Trends in VAT Audits – EU Focus on E-commerce

Jack Bowdige
May 18, 2022

Continuing our series on VAT audits, we take a closer look at the trends we’ve seen emerging in the activities of the EU Member States’ independent tax administrations throughout the European Union.

In a recent report from the European Commission (EC) specific guidelines were published not only on best practices but also on how EU Member States can harmonise the focus of their VAT audit projects. We’ve seen a significant shift away from scrutiny of historically complex businesses in sectors such as automotive and chemicals to the other sectors such as online retailers and distance selling.

The report released by the EC in April noted that there should be a conscious effort from the local tax authorities to increase the efficiency of audit practices and outcomes, by indicating how complex projects can be directed to solve industry specific issues.

Speaking about EU Member States they noted:

“They should also put in place more complex audit projects (for specific groups of taxpayers, an industry or a line of business such as retail, to address a particular risk or to establish the degree of non-compliance in a particular sector) and perform comprehensive audits and fraud investigations.”

VAT audits across Europe

We’ve seen this already happening in some countries, such as the Netherlands and Germany, with a greater shift towards auditing of previously neglected companies in the e-commerce industry as a result of Brexit and the E-commerce VAT Package implemented in July 2021. Our own audit team here at Sovos has seen a 45% increase in audits opened on our e-commerce clients in the second half of the year – driven both by changing activity post-Brexit and the One-Stop-Shop (OSS) regime commencing.

Looking in more detail at different tax administrations’ approach to auditing, we’ve observed a greater focus in VAT refund audits in the Netherlands, whilst Germany has scrutinised e-commerce retailers on more specific matters. These polarisations both reflect the individual interests of EU Member States and also the activities of the businesses operating across the EU, but it’s clear that the tax administrations in all countries are taking note of the importance of conducting audits to close the VAT gap.

It’s recommended to involve administrative agencies and governmental bodies to assist with the more complex audit projects embarked upon by EU Member States. With changes to how goods move cross-border between the United Kingdom and the EU taking centre stage in 2021 there has been an increased importance placed on the information transfer between customs offices and their tax administration counterparts. As mentioned earlier, the implementation of the OSS regime has led to a greater shift in the reporting of e-commerce businesses operating in the EU and the impact on the audit process is yet to be revealed.

It’s clear that the major shifts in the VAT landscape in 2021 created a different set of challenges for businesses and tax administrations but encouraging accurate record keeping is still a central goal of most EU Member States. In our next article in this VAT audit series we’ll explore the common triggers of a VAT audit.

Take Action

Need help ensuring compliance ahead of a VAT audit? Get in touch to discuss your VAT compliance needs.

Sign up for Email Updates

Stay up to date with the latest tax and compliance updates that may impact your business.

Author

Jack Bowdige

Jack is a consultant within Sovos’ Audit and VAT Recovery team. Since joining in 2020, he originally worked within the e-commerce reporting team before specializing in supporting our clients during the management, preparation and submission of VAT audits across the EU. Before joining Sovos Jack studied Economics at the University of Sussex.
Share This Post

EMEA VAT & Fiscal Reporting
November 29, 2022
Expert Series Part V: New Roles for IT in the Wake of Expanding Global Mandates

Part V of V – Christiaan Van Der Valk, vice president, strategy and regulatory, Sovos  Click here to read part IV of the series.   Government-mandated e-invoicing laws are making their way across nearly every region of the globe, bringing more stringent mandates and expectations on businesses. Inserted into every aspect of your operation, governments are […]

EMEA IPT
November 23, 2022
Fire Brigade Tax in Slovenia

Problems encountered with Fire Brigade Tax rate increase in Slovenia Slovenia’s Fire Brigade Tax (FBT) has changed. The rate increased from 5% to 9%. This came into effect on 1 October 2022. The first submission deadline followed on 15 November 2022. Unfortunately, the transition has been plagued by problems. We discuss some issues and how […]

E-Invoicing Compliance EMEA
November 22, 2022
E-invoicing and Fiscal Digitization in Africa

African countries are following e-invoicing and continuous transaction control trends implemented rapidly by many countries around the globe. Each country in the continent is developing their variation of a tax digitization system. This means there is currently no standardisation with compliance requirements differing in each jurisdiction. A common transaction reporting feature among African countries is […]

EMEA VAT & Fiscal Reporting
November 22, 2022
Expert Series Part IV: New Roles for IT in the Wake of Expanding Global Mandates

Part IV of V – Ryan Ostilly, vice president of product and GTM strategy EMEA & APAC, Sovos Click here to read part III of the series.   Government-mandated e-invoicing laws are making their way across nearly every region of the globe, bringing more stringent mandates and expectations on businesses. Inserted into every aspect of your […]

E-Invoicing Compliance EMEA
November 16, 2022
Denmark E-Invoicing Requirements

New bookkeeping law – Lov om bogføring On 19 May 2022, the Danish Parliament passed a new bookkeeping law – Lov om bogføring – introducing requirements for companies to use a digital bookkeeping system. Section 16 of the Law requires many Danish companies to use a digital bookkeeping system and make their bookings electronically. The final […]