The recent popularity of non-fungible tokens (NFTs) has captivated investors, governments and tax authorities. An NFT is a digital asset that represents real-world objects such as a piece of digital art, an audio clip, an online game or anything else. NFTs are purchased and sold online and are typically encoded with the same software as cryptocurrencies. They are stored in the blockchain to authenticate and track ownership of the NFT.
NFTs are generally one of a kind and can fetch tens of millions of dollars for a single NFT. The total market value of NFT sales skyrocketed into the billions in 2021. The high values and increase in sales have inspired several governments to introduce VAT legislation to define and tax these digital assets.
Multiple countries have announced specific VAT measures for the treatment of NFTs:
Spain: Spain is the first country in the EU to apply VAT to NFTs. The General Directorate of Taxes in Spain issued a ruling stating the supply of NFTs is an electronically supplied service subject to the standard VAT rate of 21%.
Belgium: The Belgian Finance Minister confirmed that the supply of NFTs is an electronically supplied service subject to the standard VAT rate of 21%.
Norway: The Norwegian tax administration defines the supply of NFTs as an electronically supplied service. It’s important to note that the creation or mining of an NFT will not attract VAT in contrast to a sale.
Washington State (U.S.): The Washington Department of Revenue is expected to announce that NFTs are subject to the state’s sales and business taxes as a digital product. This ruling will make Washington the first state to issue sales tax policies on NFTs.
In other countries, such as Switzerland, the supply of NFTs is generally considered an electronic service; however, there is a Swiss VAT exemption for electronic works of art directly sold by a creator that may apply to NFTs. VAT treatment of works of art may create implications for tax authorities when classifying NFTs.
Another area of VAT concern surrounding NFT transactions is the place of supply. Place of supply for VAT purposes typically requires buyers and sellers to exchange domicile information such as a billing address. NFT transactions conducted through blockchain can avoid sharing personal information with intermediaries via an anonymous ‘wallet,’ which may lead to privacy concerns and other issues for tax authorities as they attempt to bring these transactions within the scope of VAT.
The VAT treatment of NFTs is still in its infancy and will continue to evolve alongside the digital asset industry. More insight into the classification of NFTs and the determination of the place of supply of such transactions will come as more tax authorities issue rulings analysing these unique digital assets.
To find out more about what the future holds, download the 13th Annual VAT Trends whitepaper. Follow us on LinkedIn and Twitter to keep up to date with regulatory news and updates.
Tax compliance in Italy – where do we start? From monthly tax settlements to an annual declaration, prepayment, additional reporting and treatment of negative premiums – all these factors make Italy unique and one of the most challenging jurisdictions from an insurance premium tax (IPT) compliance perspective.
Let’s break it all down:
IPT rates range from 0.05% to 21.25%, depending on the class of insurance written. In addition to Italian IPT, there are also several insurance parafiscal charges:
Monthly payments are due by the end of the month following the reporting month, except in December. The payment for November liabilities is brought forward to 20 December. Whilst, the annual declaration is due by 31 May following the calendar year.
Although tax liabilities are paid monthly, and declarations filed annually, there is a legal obligation to maintain IPT books. IPT books are a chronological ledger on a policy level that must be readily available should the Italian tax authorities request the company records. IPT books are mainly requested for tax office audits, investigations or to support formal requests by an insurer.
In addition to the monthly payments and annual declaration, the following reports are also required in Italy:
We explained additional reporting requirements in Italy in a previous blog.
Insurers are required to make an annual prepayment to the Italian tax authorities in anticipation of future tax liabilities. Prepayment is due by 16th November each year. It is calculated as a percentage (100% for 2022) of total IPT and Consap contribution made in the previous year, deducting any IPT paid in respect of Motor Third-Party Liability business. Once settled, this prepayment can be offset against IPT liabilities (excluding Motor Third-Party liabilities) arising from February, when the January tax liabilities are due.
In some cases, insurers can be required to hand over significant amounts of money to the tax office who will hold those amounts, in some cases for several years. Although prepayment should not represent an additional cost to insurance transactions, it can pose some cash flow considerations for insurers. Important to note is that the prepayment is due on a historical basis and cannot be settled based on an estimate of future tax liabilities. Businesses can use excess prepayment to offset tax liabilities in the next period or offset against the next prepayment.
IPT credits relating to policy cancellations or adjustments are not permitted and should not be reclaimed from the Italian tax authorities nor offset against current liabilities. According to art. 4. Law 1216/1960, IPT “does not cease to be due even if the premium is fully or partially returned to the policyholder for any reasons”. Therefore, if the insurance company receives a premium, IPT is due even if this is subsequently reimbursed to the insured.
ANIA (the Italian trade body) has provided some clarifications to the market on the applicability of this provision, permitting tax reclaims only if the tax has not been fairly collected. This provision includes clerical errors or an incorrect qualification of the risk/scope of the insurance contract based on the information available when the policy was written.
An example of this is if the insurer mistakenly overcharged the policyholder, and the policyholder overpaid the tax. In such instances, the overpaid IPT can be deducted from tax liabilities arising in the same reporting period, i.e. the calendar year.
Italy is known for its strict application of laws and harsh penalty regime – up to 400% of the tax liabilities due. Furthermore, penalties and interest for late payments are time sensitive and are calculated daily. Additionally, penalties and interest are payable alongside tax liabilities.
Given its unique reporting standards, we recommend that insurers underwriting business in Italy are familiar with the intricacies and requirements in this jurisdiction. This will help them maintain compliance and avoid costly mistakes that could take significant time to resolve.
At Sovos, our experienced IPT specialists can help your business ensure its IPT compliance in Italy. Get in touch about the benefits a managed service provider can offer to easy your IPT compliance burden.
Sovos recently hosted an online webinar on VAT recovery where we covered reciprocity agreements between the UK and EU Member States when making 13th Directive VAT refund claims. One of the questions that kept coming up is what are reciprocity agreements and why do they matter?
When making 13th Directive refund claims, each EU Member State has different rules or conditions to meet before agreeing to a VAT refund. One of the conditions that EU Member States may require is a reciprocity agreement. A reciprocity agreement is a deal to reciprocate VAT refunds between two countries.
Therefore, VAT is only refundable when a similar tax is refundable for local businesses in the applicant’s country. For example, suppose a Spanish business was allowed to obtain a VAT refund in Norway through a similar scheme to the 13 Directive. In that case, Spain would likely have reciprocity with Norway and will allow the Norwegian businesses to make a 13th Directive Refund Claim in Spain.
There are currently around 19 EU Member States that require reciprocity agreements for non-EU businesses to make VAT refund claims. Of those, Greece and Slovenia currently only have reciprocity agreements with two countries (Norway and Switzerland), whilst Italy has three (Norway, Switzerland and Israel). When making EU VAT refund claims, businesses should review reciprocity and not assume they will automatically be approved.
Before Brexit, UK businesses could make VAT refund claims through the EU VAT Refund Directive (also known as the 8th Directive) which was built to allow reciprocity freedom for all EU Member States. However, post-Brexit, this mechanism for VAT refund claims no longer applied, and the UK fell within the 13th Directive Refund Scheme as a non-EU business.
Whilst the UK and EU have a Free Trade and Cooperation Agreement in place, there was no specific mention of reciprocity in VAT refund claims as these should be agreed between those particular EU Member States and the UK. Therefore, it may be more difficult for UK businesses, that make refund claims around the EU, to recover VAT incurred in some countries.
Regarding current reciprocity agreements with the UK, the only official announcements we have seen to date have been from Germany, Spain and Hungary. However, we are aware of ongoing discussions between the UK and other EU Member States.
HMRC states they will only refuse a claim if the reciprocal country has a scheme for refunding taxes but refuses to allow UK traders a refund. Therefore, HMRC is willing to allow VAT recovery in the UK for EU businesses providing UK businesses receive the same treatment as the EU. It would therefore be in the interests of EU Member States to allow VAT recovery for UK businesses for businesses in their own country to benefit from the same treatment.
Most EU Member States require reciprocity when making VAT refund claims. Therefore, the law of reciprocity is an integral factor when looking to make a VAT refund claim in any jurisdiction. It’s important to understand these reciprocity laws to prevent wasting time and money on making a VAT refund claim from a country that doesn’t allow it.
E-invoicing was introduced in Peru in 2010, following the continuous transaction controls (CTC) trend in Latin American countries for a more efficient collection of consumption taxes. Since then, the government has rolled out measures to encompass a significant number of taxpayers under the country’s mandatory e-invoicing regime and advance new technical and institutional structures within its System of Electronic Emissions (SEE – Sistema de Emisión Electrónica).
June 2022 marked the final deadline for including the last group of taxpayers in the country’s e-invoicing mandate. However, the government continues to expand its system, with the latest update proposed by a draft resolution introducing important changes to the Peruvian e-transport document, the Guía de Remisión electronica – GRE.
The Peruvian tax authority (SUNAT) published on 2 June 2022 a draft resolution introducing changes to the GRE, the electronic transport document that must be issued in connection to invoices (comprobantes de pagos) for the control of goods under transportation. The GRE is only vital while the goods are in transit but is a document commonly kept by companies to maintain internal controls of transported goods.
The new draft resolution aims to regulate the issuance of the e-transport document further, introducing several changes, mainly to optimise the control of goods and eliminate the use of paper.
Among the many changes introduced by the draft, the main are:
Taxpayers must be ready to issue GREs remitente and transportista exclusively through their own systems using a software provider (PSE – proveedores de servicios electrónicos) or the SUNAT Portal. This requirement may represent quite the impact on taxpayers that regularly issue a large volume of GREs through the electronic services operator’s channel, the SEE-OSE (Operador de Servicios Electrónicos).
The most impactful change, however, is that taxpayers will only be able to use the GRE as a support document for the transport of goods. Under current legislation, besides the GRE, the factura guía and the liquidacion de compras, which are regular invoices with additional transport information, can also be used to support transporting goods. Issuance of the factura guía is a common practice since it entails the generation of one single document that serves both the sales transaction and transportation. However, the draft resolution only allows the use of the GRE for this purpose.
The introduction of the QR code is the government’s approach to a modern and efficient control method. The bidimensional code is generated by SUNAT once the CDR (constancia de recepción) acquires accepted status and may be presented in either digital or printed format.
Although taxpayers may still support transportation by providing their registration number (RUC), the series and the GRE number, it is expected that the QR code will become the principal method to support transit, and the RUC will only be used as a contingency method.
A new type of e-transport document has also been introduced. The guía de remisión por evento may only be issued through the SUNAT Portal and is used to complement a previously issued GRE in the case of unforeseeable events not attributable to the issuer. In these cases, current regulation supports the transfer with the same document. The draft resolution, however, requires that the GRE por evento is issued before restarting the transportation of goods.
Another change that taxpayers must be aware of, as it might give rise to complex scenarios, is the creation of a new catalogue of measure units applicable only to GREs, found in Annex III. The already existent measure unit catalogues for all other invoices will not apply to the GRE, which is bound to cause a lack of uniformity since the same concept would use two different catalogues.
The draft resolution sets 13 July 2022 as its date of entry into force when taxpayers already in the scope of the GRE may start to issue through the appropriate channels and voluntarily start using the QR code as the support for transportation.
However, until 30 September 2022, taxpayers may exceptionally issue GREs remitente through the SEE-OSE, considering the conditions and requirements in place before the publication of the resolution. The draft also establishes a list of certain taxpayers (issuers and transporters) who will become obliged to issue the GRE and the corresponding dates, in Annex X, according to taxpayer types and the goods in transport, starting 1 January 2023.
As this is a draft resolution, the changes only become definite with the official publication of the final version of the resolution. However, as 13 July 2022 approaches, the resolution is expected to be published in the following weeks. Therefore, taxpayers who are already under the obligation to issue GREs must be ready to comply with the new mandates within a month.
SUNAT accepts comments to the draft resolution, which can be sent via email until 16 June 2022, to the following address: RPATRICI@sunat.gob.pe.
Speak to our team if you have any questions about the latest e-invoicing requirements in Peru. Sovos has more than a decade of experience keeping clients up to date with e-invoicing mandates all over the world
In line with the obligations set by the European Directive 2014/55 on electronic invoicing in public procurement, Belgium introduced a mandate for public entities to receive and process electronic invoices in 2019.
For Brussels, Flanders, and Wallonia the initiative went beyond the bare minimum of the EU Directive requirements and introduced obligations to also issue e-invoices for suppliers to public sector entities in these regions.
With recent legal changes, Belgium is now preparing to extend the e-invoicing obligation to even more businesses by introducing mandatory e-invoicing in the B2B sector.
On 31 March 2022, the Belgian Official Gazette published the Royal Decree of 9 March 2022, which intends to expand the obligation to issue electronic invoices to all suppliers of public institutions in the context of public contracts and concession contracts.
As previously mentioned, such obligation was already present in multiple regions including Brussels, Flanders, and Wallonia, however, now the mandate covers suppliers of public bodies in all regions. The dates concerning issuing electronic invoices in the public contracts, based on their value are:
Only public contracts and concessions, which estimated value is less or equal to €3,000 excluding VAT are exempt.
As reported previously, Belgian authorities have indicated the ambition to move beyond B2G e-invoicing. On 11 May 2022, the Belgium Chamber of Representatives published a draft law amending the law of 2 August 2002 on combating late payment in commercial transactions, as last amended by the law of 28 May 2019, with the aim to implement electronic invoicing between private companies (B2B).
The rationale behind the proposal is the need to enable companies to invest in electronic invoicing, after already supporting the digitalization of invoicing in the B2G sector. The benefits that will follow are a much faster invoicing process, which is more secure and minimises the risk of errors and missing data.
Moreover, the chances of fraud will decrease while privacy protection increases, without the need for human intervention in the invoicing process.
Lastly, the environmental aspect concerning less paper consumption is highlighted. In terms of financial gain, as calculated by the Administrative Simplification Service (DAV), full digitalization of invoices in Belgium could reduce the administrative burden by €3.37 billion.
Based on the draft law, companies (with the exception of micro-enterprises) will be obliged to send their invoices in structured electronic form (in line with the European standard for electronic invoicing EN 16931-1:2017 and CEN/TS 16931-2:2017) as well as receive and process invoices electronically.
Nothing in the draft law describes the involvement of a centralised clearance platform, or the reporting of e-invoice data to the tax authorities. At this time, there is therefore no formal indication that the proposed mandate would be designed as a Continuous Transactions Control (CTC) e-invoicing system, however it is possible that the system will evolve to connect with PEPPOL.
The law will come into effect on 1 January 2025 regarding SMEs, thereby ensuring that companies have adequate time to prepare for the transition. If it comes to large enterprises, it is expected that mandatory e-invoicing will be present from January 2024. Originally the date concerning large taxpayers was July 2023, and small taxpayers from 2024, therefore those dates will most likely be postponed.
Our previous articles covered audit trends we have noticed at Sovos and common triggers of a VAT audit. This article discusses the best practices on how to prepare for a VAT audit.
Each country and jurisdiction may have different laws and requirements related to the VAT audit process. Tax authorities can carry out audits in person or by correspondence, the latter often being the case for non-established businesses in the country in question.
A business may be audited at random or because there are reasons for the tax authority to believe that there is a problem with the company’s VAT return.
Generally speaking, authorities use audits and inspections to verify the accuracy of taxpayers’ declarations, identify possible errors or underpayments, and approve refunds.
As discussed in our previous article, to understand how to best prepare for a VAT audit, it’s essential to identify the reason why the audit was initiated.
Although specific checklists are available depending on the country of the audit, there are several actions that a business can carry out to prepare for an VAT audit. The most important of which is to collect documents and answers in advance. Frequently requested items during an audit include:
It is important that records of the above-listed documents, where applicable, are kept in line with local record keeping requirements. The need to prepare these documents in advance and the ability to produce them quickly becomes essential when a company is, for example, due to request the refund of VAT credits, to submit a de-registration or has, in general, any reason to expect for an audit to be initiated.
Authorities can open a cross check of activities with the company’s customers and suppliers, which will be initiated in parallel to the audit to verify that the information provided from both sides is consistent. Therefore, it is recommended to inform suppliers about any ongoing audit, communicate any questions or clarify outstanding queries. If, for example, a correction of invoices appears to be necessary, these should be finalised already in preparation for the VAT audit.
The tax authorities may impose very short and strict deadlines once an audit is initiated. Although it may be possible to request an extension, it is not necessarily guaranteed to be granted. In certain circumstances, authorities may impose penalties for late responses. Providing a clear and understandable set of documents to the tax office queries is essential to avoid any detrimental effects.
The advantages of preparing for a VAT audit can be summarised as follows:
Whether a business decides to handle the audit in-house or request the support of an external advisor, it is essential to consider the consequences of the audit, especially if high amounts of VAT to recover are at stake. In the event of an audit, the main objective should be to resolve it successfully and quickly, limiting as much as possible any detrimental impact to the business.
The most recent update to the Portuguese Stamp Duty system has included some of the most comprehensive tax reporting changes seen in recent years. Stamp Duty is the oldest tax in Portugal and has been around since the Royal Decree in 1660. Considering its age, updates to bring it in line with the global standard of tax reporting were much needed. Although the tax rates within Portugal have remained unchanged, the reporting process to incorporate the provincial liabilities within one return has been greatly appreciated.
The additional information that insurers are obliged to collect, disclose and submit in their Stamp Duty Declaration is as follows:
It’s important to note that the ability to offset taxes relating to previous periods has been revoked by Law Decree no. 119/2019, which allowed insurers to report reduced tax amounts for overpaid liabilities. The modifications to the reporting procedure enable companies to amend previous periods through their internal system. Consequently, this permits adjustments to prior periods and the reclaiming of overdeclared liabilities directly from the Portuguese tax authority. It is our understanding that reclaims will be reimbursed to the client two months after an amended return is submitted.
Sovos has developed a unique relationship with the Portuguese tax authority, allowing for comprehensive reporting between Sovos systems and the Portuguese API. The reporting procedure can confirm validated IDs to ease data validation and reporting. This collaborative process has allowed Sovos to provide our customers with a smoother and more fluid submission process for Stamp Duty reporting.
To understand more about Portugal’s Stamp Duty and how it impacts your IPT compliance, get in touch with our team of experts.
Learn more about the latest rates, rules and regulation of Insurance Premium Tax in our e-book, IPT Compliance – A Guide for Insurers.
In 2019, the Portuguese government enacted Law Decree n. 28/2019, introducing a full reform of the rules concerning the issuance, processing and archiving of invoices, with the main goals of implementing electronic invoicing, simplifying compliance for taxpayers and reducing the VAT gap.
The expanded scope of those obliged to use a billing software certified by the Portuguese Tax Authority, the inclusion of a QR code and a sequential unique number code (ATCUD – código único de documento) and the stricter integrity and authenticity requirements when issuing invoices and other relevant fiscal documents were some of the most impactful mandates introduced by this law.
However, many taxpayers struggled to comply with the new requirements. As such, the tax authority has delayed the launch of different components of the Decree, and some of them remain to be implemented.
In a recent Ministerial Decision from 26 May 2022, the goal line for implementing the stricter integrity and authenticity requirement, this article’s focal point, has been moved yet again, now to 1 January 2023.
The Decree from 2019 established that in order to guarantee the requirements of authenticity and integrity of electronic invoices and other relevant fiscal documents have been met (per article 233 of the EU VAT Directive 2006/112/EC), taxpayers must use a qualified electronic signature, a qualified electronic seal (QES) or an electronic data exchange system (EDI) with security measures per the European Model EDI Agreement. This change is important as it limits the choice of compliance methods generally recognised within the EU to one between only QES and EDI.
To achieve this goal, the Decree determined that taxpayers would only be able to use previously accepted advanced electronic signatures or seals (the lower level of signature security) until 31 December 2020. After that, all invoices would be required to incorporate a qualified signature or seal or be issued through EDI.
The original deadline for implementing the stricter integrity and authenticity requirements has been postponed many times. The first delay was ordained through Despacho n. 437/2020-XXII of 9 November 2020 of the State Secretary for Fiscal Matters (SEAF – Secretário de Estado dos Assuntos Fiscais). According to this, PDF invoices without a QES would be accepted until 31 March 2021 and considered electronic invoices for all fiscal purposes.
Since then, the mandate has been postponed four additional times, with the last one taking place on 26 May 2022, by Despacho n. 49/2022-XXIII of the SEAF. According to this act, PDF invoices with no specific security measures must be recognised as electronic invoices for fiscal effects until 31 December 2022, instead of the previously established date, 30 June 2022.
Therefore, from 1 January 2023, taxpayers covered by Law Decree n. 28/2019 must comply with the requirement to ensure authenticity and integrity either by applying a Qualified Electronic Signature/Seal or by using “EDI by-the-book” (EDI under the European Model EDI Agreement).
Besides the stricter authenticity and integrity requirement, taxpayers must be ready to comply with additional new invoicing mandates underway in Portugal. On 1 July 2022, it will be required to only use structured electronic invoices in CIUS-PT format for B2G transactions. The B2G mandatory e-invoicing is already under implementation through a phased roll-out. It is set to be finalised and become compulsory for small and medium companies and microenterprises on 1 July 2022. Furthermore, the inclusion of the ATCUD code on invoices and other fiscal relevant documents, which has also been previously postponed, is set to become mandatory on 1 January 2023.
Need to ensure compliance with the latest e-invoicing requirements in Portugal? Get in touch with Sovos’ tax experts.
Since becoming the first EU country to make electronic invoicing mandatory through a clearance process in 2019, Italy has kept a steady pace in improving its continuous transaction controls (CTC) system to close the gaps in VAT compliance.
Over recent years, Italy has gradually expanded its system by introducing various mandates. The following changes reflect the government’s efforts to tie up loose ends and assert more far-reaching control mechanisms to achieve an efficient and well-rounded system.
The changes listed below become effective on 1 July 2022, with some already available on a voluntary basis and others allowing a short grace period for adjustment.
The retirement of the tax reporting scheme, Esterometro, will require Italian taxpayers to report all cross-border transactions through the Sistema di Interscambio (SDI). Since the clearance of cross-border invoices is not within the Italian CTC system’s scope, this is a clear step towards centralisation.
Taxpayers may continue to exchange invoices in any agreed way, including the FatturaPA format. The reporting, however, must be done through the SDI using the FatturaPA format. This has been optional since January 2022.
Italy has recently expanded the scope of its e-invoicing mandate bringing in new groups of taxpayers:
A short grace period has been established from 1 July 2022 until 30 September 2022. During this period these taxpayers may issue e-invoices within the following month from when they carried out the transaction without any penalties being applied.
The new mandate also states that microenterprises with revenues or fees up to €25,000 per year will be required to issue and clear e-invoices with the SDI, but this only starts in January 2024.
Following the Italian CTC mandate, Italy and San Marino began negotiations to accommodate invoice exchange between the two countries through the more modern clearance-based system, which requires taxpayers to issue and clear e-invoices using the FatturaPA format. This was established by creating a “four-corner” model with the Italian SDI as the access point for Italian taxpayers and the HUB-SM platform as the SDI counterpart on San Marino’s side.
The mandate covers the sale of goods shipped to San Marino for taxpayers who are residents, established or identified in Italy. For sales of goods to Italy, an e-invoice must be issued by the economic operators with identification attributed to them by the Republic of San Marino. A significant effect of this mandate is that the reporting obligations through Esterometro will come to an end.
The voluntary transition phase started in October 2021.
The start of the second semester of 2022 will bring significant changes, and taxpayers have limited time to conform as July approaches. Understanding how these new requirements can affect your company will ensure compliance and avoid unnecessary mistakes.
Speak to our team if you have any questions about the latest e-invoicing requirements in Italy. Sovos has more than a decade of experience keeping clients up to date with e-invoicing mandates all over the world.
Saudi Arabia´s e-invoicing system is being rolled out in two phases; the second phase’s requirements differ from the first phase. The first phase started as of 4 December 2021 for all resident taxable persons. The second phase will go live on 1 January 2023, and the impacted taxpayer group has not yet been announced. However, the Zakat, Tax and Customs Authority (ZATCA) has made considerable progress in kicking off phase 2.
Phase 2 will introduce a Continuous Transaction Controls (CTC) regime in which e-invoices, electronic credit and debit notes will be transmitted to the ZATCA platform in real-time. A clearance regime is prescribed for B2B invoices, while B2C invoices must be reported to the tax authority platform within 24 hours of issuance. Therefore, ZATCA was expected to introduce its e-invoicing platform well in advance of the launch of phase 2.
As expected, the ZATCA recently announced the launch of an E-Invoicing Developer Portal (Sandbox). Users will use the Sandbox to simulate the integration with ZATCA’s platform and can access details on the APIs and other requirements through this platform upon registration.
ZATCA has proposed specific changes to e-invoicing rules. The proposed changes are under public consultation and interested parties may submit their feedback until 10 June 2022.
The changes aim to clarify some requirements (e.g. Cryptographic Stamp, hash, counter etc.) rather than introducing new ones.
The last clarifying changes to the e-invoicing rules are underway, and the developer portal has been launched. We’re now expecting ZATCA’s announcement of the taxpayer groups in the scope of the mandate and expect it to happen at least six months before the go-live date. As the ZATCA plans to roll out phase 2, there will be different timelines for different taxpayer groups. We expect this information within the coming months.
Need to ensure compliance with the latest CTC requirements in Saudi Arabia? Get in touch with Sovos’ team of tax experts.
Meet the Expert is our series of blogs where we share more about the team behind our innovative software and managed services.
As a global organisation with indirect tax experts across all regions, our dedicated team are often the first to know about new regulatory changes and the latest developments on tax regimes across the world, to support you in your tax compliance.
We spoke to Hooda Greig, compliance services manager about ways insurers can make the Insurance Premium Tax (IPT) process more efficient.
I lead an IPT team that delivers compliance services in Europe. I oversee the day-to-day management and delivery of IPT compliance for an extensive portfolio of global clients. We are the first point of contact between Sovos and our clients. My focus is ensuring all tax requirements for the clients are met, that is filing and paying their liabilities to the various territories they are registered in. I also work closely with other departments within our company, particularly our consulting team to assist with more technical aspects of IPT compliance.
Modernising the tax process will help insurers operate efficiently. There are still many insurers reliant on manual reporting methods for IPT. Strategic management of the end-to-end process is key to improving efficiencies, with a focus on managing risks by investing in digitization. Tax technology tools will make compliance for insurers simple, as will collaborating with tax teams with specialised IPT knowledge at a local level.
My top tip to manage risk is the use of tax technology. Tax authorities are introducing more demanding reporting requirements and digitization of filing and reporting processes can result in efficiency, accuracy, and cost reductions.
Efficiency, accuracy, and the costs of getting it wrong are concerns for insurers. The consequences of IPT non-compliance are not limited to statutory or legal penalties, the indirect costs to insurers are often more significant, the cost of correcting a mistake and non-compliance could also have an impact on the company’s reputation. Tax authorities are becoming more stringent in their reporting requirements. It’s important for insurers to work closely with a managed services team to help meet all their tax obligations and in preparation for future IPT requirements to ensure compliance now and in the future.
To minimise risks, we’re seeing an increasing number of insurers looking to technology solutions to change the way they operate. Sovos’ mission is to solve tax for good and we specialise in tax technology and data analysis with specialised knowledge at a local level, ensuring insurers’ compliance requirements are met. Keeping abreast of all regulatory changes can be difficult, Sovos issues regular tax alerts, newsletters and hosts webinars to keep clients up to date with the latest IPT updates.
Have questions about IPT compliance? Speak to our experts or download our e-book, Indirect Tax Rules for Insurance Across the World.
It’s no surprise that inflation is on the forefront of everyone’s mind, with prices continuing to sky-rocket month by month. Data from the United Kingdom shows that the Consumer Prices Index (CPI) inflation jumped to a 40-year high of 9% in the past 12 months. Governments around the world are looking for ways to reduce the burden for consumers to keep global economies afloat. One method – implementing VAT rate cuts to certain goods and services – looks to be coming out on top as multiple countries around the world announced emergency budget sessions or introduced proposals to temporarily cut VAT rates.
Temporary VAT rate cuts are generally quick and easy to implement, which is why they are favored by governments globally. These cuts essentially allow for a boost to the economy by providing consumers with an overall higher amount to spend, incentivizing consumers to spend now while rates are lower.
As expected, many countries have already announced VAT rate cuts or measures to stimulate their economies:
Additional countries such as Estonia, Netherlands, Latvia, Greece, and Turkey are also taking measures to implement VAT rate cuts to fight the ever-rising costs for consumers.
These VAT rate cuts coincide with new measures passed recently by the European Commission allowing Member States to apply reduced rates to more items, including food. Though many Member States seem to be moving towards taking advantage of this new flexibility on VAT rate reductions, it’s expected that as costs continue to rise more Member States and countries around the world will introduce VAT rate cuts to ensure consumer spending doesn’t continue to trend downward.
Since many audits seem to occur at random, it’s not always possible to identify the reason why a tax office would decide to initiate one.
We’ve previously spoken about an increased interest in audits from the EU and audits for e-commerce. This article covers the most common reasons behind a VAT audit to help businesses anticipate and prepare for one when possible.
There are specific “trigger” events among the most common reasons that could cause further queries from the tax office. Generally speaking, these are changes in the company’s status such as a new registration, a de-registration, or structural changes within the company.
VAT refund requests also fall into this category. In some countries (Italy and Spain, for example) a refund request is almost certainly a reason for an audit to be initiated since the local tax office cannot release the funds before checks are completed. In this case, the likelihood of an audit increases when a refund is particularly substantial and the business requesting it is newly VAT registered. However, it doesn’t mean that the tax authority will not initiate an audit if the amount requested in a refund is relatively small.
Certain types of businesses are naturally more subject to audits due to their structure and business model. Groups commonly selected for scrutiny include, for example, large companies, exporters, retailers and dealers in high-volume goods. Therefore, elements such as a high number of transactions, high amounts involved and complexity of the business structure could be another common reason for an investigation to be initiated by the local tax authorities.
Tax authorities often identify individual taxpayers based on past compliance and how their information compares with specific risk parameters. This would include comparing previous data and trading patterns with other businesses in the same sector. Therefore, unusual patterns of trading, discrepancies between input and output VAT reported, and many refund requests may appear unusual from the tax office perspective and give rise to questions.
Another common reason for the tax authorities to request further information from taxpayers is the so-called “cross check of activities”. In this case, either a business supplier or client is likely to be subjected to an audit. The tax office will contact their counterparts to verify that the information provided is consistent on both sides. For example, if a business is being audited following its refund request, the tax office will likely contact the suppliers to verify the audited company didn’t cancel the purchase invoices and that they have been paid.
This category also includes cross checking activities on Intra-Community transactions reported by a business. In this scenario, the cross check would be based on information exchanges between local tax authorities through the VAT information exchange system (VIES). The tax authorities can check Intra-Community transactions reported to and from specific VAT numbers in each EU Member State and then cross check this information with what has been reported by a business on their respective VAT return. If any discrepancy arises, the tax office will likely contact the business to ask why they have (or haven’t) reported the transactions declared by their counterparts.
As we’ve already seen in an earlier article, audit triggers are also influenced by changes in legislation or shifts in the tax authorities’ attention to specific business sectors.
Regardless of whether it’s possible to identify the actual reason the tax authority initiated an audit, a business can undertake several actions in preparation for a check of activities, which will be covered in the next article of this series.
Romania is introducing a mandatory e-transport system from 1 July 2022 to monitor the transport of certain goods in the national territory, an initiative that will operate in parallel with the newly launched continuous transaction controls (CTCs) system for e-invoicing. This means that in a little over a month’s time, the issuance of an e-transport document will be mandatory for transportation of certain goods within Romania. In this blog, you will find answers to frequently asked questions related to this new system.
The Romanian e-transport system monitors the transport of goods on the national territory categorised as high risk from a fiscal perspective.
This includes the following:
In addition to the transportation type, the categories of road vehicles in scope were recently published in a draft order by the National Agency for Fiscal Administration (ANAF) as follows:
The transportation of high fiscal risk goods will not be declared in Romania’s e-transport system if the transportation doesn’t fall within the scope described above.
ANAF had already established a list of high fiscal risk products and used the same criteria to determine the scope of the e-invoicing system (E-Factura). Although that list partially overlaps with the list for the e-transport system, there are differences.
The product categories of high fiscal risk products for the e-transport system are as follows:
If the transportation includes both goods with high fiscal risk and other goods that aren’t in the category of high fiscal risk, the whole transportation must be declared in the Romanian e-transport system.
It will be operational through the Virtual Private Space (SPV), which is the tax authority portal used for tax purposes, including the Romanian e-invoicing system. The system can either be used through API or through a free application provided by the Ministry of Finance.
According to the regulation, taxpayers will declare the transportation by transmitting an XML file 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. Following the transmission, the system will perform some checks (structure, syntax, and semantics), and the Ministry of Finance will apply its signature confirming receipt of the declaration.
The system will generate a unique code (ITU code) if the XML file complies with the requirements and make it available to the taxpayer in a zip archive file with the signature of the Ministry of Finance. This code must accompany the goods in physical or electronic format with the transport document to enable the competent authorities to verify the declaration and the goods while enroute.
The ITU code is valid for five calendar days, starting with the date declared when the transport begins. It’s prohibited to use the ITU code once it has expired.
The declaration will include the following:
Noncompliance with the rules relating to the e-transport system will result in a fine reaching Leu 50,000 (approx. €10,000) for individuals and Leu 100,000 (approx. €20,000) for legal persons. In addition, the value of undeclared goods will be confiscated.
What happens next?
Most of the regulations have been finalised although the approval process of the recently published draft order, technical documentation, APIs, and the e-transport system website are not yet available to taxpayers. As the system is currently due to become mandatory on 1 July 2022, businesses in Romania need to either prepare for last-minute implementation once the outstanding documentation is published or expect a postponement.
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.”
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.
Need help ensuring compliance ahead of a VAT audit? Get in touch to discuss your VAT compliance needs.
France is known for its challenging Insurance Premium Tax (IPT) filing system. Understanding which tax authorities you need to register with, file with and talk to when you have questions is essential to meeting your business’s IPT compliance obligations. In this blog, we identify France’s IPT tax authorities and explain what makes IPT so different in this European country.
There are three different tax bodies in France in charge of collecting IPT. They are the Business Tax Department (Service des Impôts des Entreprises) (SIE), the Compulsory Damage Insurance Guarantee Fund (Fonds de Garantie des Assurances Obligatoires de Dommages) (FGaO), and the Union for the Collection of Social Security Contributions and Family Allowances (Union de Recouvrement des Cotisations de Sécurité sociale et D’allocations Familiales) (URSSAF).
Dealing with France’s tax authorities can be challenging, especially once an insurance company obtains authorisation from the Prudential Control and Resolution Authority (Autorite de Controle Prudentiel et de Resolution) (ACPR).
Have questions about IPT compliance? Speak to our experts or download our e-book, Indirect Tax Rules for Insurance Across the World.
In a recent blog, we considered the upcoming changes to the VAT treatment of virtual events. Today, we will consider some of the issues that may arise.
Many hosts currently use the available educational or fundraising exemptions, especially where the delegates are private individuals without the right of deduction, e.g., doctors. For events with physical attendance the host must consider the rules of the Member State where the event is held since that is where the VAT is due.
Under the new rules, a VAT exemption will be less relevant for B2B virtual events where the reverse charge applies as the attendee assesses the charge to tax themselves. However, it will remain relevant where delegates are unable to apply the reverse charge and unable to deduct the VAT charged – e.g. doctors. In such circumstances VAT is due where the doctor normally resides and that is where the exemption must be considered.
These new rules may require the host to assess the availability of the exemption in several Member States and may also require multiple ruling requests to be submitted. This is likely to increase operating costs substantially, and the (unintended) consequence could be that exemptions are not considered to the detriment of delegates.
Many future events are likely to include virtual attendees since it increases overall attendance at an event, requiring the host to manage two invoicing regimes. There could be issues where one taxpayer has both physical and virtual attendees. In this case, the host will need to issue two invoices – one with local VAT for the physical attendance (and where the exemption may apply) and one where VAT is due in the customer’s Member State and the general reverse charge may apply. The attendance of B2C delegates will further increase this complexity for the host.
What happens if a delegate is invoiced for physical attendance, but changes to virtual attendance at the last minute?
When the host provides the login details for virtual attendance, this may change the place of supply. If the place of supply changes, the host must cancel the original invoice and issue a new invoice with the amended VAT treatment.
Where a host currently holds an event with virtual admission for non-taxable EU delegates (e.g. doctors) then the place of supply is where the supplier is established. For a host established outside the EU, no EU VAT is due (ignoring the possibility of use and enjoyment), and it is also likely that no local VAT is due in the host’s own country.
Implementation of the new rules will mean that the host must charge VAT in the Member State where the doctor normally resides. This will not only result in unrecoverable VAT for the doctor but will also increase the compliance costs of the host. Virtually attending such an event in 2025 may become significantly more expensive than in previous years.
The article governing the transposition of these changes requires Member States to “adopt and publish” the necessary laws, regulations etc., by 31 December 2024. The changes will then apply from 1 January 2025.
Member States must not break rank and apply these rules before this date. A situation where some Member States adopt and apply the rules early could lead to double taxation, particularly in B2C transactions.
Once the rules are in force on 1 January 2025, several issues could arise. What happens for an event in January 2025 where delegates must pay for admission ahead of time in 2024? Where is VAT accounted for, and under which rules?
For B2B, there should be no issue since the service remains a general rule, but there is a real issue for non-taxable delegates, e.g. doctors.
For example, a US host holds an event where a German doctor will attend virtually. The event is in January 2025, but the delegate must pay the admission fee by 30 November 2024 to secure a place. Under current rules, applicable in 2024, the place of supply is where the supplier is established, so no VAT is due on the invoice. But when the event happens in January 2025, the new rules say that German VAT is due.
The time of supply rules are not affected by these changes but could a tax authority seek to change these to increase its tax revenue? For example, Greek VAT law says that the tax point is when the event takes place – not when the invoice is issued/payment received. So, in the above example, Greek VAT would be due for a Greek B2C delegate.
When considering the taxation of virtual events, the new rules state that in view of the digital transformation of the economy, it should be possible for Member States to provide the same treatment of live-streamed activities, including events, as those which are eligible for reduced rates when attended in person. To enable this, the annex detailing which services can benefit from a reduced rate will be amended to include admission to:
This change means that events that are live streamed can benefit from a reduced VAT rate. Though the changes to the place of supply rules refer to “virtual attendance” for B2B and “streamed or made virtually available” for B2C.
Are we to assume that “virtual attendance” = “live streamed”? But “streaming” can be live or recorded. Do these changes also cause an issue for VAT rate determination?
If a delegate watches an event live, then a reduced rate is possible. If the same event is watched via downloading a recording later, then the reduced rate is not possible. If one fee gives a delegate the right to attend the event virtually and download the event for future reference, then the concept of a mixed supply may be relevant.
A recent report released by the European Commission has stressed the need for Member States to increase the number of audits they undertake, particularly in e-commerce businesses. The European Commission specifically highlighted the need for Malta, Austria and France to make additional efforts to improve their value-added tax audit practices. They highlighted the seriousness of the issue and that the consequences of inaccurate VAT reporting can be severe. VAT audits, therefore, promote accurate reporting and mitigate fraud, and as such, they are being encouraged by the Commission.
The European Commission specifically stated that tax authorities should have a strategic approach which must observe multiple elements, including:
The report notes some of the positive actions taken by Member States. Generally, they pay close attention to the audit process, with Finland and Sweden highlighted as particularly good. Furthermore, the report notes that some Member States have established special “VAT task forces” to deal with audits.
Following this report, the European Commission also announced that Norway should be authorised to participate in joint audits with their counterparts in the EU as a further measure to crack down on fraud.
E-commerce is a good example of an area that continues to grow, with the VAT stake ever increasing. With tax authorities globally struggling to keep pace with new technology and consumer offerings, local tax authorities are implementing further measures to ensure that fraud is combatted at an EU-wide level. Whether further changes occur through a difference in how VAT is reported or new forms of reporting such as continuous transaction controls (CTCs) that are in place in some Member States already, VAT audits are at the heart of this strategic plan. In this report, the European Commission has clarified that the approach and scope of audits should be extended.
With increased Member States co-operation and new measures adopted by the European Commission, such as the implementing regulation that provides details on how payment providers should start providing harmonised data to tax authorities from 2024, businesses should ensure that they have adequate controls in place to be able to handle any audit request. Future blogs in this series will focus on the audit trends we’ve noticed at Sovos and how businesses should prepare for an audit.
For more information about how Sovos’ VAT Managed Services can help ease your business’s VAT compliance burden, contact our team today.