 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.

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).

What Is 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:

• From 1 July 2023: All businesses would have the right to request PEPPOL e-invoices from large businesses. Large businesses would have a legal obligation to provide PEPPOL e-invoice on receipt of a valid request.
• From 1 July 2024: All businesses would have the right to request PEPPOL e-invoices from medium-sized and large businesses. Medium-sized and large businesses would have a legal obligation to provide PEPPOL e-invoices on receipt of a valid request.
• From 1 July 2025: All businesses would have the right to request PEPPOL e-invoices. All covered businesses would have the legal obligation to provide PEPPOL e-invoices on receipt of a valid request.

Further measures to support e-invoicing adoption

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.

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.

Evolution of e-invoicing in India

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.

E-invoicing and E-waybill relationship

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.

Update: 7 December 2023 by Carolina Silva

Spain Establishes Billing Software Requirements

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:

• From 1 July 2025: Only ordinary SIF or Verifactu-approved billing systems may be used to prepare and submit invoices for the taxpayers under scope
• Billing software developers and sellers must offer their product fully adapted within a maximum period of nine months from the approval of the Ministerial Order that specifies all the technical details, which is still to be approved

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

Understanding Spain’s Verifactu system

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.

What is a Verifactu billing system?

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.

Benefits of the Verifactu billing system

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:

• As companies send the billing records to the tax authority, the formal acceptance response will automatically incorporate the information from such records into the taxpayer’s book of issued invoices.

Current deadlines

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:

• From 1 July 2024: Only ordinary SIF or Verifactu-approved billing systems may be used to prepare and submit invoices. The Draft Decree deadline was 1 January 2024, but the Spanish authority postponed it following a public consultation.
• Billing software developers and sellers must offer their product fully adapted within a maximum period of nine months from the regulation’s entry into force.
• Also within nine months, the Spanish tax authority must ensure that the service for receiving billing records for the Verifactu systems becomes available.

What’s next?

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.

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.

Scope of the regulation

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:

• Taxpayers subject to corporate tax (IS), except for exempt or partially exempt entities.
• Taxpayers subject to income tax for physical persons (IRPF) who obtain income from economic activities.
• Taxpayers subject to income tax for non-residents (IRNR) with a permanent establishment in Spain.
• Entities under the income allocation system carrying out economic activities.

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.

New invoice content requirements: ID and QR codes

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.

Billing system requirements

The computer systems that support billing processes must have the capability to:

• Generate a billing record for each delivery of goods or provision of services, simultaneously or immediately before the issuance of the invoice.
• The computer system must be able to send all the billing records generated to the State Tax Administration Agency (AEAT) in a continuous, secure, correct, complete, automatic, consecutive, instantaneous, and reliable manner.
• The system must be provided with traceability, verifying the sequence of data creation. It will create an event log that collects all the system operations and incidents during its use.
• The records created may not be altered by the user or any internal or external means.
• The systems must add a fingerprint or ‘hash’ to the billing records, according to the specifications and the electronic signature.

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.

Billing record content and its optional transmission

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.

Tax administration audits

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.

Application to the B2B e-invoicing mandate

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.

Next steps

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.

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:

• How VAT treats the platform economy
• E-invoicing and VAT reporting obligations
• Single EU VAT registration

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:

• Extension of OSS to:
  • Cover all B2C supplies of goods and services by non-established suppliers
  • Enable intra-Community supplies and acquisitions of goods, thereby avoiding VAT registration when transferring own goods cross-border
  • Include B2B supplies of goods and services while leaving in place the current VAT refund mechanism
  • Include B2B supplies of goods and services while also introducing a deduction mechanism for OSS
• Reverse charge made available for all B2B supplies carried out by non-established suppliers
• Removing the €150 threshold for IOSS so that it applies to distance sales of goods of any value
• Making IOSS mandatory for:
  • All distance sales of imported goods
  • All distance sales of imported goods above an EU turnover threshold (e.g. €10,000)
  • Marketplaces only

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.

Take Action

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.

What is the new timeline and threshold limits for e-invoicing?

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.

What´s next for e-invoicing requirements in South Korea?

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.

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.

Claiming and evidencing relief

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:

• A statement on origin – this must be made out by the exporter to confirm the product originates in the UK or EU; or
• Importer’s knowledge – this option allows the importer to claim tariff preference based on their knowledge of where the goods they’re importing originate.

If they are relying on a statement of origin, the exporter will have to prove that the goods are of appropriate origin to qualify.

End of easement

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.

Post import claims for relief

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.

We recently launched the 13^th Edition of our annual Trends report, the industry’s most comprehensive study of global VAT mandates and compliance controls. Trends provides a comprehensive look at the world’s regulatory landscape highlighting how governments across the world are enacting complex new policies and controls to close tax gaps and collect the revenue owed. These policies and protocols impact all companies in the countries where they trade no matter where they are headquartered.

This year’s report looks at how large-scale investments in digitization technology in recent years have enabled tax authorities in much of the world to enforce real-time data analysis and always-on enforcement. Driven by new technology and capabilities, governments are now into every aspect of business operations and are ever-present in company data.

Businesses are increasingly having to send what amounts to all their live sales and supply chain data as well as all the content from their accounting systems to tax administrations. This access to finance ledgers creates unprecedented opportunities for tax administrations to triangulate a company’s transaction source data with their accounting treatment and the actual movement of goods and money flows.

The European VAT landscape

After years of Latin America leading with innovation in these legislative areas, Europe is starting to accelerate the digitization of tax reporting. Our Trends report highlights the key developments and regulations that will continue to make an impact in 2022, including:

• VAT reporting processes become digital and more frequent – Existing VAT reporting is becoming more granular and more frequent in many EU Member States, with the majority quickly evolving towards real-time controls with or without electronic invoice mandates.
  • Italy has mandatory e-invoicing via a data exchange platform previously introduced for public procurement messaging.
  • Since 2017 in Spain, all companies must report inbound and outbound invoices within four days.
  • In Hungary, suppliers have had to report their sales invoices in real-time since 2018.

• Public procurement standards will play a major role in the design of various continuous transaction control (CTC) models – Frameworks such as PEPPOL are increasingly adopted by public administrations as large buyers of goods and services – the standards and platforms used for these transactions will increasingly be repurposed for electronic invoicing as a key enabler of VAT digitization.
• “Own the Transaction” CTC model becomes more popular – More tax administrations aim not only to receive reporting data from business transactions but use legislation to become the invoice exchange platform themselves.
  This trend is gaining traction after Turkey and Italy introduced it as core concepts in their CTC legislation, while countries like France and Poland are introducing similar models.

• SAF-T is here to stay – The OECD’s Standard Audit File for Tax (SAF-T) will remain an inspiration for European tax administrations not only to enforce VAT via real-time or near-real-time controls, but to obtain copies of taxpayers’ entire accounting books on their own systems for broader tax controls and audit support as well.

• EU E-commerce VAT package and digital services – Changes introduced in July 2021 to the One Stop Shop (OSS) and the launch of an Import One Stop Shop (IOSS) concept have drastically changed requirements for all e-commerce vendors and marketplaces selling low-value goods or digital services to European consumers.

According to Christiaan van der Valk, lead author of Trends, governments already have all the evidence and capabilities they need to drive aggressive programs toward real-time oversight and enforcement. These programs exist in most of South and Central America and are rapidly spreading across countries in Europe such as France, Germany and Belgium as well as Asia and parts of Africa. Governments are moving quickly to enforce these standards and failure to comply can lead to business disruptions and even stoppages.

This new level of imposed transparency is forcing businesses to adapt how they track and implement e-invoicing and data mandate changes all over the world. To remain compliant, companies need a continuous and systematic approach to requirement monitoring.

Trends is the most comprehensive report of its kind. It provides an objective view of the VAT landscape with unbiased analysis from our team of tax and regulatory experts.  The pace of change for tax and regulation continues to accelerate and this report will help you prepare.

Towards the end of 2021, the tax authority in Turkey published a draft communique that expands the scope of e-documents in Turkey. After minor revisions, the draft communique was enacted and published in the Official Gazette on 22 January 2022.

Let’s take a closer look at the changes in the scope of Turkish e-documents.

Scope of e-fatura expanded

• The gross sales revenue threshold will decreased reduce. The threshold limit has been lowered from TRY 5 million to TRY 4 million and above for the 2021 financial period. A lower threshold of TRY 3 million and above will apply for 2022 and subsequent fiscal periods.
• The use of the e-fatura is now mandatory for taxpayers in the e-commerce sector when exceeding a certain threshold. The communique introduced a gross sales revenue threshold of TRY 1 million and above for 2020 and 2021 financial periods; and TRY 500.000 for 2022 and all subsequent fiscal periods.
• Taxpayers who run a business in the real estate and/or motor vehicle sector by carrying out construction, manufacturing, purchase, sale, and rental transactions, as well as taxpayers who act as intermediaries in these transactions must use the e-fatura application if their gross sales revenue exceeds TRY 1 million and above for 2020 and 2021 financial periods; and TRY 500.000 for 2022 and all subsequent fiscal periods.
• Taxpayers who provide accommodation services by obtaining investment and/or operation certificates from the Ministry of Culture and Tourism and Municipalities must use the e-fatura application.

Taxpayers meeting these thresholds and criteria must start using the e-fatura application from the start of the year’s seventh month following the relevant accounting period.

In terms of accommodation service providers, if they provide services as of the publication date of this communique, they must start using the e-fatura application from 1 July 2022.

For any business activities that start after the publication date of the communique e-fatura must be used from the beginning of the fourth month following the month in which their business activities began.

E-arsiv invoice scope expanded

Taxpayers not in scope of e-arşiv invoices have been obliged to issue e-arşiv invoices if the total amount of the invoices to be issued exceeds TRY 30.000 including taxes (in terms of invoices issued to non-registered taxpayers, the total amount including taxes exceeds TRY 5.000) from 1 January 2020.

With the amended communique, the Turkish Revenue Administration (TRA) lowered the total amount of the invoice threshold to TRY 5.000, and thus more taxpayers will be required to use the e-arsiv application. The new e-arsiv invoice threshold applies from 1 March 2022.

E-delivery note scope expanded

Another change introduced by the communique was the expansion of the scope of e-delivery notes. The gross sales turnover threshold for mandatory e-delivery notes has been revised to TRY 10 million, effective from the 2021 accounting period. In addition, taxpayers who manufacture, import or export iron and steel (GTIP 72) and iron or steel goods (GTIP 73) are required to use the e-delivery note application. E-fatura application registration is not applicable to those taxpayers.

The Tax Bureaus of Shanghai, Guangdong Province and Inner Mongolia Autonomous Region have all issued announcements stating they intend to carry out a new pilot program for selected taxpayers based in some areas of the provinces. The pilot program will involve adopting a new e-invoice type, known as a fully digitized e-invoice.

Introduction of a new e-invoice type

Many regions in China are currently part of a pilot program that enables newly registered taxpayers operating in China to voluntarily issue VAT special electronic invoices to claim input VAT, mostly for B2B purposes.

The new fully digitized e-invoice is a simplified and upgraded version of current electronic invoices in China. The issuance and characteristics of the fully digitized invoice are different from other e-invoices previously used in the country.

Characteristics of the fully digitized e-invoice

• The fully digitized invoice is supervised by the local Taxation Bureaus as part of the pilot program
• The legal effect and basic purpose are the same as those of existing paper invoices
• Fully digitized invoices can be delivered in the form of data messages, which eliminates specific format requirements such as PDF or OFD
• The basic content includes dynamic QR code, invoice number, invoice date, buyer information, seller information, quantity, unit price, amount, tax rate, tax amount, total, total price, and tax
• After the pilot program taxpayer has passed a “real-name verification” they can immediately use the electronic invoice service platform to issue invoices without the need to use special equipment for tax control (e.g., UKey device)
• Pilot taxpayers can automatically deliver fully digitized invoices through the tax digital account of the electronic invoice service platform and can also deliver fully electronic invoices themselves via email or other means

Verification of fully digitized e-invoices

Relying on the national unified electronic invoice service platform, tax authorities will provide selected taxpayers for this pilot program with services such as issuance, delivery, and inspection of fully digitized e-invoices 24 hours a day. Taxpayers will be able to verify the information of all electronic invoices through the electronic invoice service platform or the national VAT invoice inspection platform.

What’s next for e-invoicing in China?

This new pilot program has been effective in Shanghai, Guangzhou, Foshan, Guangdong-Macao Intensive Cooperation Zone, and Hohhot since 1 December 2021. Despite the lack of an official timeline for implementation, it’s expected that the scope of this pilot program will be extended in 2022 to cover new taxpayers and regions in China, paving the way for nationwide adoption of the fully digitized e-invoice.

As a result of the 2020 Finance Law implementation, which transfers the management and collection of import VAT from customs to the Public Finances Directorate General (DGFIP), France has implemented mandatory reporting of import VAT in the VAT return instead of having the option to pay through customs as is typically the process. This change came into effect on 1 January 2022, with additional VAT reporting changes in France, including the Declaration of Exchange Goods (DEB) split where the Intrastat dispatch and EC sales list are now separate reports.

This new import procedure is mandatory for all taxpayers identified for VAT purposes in France. Registered taxpayers may no longer opt to pay import VAT to customs and must report all import VAT via the VAT return. This is a departure from the prior process, where taxpayers needed to receive prior authorisation to implement a reverse charge mechanism to pay import VAT through the VAT return. Now, this process is automatic and mandatory, and no authorisation is required.

Consequently, taxpayers with import transactions into France must now register for VAT purposes with the French tax authorities. Additionally, the French intra-community VAT number of the person liable for payment of import VAT must be listed on all customs declarations.

Changes to the VAT return

Changes to the French VAT return include (see Figure 1):

• New fields to report import VAT and petroleum products
• New numbering system for most of the return
• Pre-filled information on imports – lists the amount of import VAT collected from customs items previously declared to the Directorate-General of Customs and Indirect Taxes (DGDDI). Taxpayers will have the ability to edit the pre-filled import amounts before submission
• Pre-filled information will be populated from the 14th of the month following the due date
• VAT returns containing import VAT will be due the 24th day of the month following the filing period

Figure 1: Draft extract of 2022 FR VAT Return

Impact on Taxpayers

From 31 December 2021, “foreign traders” who imported goods and then made local sales under the domestic reverse charge are now required to register as a result of the import portion of the transaction and will still apply the reverse charge to their sales. This will now require a new VAT declaration to be submitted.

Additionally, until 31 December 2021, a foreign company that imported goods into France and made local sales under the reverse charge had to recover the import VAT paid under the Refund Directive (EU companies) or the 13^th Directive (non-EU companies). For Refund Directive claims, there would have been a cash advantage for France because either companies did not submit claims (small value) or because claims were rejected for non-compliance. For claims under the 13^th Directive and the two previous considerations, there was also the issue of “reciprocity” which prevented claims from some counties such as the US, for example. Under the new regime, all import VAT is reclaimed, leading to a potential budget shortfall.

With the most significant VAT gap in the EU (34.9% in 2019), Romania has been moving towards introducing a continuous transaction control (CTC) regime to improve and strengthen VAT collection while combating tax evasion.

The main features of this new e-invoicing system, e-Factura, have been described in an earlier blog post. Today, we’ll take a closer look at the roll-out for B2B transactions and the definition of high-fiscal risk products, as well as the new e-transport system that was introduced through the Government Emergency Ordinance (GEO) no. 130/2021, published in the Official Gazette on 18 December.

For more information about e-invoicing in Romania in general refer to this overview or VAT Compliance in Romania.

What are high fiscal risk products?

According to GEO no. 120/2021 (the legislative act introducing the legal framework of e-Factura), the supplier and the recipient must both be registered with the e-Factura system. The recently published GEO no. 130/2021 establishes an exception for high fiscal risk products and ensures that taxpayers will use the e-Factura system regardless of whether the recipients are registered.

In line with the GEO no. 130/2021, the National Agency for Fiscal Administration has issued an order to clarify which products are considered high fiscal risk products.

The five product categories are as follows:

• Vegetables, fruits, roots and edible tubers, other edible plants
• Alcoholic beverages
• New constructions
• Mineral products (natural mineral water, sand and gravel)
• Clothing and footwear

High fiscal risk products are defined based on the nature of the products, marketing method, traceability of potential tax evasion and degree of taxation in those sectors. Detailed explanations, as well as product codes, can be found in the Annex of GEO no. 130/2021.

The enforcement timeline of this requirement means that businesses that supply these types of products must be ready to comply with the new Romanian e-Factura system as follows:

• From 1 April to 30 June 2022:  It will be voluntary to submit invoices in the Romanian e-Factura system
• From 1 July:  It will be mandatory to submit invoices in the Romanian e-Factura system

Looking ahead: introduction of an e-transport system in Romania

Another reform that shows the intention of the Romanian authorities to combat tax fraud and evasion is the introduction of an e-transport system.

Taxpayers will be required to declare the movement of goods from one location to another in advance. Once declared, the system will issue a unique number written on the transport documents. Authorities will then verify the declaration on the transport routes.

Moreover, it is stated in the justification letter that the e-transport system will interconnect with the Ministry of Finance’s current systems, Romanian e-invoice, and traffic control, much like similar initiatives in other countries, such as India, Turkey and Brazil.

The introduction of the e-transport system is still pending as the Ministry of Finance has not yet issued the order regarding the application procedure of the system. According to GEO 130/2021, the Ministry of Finance had 30 days to do so after GEO 130/2021 was published in the Official Gazette. However, the deadline expired on the 17 January, and no announcement has been made yet. Therefore, the details of the system are still unknown.

The Northern Ireland Protocol regarding goods moving from Great Britain to Northern Ireland continues to cause problems, leading to calls to suspend it via Article 16. But at the same time, some NI politicians are looking to capitalise on the possibility of inward investment by companies that can benefit from being in both the UK and the Single Market at the same time. This will be an interesting circle to square.

For goods moving from Great Britain to the EU, it has been necessary to review supply chains and VAT compliance, especially where the GB supplier is required to import the goods. Here we have the issue of theory clashing with reality, requiring plans to be revised.

Many UK suppliers selling goods into the EU decided that a good approach would be to obtain a VAT number in the Netherlands and then import the goods under an Article 23 licence to defer the import VAT to the VAT return – a straight-forward scheme to set up and manage. However, under the Union Customs Code, anyone who imports goods into the EU is required either to be established in the EU or to appoint an “indirect customs agent” who is established in the EU. 

Upon accepting such an appointment, the EU entity becomes jointly liable with the importer for the VAT and duty that is due. Not surprisingly, it is difficult to find businesses that will offer such a service. In 2020, the body representing freight forwarders in Germany suggested that no such appointments should be accepted because of the financial risk. For many UK businesses, the only solution has been to establish a company in the EU, often the Netherlands, to import in their name.

Brexit also caused issues for GB businesses that supply equipment required to be installed in factories or other premises – such as parts of manufacturing production lines.

Within the Single Market there is a simplification for such supplies. The vendor can move the goods to another Member State to install them with the customer accounting for the acquisition tax due on the goods. This is because there is no need for the supplier to have a local VAT number in the Member State where the goods are installed.

Following Brexit, suppliers shipping goods from Great Britain to the EU for installation are no longer able to use this simplification. Instead, the GB supplier must now import the goods into the EU and then make a sale. If the goods are imported and installed in a Member State where the extended reverse charge applies to the sale, there will be a cash flow issue regarding the paid import VAT. Claims need to be made under the 13^th Directive and, if the Member State concerned applies the concept of “reciprocity”, then the claim may be denied. 

“Reciprocity” allows a Member State to refuse VAT refunds to taxpayers from third countries which do not allow VAT refunds to taxpayers of the Member State. The Member State normally publishes a list of third countries that can submit claims where reciprocity is invoked.

Pre Brexit, there was no need for the UK to be on such a list, so this now represents a real risk. Some Member States, including Spain, added the UK to their list immediately following Brexit. If these subtle complexities are not considered before a transaction is agreed the cashflow consequences could be severe – so planning is essential.

Businesses also have to ensure that they are prepared for changes which came into effect on 1 January 2022.

Under the EU-UK Trade and Cooperation Agreement, goods exported from Great Britain to the EU with a UK origin are free of import duty. In some situations, exporters require information from their suppliers about the origin of the goods they are supplying.

Until 31 December 2021, an exporter of goods from Great Britain to the EU did not need to hold a supplier’s declaration when making a statement on origin to be used by the customer to claim the zero-duty rate on imports into the EU. It is enough that the exporter is confident that the origin rules are met and make every effort to get supplier declarations retrospectively.

Suppose a UK exporter finds that a supplier statement is not available retrospectively. In that case, they must inform the EU customer who will have to consider the impact on the imports they have made.

If an exporter cannot comply with an official request for verification of the origin of the goods being the UK, the EU customer will be liable to pay the full duty rate retrospectively.

From 1 January 2022, an exporter must hold a supplier’s declaration, when required, when making the statement on origin declaration to the customer or the full rate of Customs Duty is payable. This significant change to the rules will impact all businesses exporting to the EU, including e-commerce retailers selling goods above EUR150.