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 now an omni-present influence in your data stack reviewing every transaction in real time as it traverses your network. Real-time monitoring has also brought about real-time enforcement that can range in severity from significant fines to shutting your business down completely. All of this has created a new reality for IT leaders who need a strategy to deal with these global changes. We asked our vice president of strategy and regulatory, Christiaan Van Der Valk to offer his guidance on how this will affect IT departments and how they can best prepare.

Q: With government authorities now in companies’ data and demanding real or near real-time reporting, what impact will this have on IT departments? 

Christiaan Van Der Valk: The digitization of VAT and other taxes considerably expands the scope of the finance and transactional systems that need to meet specific – and ever-changing – government requirements. This phenomenon of broadening and decentralizing tax compliance in a company’s system and process landscape happens at the same time that more of these applications (for accounts payable automation, EDI, procurement, supply chain automation, travel and expense management, order-to-cash, customer communications management etc.) are used on a SaaS basis in multitenant mode.

This requires you to take stock of the applications that may come within the scope of VAT requirements in all relevant jurisdictions, and to review vendor contracts to ensure clarity as to responsibility for compliance. Procurement practices to license such external applications may also need to be reviewed to ensure proper contracting around tax compliance from the start.

Q: To meet government mandates and ensure operations continue uninterrupted, what should IT prioritize? What approach would you recommend? 

Christiaan Van Der Valk: A key success factor is the degree to which IT and tax can team up to affect change in the organization. The default response to indirect tax changes will be to view these as evolutionary and best resolved by local subsidiaries. The introduction of CTCs, however, is a paradigm shift and one of the consequences is that solving these challenges in a decentralized manner can be harmful to a company’s digital transformation potential. IT and tax need to work closely together to raise awareness among all corporate and country stakeholders on the importance of a coordinated, strategic response to this profound change. The role of tax technologists who specialize in these interdisciplinary challenges cannot be underestimated.

A lot has changed in the world of government mandated e-invoicing. Continued investment in technology by government authorities has put regulators in the position to demand greater transparency along with more detailed and real-time reporting. To meet these demands, companies are looking to their IT organizations. The good news is you don’t need to go it alone. Sovos has the expertise to guide you through this global evolution based on our experience working with many of the world’s leading brands.

Take Action

Need help keeping up with global mandates? Get in touch with Sovos’ team of tax experts.

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 operation, governments are now an omni-present influence in your data stack reviewing every transaction in real time as it traverses your network. Real-time monitoring has also brought about real-time enforcement that can range in severity from significant fines to shutting your business down completely. All of this has created a new reality for IT leaders who need a strategy to deal with these global changes. We asked our vice president of product and GTM strategy, Ryan Ostilly to offer his guidance on how this will affect IT departments and how they can best prepare.

Q: With government authorities now in companies’ data and demanding real or near real-time reporting, what impact will this have on IT departments? 

Ryan Ostilly: IT teams will have to work hard to ensure their core finance and transactional tax systems have the enhanced capability to extract, transform, remit and consume real-time data with all tax jurisdictions across their global footprint, in compliance with an ever-changing myriad of legal and procedural requirements. With the pace of disruption accelerating, governments are rewriting the rules on taxpayer control and engagement, forcing direct connection and intimacy with the data itself.

I fear that in a growing number of cases, the owners of the data may be functional departments. The IT department will need to evolve its role in this relationship, viewing the government as a critical business partner – one with whom they must always be connected, continuous and complete.

Q: To meet government mandates and ensure operations continue uninterrupted, what should IT prioritize? What approach would you recommend?  

Ryan Ostilly: In this modern era of government-initiated tax transformation, the successful IT department will pursue a proactive strategy that prioritizes a connected, continuous and complete framework for government mandates and Continuous Transaction Controls (CTCs). These three principles are:

Connected – Architect a simplified integration and vendor strategy. Reduce exposure to multiple integrations and heavy projects when adopting new jurisdictions or implementing changes.

Continuous – Partner with regulatory and legal experts on a regular basis. Review upcoming mandates and assess the impact on your current and future business requirements.

Complete – Think beyond technical aspects and schemas. Partner with tax subject matter experts when translating and validating mandate requirements, as these outputs will define the financial and tax position of your company with the tax authorities in real time.

A lot has changed in the world of government mandated e-invoicing. Continued investment in technology by government authorities has put regulators in the position to demand greater transparency along with more detailed and real-time reporting. To meet these demands, companies are looking to their IT organizations. The good news is you don’t need to go it alone. Sovos has the expertise to guide you through this global evolution based on our experience working with many of the world’s leading brands.

Take Action

Need help keeping up with global mandates? Get in touch with Sovos’ team of tax experts.

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 deadline is yet to be announced but is expected to be July 2024, with the Danish Business Authority announcing they will give businesses enough time to comply with the e-bookkeeping requirements.

Scope of Denmark’s bookkeeping law

The subjective scope of the digital bookkeeping requirements covers all companies in Denmark that are liable for accounting according to section 3(1) of the Financial Statements Act. Moreover, other companies whose net turnover exceeds DKK 300,000 in two consecutive income years are subject to digital bookkeeping requirements. Finally, the rules cover bookkeepers and others who carry out bookkeeping for other companies.

These companies will be required to record company transactions and store records in a digital bookkeeping system. Companies can use a digital bookkeeping system registered with the Danish Business Authority, Erhvervsstyrelsen, or any other bookkeeping system. However, companies who choose the latter option must ensure their systems meet the requirements according to Law for digital bookkeeping systems.

Potential e-invoicing mandate and PEPPOL

While the new bookkeeping law doesn’t introduce any mandatory e-invoicing or continuous transaction controls (CTC) obligations for businesses, it is envisaged that the digital bookkeeping systems must support continuous registration of the company’s transactions and the automation of administrative processes. This includes automatic transmission and receipt of e-invoices.

This requirement was further detailed in the draft executive order on requirements for standard digital bookkeeping systems, which outlines that the taxpayers:

Moreover, the new bookkeeping law authorised the Minister for Industry, Business, and Financial Affairs to introduce rules:

(a) that require companies to record their transactions regarding purchases and sales with e-invoices as documentation of the transactions,

(b) on transmission of records by digital bookkeeping systems to a public receiving point through the shared public digital infrastructure for the exchange of e-documents and the storage of such records.

What’s next for Denmark?

Although Denmark’s e-invoicing journey is still in the early phases, it seems that the new bookkeeping law and requirements for digital bookkeeping systems lay the foundation for a future e-invoicing mandate to be duly introduced by the Minister for Industry, Business, and Financial Affairs.

It will be interesting to see how and when Denmark’s plans for e-invoicing will take shape and be affected by the upcoming results from the EU Commission on the VAT in the Digital Age project.

Need help for E-invoicing in Denmark?

If you have any question about Denmark’s new bookkeeping law or e-invoicing requirements in Denmark, please reach out to us: Speak to our tax experts.

Part III of V – Eric Lefebvre, chief technology officer, Sovos 

Click here to read part II 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 now an omni-present influence in your data stack reviewing every transaction in real time as it traverses your network. Real-time monitoring has also brought about real-time enforcement that can range in severity from significant fines to shutting your business down completely. All of this has created a new reality for IT leaders who need a strategy to deal with these global changes. We asked our chief technology officer, Eric Lefebvre to offer his guidance on how this will affect IT departments and how they can best prepare.

Q: With government authorities now in companies’ data and demanding real or near real-time reporting, what impact will this have on IT departments? 

Eric Lefebvre: Centralization is the key, but there is a process that needs to be followed to execute correctly. At the outset, centralization needs to start with business processes, practices, tools and standardization on data push/pull technologies across the organization. Next, IT needs to consider data based on SLA-based needs. Starting with:

Delivery Data:

Once this has been solidified, IT can then focus on operational data, which contains:

IT departments need to focus on availability of data by adding multiple replicated sources of that data. Location of data is another critical need driven by mandates mostly shifting to keeping data local, as we are seeing in countries such as Saudi Arabia and many other East Asian nations. IT departments need to ensure that satellite data stores can be provided, which are critical to countries with those specifications. Centralization of processes and tools for delivery of data is step one. For step two, data needs to be split, moving away from storing data for years in a single data store, making it impossible to move/replicate and make it available.

Q: To meet government mandates and ensure operations continue uninterrupted, what should IT prioritize? What approach would you recommend?  

Eric Lefebvre: As organizations make the move to a centralized approach, they need to be aware that the blast radius of “failure” affects more than a single country. To combat this, IT organizations need to have strong procedures and plans in place that help to both avoid these situations and quickly limit the damage if a problem does occur. I view it as three distinct focus areas:

Change control procedures. Strengthen impact controls not just for code changes or operational updates, but also include regulatory changes and configuration changes.
Testing procedures. Step away from just regional scope testing and incorporate global end-to-end synthetic testing, starting from the edge service to all the backend servers and back.
Incident management. Pivot from backend monitoring to a central monitoring and outage single pane view, supported by a global operations center in a follow the sun style model.

A lot has changed in the world of government mandated e-invoicing. Continued investment in technology by government authorities has put regulators in the position to demand greater transparency along with more detailed and real-time reporting. To meet these demands, companies are looking to their IT organizations. The good news is you don’t need to go it alone. Sovos has the expertise to guide you through this global evolution based on our experience working with many of the world’s leading brands.

It’s a good year to be an IT leader. After far too many years of the phrase “do more with less” being the mantra of most organizations when it came to technology spending, things are finally looking up.

According to research firm Gartner, IT spending will reach an estimated $4.5 trillion in 2022. This represents a 5.1% increase over 2021 and is a much-needed boost for businesses in need of technology updates that may have been placed on the backburner due to the COVID-19 pandemic.

IT departments are also eager to switch focus from just keeping things afloat to more long-term projects that will strategically and successfully support the future of work. This assertion is backed by numbers provided by IT management solutions firm Flexera in its State of Tech Spend Report.

When asked where budgets were being allocated to this year, 54% of those surveyed expected increased investment and resources to be applied to technology that makes it easier and more seamless for employees to work from home. Another 42% of those surveyed stated a newfound willingness to move to the cloud to support the realities of a post-pandemic world. Participants in this survey were all executives and high-level managers in IT with significant knowledge of their organizations’ overall IT budgets, weighed in on what to expect in the year to come.

These findings show the level of importance businesses are putting on hybrid and flexible work environments. The likelihood that working from home, at least in some capacity, is here to stay has IT departments rethinking their strategies to be prepared to tackle any challenges that may arise.

Could the Government Stand in the Way?

The strategies being outlined by IT departments are sound and inline with the world in which we now exist. However, there is another post-pandemic force at work with the potential to derail the best laid plans and devour a vast amount of budget and resources. Government mandated e-invoicing.

If you work as an IT leader at a multinational company, you likely fall into one of the two following categories. One, you’ve been brought into deal with the new realities of real-time oversight and enforcement from regulatory authorities. Or two, you are about to be brought into the fray with your own internal mandate, solve this problem for good.

Why am I so definitive in this declaration? Because I work with some of the biggest brands on the planet and I am witnessing firsthand the impacts these mandates are having on their IT organization.

When it comes to IT projects, most are not reactionary but the result of careful and methodical planning over a long period of time. However, the government is changing the rules here. No longer are projects and upgrades on your timeline. When they implement new laws and mandates it’s either you move quickly to address the issue and make it right or you pay the consequences which can range from hefty fines to even losing your license to operate.

What Does This Mean for Me?

As government mandated e-invoicing laws quickly ramp up around the world, they represent a credible threat to your IT budgets. IT departments must be prepared for the new realities that accompany government mandated e-invoicing. With authorities now in the data stack of your businesses examining transactions in real-time as they traverse your network, you will need a solution that enables you to deliver the information in the format required in real-time.

Bottom line, compliance is no longer a tax issue. IT leaders and other senior leadership must work together to align business functions across the board. IT needs to ensure the resources and tools are in place to meet government mandated obligations, no matter the company’s industry or location.

A failure to address the problem early will only lead to more complex and costly problems down the road that will absorb critical budgets and resources earmarked for other priority projects.

Take Action

If you aren’t sure where to start in building your strategy, reach out to our experts.

It might not quite be THAT red phone that’s ringing, but rest assured, management is currently dealing with a serious problem, and they are looking at IT to solve it for them.

There are two things that make Boards and C-Suites nervous beyond all else. Risks that have the potential to impact the bottom line and company/brand reputation. This current issue can do both and fast if not dealt with timely.

I’m talking about government tax mandates.

Now you may ask, haven’t government mandates been around for decades? Why the urgency now? Yes, they have been around for a long time, but they have never existed in their current form or had the ability to impact your operations so quickly.

Allow me to explain. In the past, organizations around the world were required to report on transactions after the fact and pay the amounts they were legally obligated to pay. If they didn’t, the government might get around to auditing them a few months or years down the road and assess a penalty if things were found to be out of order. In the grand scheme of things, it was a minor inconvenience for businesses and not a real deterrent for having faulty processes or negligence.

That all began to change a few years back when governments began looking at a tax gap that was growing with no easy solutions to reign it in. Think I’m exaggerating? According to the 2021 report on the VAT Gap issues by the European Commission, in 2019 alone EU countries lost out on €134 billion in Value-Added Tax (VAT) revenues legally owed to them by businesses.

This was a wake-up call to every country that employs the VAT system of taxation anywhere in the world. Not only were they losing out on much needed revenues, but the problem was growing worse. Something needed to be done and done fast or they wouldn’t be able to fund vital programs in their countries.

Fast forward to today. Countries have taken a serious look at the problem and have decided that technology is the answer. They have invested heavily in digitization and have brought their capabilities not only up to par with business, but in many cases, probably for the first time in history, have surpassed the capabilities of private industry to monitor and report on financial transactions.

Today, there is no more reporting after the fact. Governments have set up shop right in your data stack and are reviewing transactions in real-time. And with real-time monitoring has come real-time enforcement. If you are not reporting the information the way the government has mandated, you can expect swift action ranging from expensive fines right up to the revocation of your business license in that country. Both would be devastating shots to your company’s financial outlook and reputation.

This is why there is so much urgency to get IT on board and have a strategy to address the issue on a global basis. Things are only going to get more complicated and the ability to scale systems to meet changing tax mandates in all places you do business has become a top priority for companies.

It’s a new world out there as far as VAT is concerned and this is a lot to come to terms with. If this is new information to you or you are in the process of coming to terms with how it impacts your organization, I’d encourage you to remember and share the following five things with your colleagues:

1. The government is in your data

Real time tax reporting is becoming the new norm for businesses worldwide. Governments are no longer satisfied with receiving data after the fact and are now requiring a permanent presence in your data stack.

2. Government data mandates are taking control away from companies  

With government mandated e-invoicing taking the world by storm, businesses are left with little time to prepare for this shift. To remain operational and comply with these mandates, IT must create a strategy to ensure that they are meeting mandate obligations while keeping with the parameters of long-term plans and budgets.

3. Data mandates are moving and evolving quickly  

As governments are rapidly moving towards mandated e-invoicing implementation, organizations are now faced with an extremely short window to update their tax codes and mandates. For IT departments, overseeing and executing these changes will become one of their top priorities.

4. Data mandates lack consistency from country to country  

For international organizations staying up to date on new processes, technologies and regulations are all essential components to running a successful business. However, the different approaches being adopted by each individual regulatory authority are causing a lot of uncertainty for businesses. The challenge for IT is to create the infrastructure that allows the business to meet the individual mandates of each country’s regulatory authority, while also integrating with one another to provide a real time global dashboard of the organization’s compliance status.

5. Governments have increased the severity and speed of enforcement

Tax authorities are becoming more aggressive than ever to close tax gaps. With the use of digital tools and processes, governments can quickly expedite compliance and track tax fraud effectively. In today’s digital world, penalties can be swifter and more severe than in the past. IT needs to ensure that transaction data is presented to regulatory authorities in the format and time frame they demand.

I’m hopeful this information will give you some things to think about as you work through the changing realities of global tax mandates.

Take Action

After reading this, if you have questions, feel free to reach out to our experts.

Invoicing in Chile is changing on 1 December 2022. This is when resolution 66 from the Chile Internal Revenue Service comes into force.

This new regulation concerns organisations with foreign currency operations. Banks, stockbrokers, exchange houses and financial institutions are affected. Other intermediaries or entities that carry out foreign currency purchase and sale operations themselves or on behalf of third parties are also included.

All these organisations must issue the following:

How is invoicing in Chile changing?

Every electronic tax document must consider the specifications described by “Electronic Tax Document Format”. This document is available on the Internal Revenue Service’s website and is regularly updated.

What electronic information is required in Chile?

Resolution 66 also contains technical instructions. These establish the details necessary for electronic tax documents that support foreign currency purchase and sale operations.

The resolution states the following must be included:

There are other requirements not listed above, so it’s important to check the guidelines.

This change allows the Internal Revenue Service to receive, validate, and process electronic tax documents. This ensures the operations are accurately reflected and prevents inconsistencies.

More on rights, commissions and other charges in Chile

In the case of commissions, the taxpayer must issue an invoice or electronic ticket containing all the information indicated by the Technical Annex.

If the document doesn’t include an affected item, consider the following:

An example is when there is no commission.

Likewise, when differences in collections and values are ​​subject to VAT, an electronic credit or debit note must be issued.

The following information must be recorded separately as well:

  1. The total value of the instruments traded
  2. Value of commissions and charges, if any
  3. Total to be paid in favour of the client or total to be paid in favour of the company

Need help for invoicing in Chile?

Are you in financial services or working at a bank with more questions about invoicing in Chile? Speak to our tax experts.

A recent preliminary ruling request to the European Court of Justice, Case C-664/21, NEC PLUS ULTRA COSMETICS, has re-emphasised the importance of collecting documentation when carrying out a zero-rated supply in the EU. The 2017 NEC PLUS ULTRA COSMETICS case involved a company established in Switzerland selling cosmetics products under the Ex Works clause from their warehouse in Slovenia to business customers established in Romania and Croatia. Ex Works (EXW) is an Incoterms rule, a set of definitions outlining the responsibilities of buyers and sellers in international transactions. With Ex Works the transport obligations, costs and risks are the buyer’s responsibility.

The tax administration of the Republic of Slovenia inspected NEC PLUS ULTRA COSMETICS and requested evidence and supporting documentation relating to these supplies to verify that goods had been transported to another EU Member State.

NEC PLUS ULTRA COSMETICS provided copies of the invoices and of the ‘Convention relative au contrat de transport international de marchansises par route’ (CMR) consignment notes. The company failed to provide the evidence requested by tax officers to prove the right to tax exempt the supplies to their customers (delivery notes and other documents mentioned in the CMRs).

The company clarified that the reason for the late submission was that the Hamburg office responsible for supplies to Croatia ceased its activities in August 2018, making it more difficult to find the documents asked for by the tax officers.

Consequently, the Slovenian tax authorities provided the company with an additional VAT assessment notice and ordered it to pay the relevant amount.

What documents do you need to keep for supplies carried out after 2020?

In the implementation of the Quick Fix related to the proof of transport in 2020, the European Commission has clarified that where the supplier arranges transportation of the goods, it must be in possession of either:

List A

List B

If the acquirer is responsible for transport of goods (i.e. under the Ex Works clause), they must provide the vendor with a written statement by the 10th of the month following the date of supply that the goods have been transported by the acquirer or on the acquirer’s behalf. The written statement must include the following:

How to ensure VAT compliance

In the case of the Ex Works clause:

If you don’t feel reassured by your customer, change the agreement and Incoterms clause before the supply takes place.

Need help with VAT compliance?

Still have questions about VAT exempt supplies and the Incoterms Ex Works clause? Speak to our tax experts.

Part II of V – Oscar Caicedo, Vice president of product management for VAT Americas, Sovos

Click here to read part I 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 now an omni-present influence in your data stack reviewing every transaction in real time as it traverses your network. Real-time monitoring has also brought about real-time enforcement that can range in severity from significant fines to shutting your business down completely. All of this has created a new reality for IT leaders who need a strategy to deal with these global changes. We asked our vice president of product management for VAT, Oscar Caicedo to offer his guidance on how this will affect IT departments and how they can best prepare. 

Q: With government authorities now in companies’ data and demanding real or near real-time reporting, what impact will this have on IT departments? 

Oscar Caicedo: For me, this breaks down into four distinct categories: 

1. Business Process Architecture – As regulatory entities become more advanced, it is important to look at the overall functional business process, not only the technical mechanism to report. Many business processes were solidified much before current capabilities were readily available. It is important to revisit the business process to be able to determine the best technical path forward.

2. Source of Truth – With the complex environment IT departments must navigate, you need to redefine the expectations of data/process source of truth. Back-end system ecosystems were not built with current compliance/regulatory needs in mind. In mature markets, where governments continue to advance technical capabilities, it is critical to have a clear strategy to protect against source-of-truth risks. Otherwise, local regulatory entities tend to become the ultimate source of truth.

3. Data Aggregation/Reconciliation – A lack of clarity on the source of truth for each functional business process can lead to major risks. Registering data in real time with local regulators was the initial challenge. The current challenge is ensuring all systems involved are maintained in sync and are always fully harmonized. IT departments must recognize it is now a must-have to navigate the current environment.

4. Master Data – Data in back-end systems was already complicated enough to support in a centralized manner. Once real-time regulatory needs were introduced, the data issue got exponentially larger. Data structures, data libraries and extraction programs are all attempts to solve the problem, but normally these attempts fail due to gaps in understanding what is mandatory vs. optional. Clear guidance on the local needs is critical before deciding on a technical strategy.

Q: To meet government mandates and ensure operations continue uninterrupted, what should IT prioritize? What approach would you recommend?  

Oscar Caicedo: I would prioritize a clear regulatory understanding of the markets/geographies in which you operate. This seems obvious, but it is not always the case. Ninety-nine percent of the time when I speak with a large multinational organization, they are not clear on the needs of the local market. Efforts to centralize or take a cohesive approach fail because key IT decision makers didn’t understand the regulation.

In addition, you need to focus on business processes and the data requirements to make them successful and solve the problem end to end. The challenge does not end with registering data. The problem ends when you have the proper visibility, maintenance, support, reconciliation and intelligence to be fully prepared.

Don’t take chances. The regulatory environment is very dynamic, so it is important to ensure the proper testing of all business scenarios needed to operate. Failure to have clear testing scripts can lead to surprises in production environments, which can carry large implications for the operation.

Finally, consolidate as much as possible. This means simplifying end points, communication protocols, data structures, etc. This will allow for a more efficient way to manage the mandated processes in the different jurisdictions.

A lot has changed in the world of government mandated e-invoicing. Continued investment in technology by government authorities has put regulators in the position to demand greater transparency along with more detailed and real-time reporting. To meet these demands, companies are looking to their IT organizations. The good news is you don’t need to go it alone. Sovos has the expertise to guide you through this global evolution based on our experience working with many of the world’s leading brands.

Take Action

Need help keeping up with global mandates? Get in touch with Sovos’ team of tax experts.

What is the current situation for insurance for businesses?

Until the Covid-19 pandemic in March 2020, the view was that businesses provide insurance such as Employers’ Liability during normal day-to-day operations. Employers’ Liability insurance is compulsory, protecting a company’s employees and workplace visitors for accidents where a claim needs to be settled.

Following the Covid-19 pandemic, the definition of a workplace has changed. It’s no longer solely an office or factory, now a workplace is likely to include an employee’s home.

Although the world has gotten used to Covid-19, it is something we’ll all have to live with for the foreseeable. Therefore, all employers have had to consider what future working arrangements they need to have in place based on the type of business.

Companies primarily office-based before the pandemic have taken the opportunity to discuss these future arrangements with employees. Many have adopted hybrid working which includes a combination of office and home working where possible. It does seem very unlikely that in the short-term there will be a move for people to return to working in the office full-time.

How could this change in working arrangements affect the insurance businesses’ needs?

Companies will need to consider the events they will need insurance for and how this will impact their current insurance policies.

This means that while they’ll still need mandatory insurance, such as Employers’ Liability, some requirements will likely have a greater impact on the insurance coverage and premiums moving forward.

This could include regular home Health and Safety checks to ensure employees’ working environment meets the company’s rules and regulations. Insurers could require all employers to provide evidence that their employees have passed annual health and safety tests to ensure ongoing compliance. Having this information on file ready to present to insurers if an accident happens at home to an employee during their working day would provide comfort to businesses for future claims that they won’t be rejected.

It’s also worth pointing out that the working day has changed for many, from a strict ‘9 to 5’ to more flexible arrangements to accommodate childcare and other responsibilities. This change in working hours should be taken into consideration by employers and insurers for accident claims that in pre-Covid times would have been outside regular working hours.

The other types of insurance policies likely to be affected by changes in working arrangements are:

What are the next steps for companies?

Businesses should review all their current insurance policies to ensure they have the necessary coverages in place to protect against these changes in working arrangements. The implications of not getting insurance coverages right could be serious for the company. If this isn’t something they’re looking at already, they should start the process sooner rather than later to avoid potential future problems for themselves and their employees.

Talk to our experts

Speak to our tax experts for help with business insurance compliance.

Imagine this scenario.

Your business partner changes the rules on you mid-stream and your ability to conduct business with them is now contingent on changing your entire reporting structure to meet their new demands.

Oh yeah, I should also mention the time frame to meet these demands is extremely tight and if you don’t, you can forget about doing business in their region until you get it right. And if at any point moving forward you fail to live up to these standards, they can fine you or shut you down.

Sound farfetched? It isn’t. It’s exactly what is playing out in major economic markets from Brazil to Italy and parts of Asia and Africa. You see, governments have caught up to businesses when it comes to technology, and in many ways, they have moved past them when it comes to digitization.

What does this mean for you?

It means that governments have now taken on a more proactive approach to reviewing financial transactions and are demanding real-time reporting. As part of that, they have implemented real-time enforcement to ensure that it’s meeting the proper mandated specifications. To accomplish this, they have taken up permanent residence within your data stack. And make no mistake, when it comes to e-invoicing, they are calling the shots.

A bit of background.

Governments throughout the world are implementing mandated e-invoicing for its ability to facilitate compliance and track fraud quickly and efficiently. After the fact reporting, which had been the norm until now, was more difficult to enforce and took lengthy and costly audits to recoup what was rightfully owed. Many organizations didn’t take the penalties seriously and would simply set aside some money to deal with these inconveniences as they emerged.

This approach resulted in a tax gap that is continuing to grow. In 2019, the VAT gap of the European Union’s 28 member states was over 134.4 billion euros for all member states combined. This had become unsustainable and unacceptable to many governments and thus a new technology that focused on digitization was made to ensure that all legally owed revenue was being collected timely and in full. Failure to comply would lead to faster and more impactful enforcement measures.

This trend is growing rapidly with countries across the globe adopting new mandates and methodologies for tracking and enforcing the rules. In the next five years nearly every country that employs the VAT system of taxation is expected to update their systems to some degree.

Make no mistake. Due to the demands for real-time information, this is an IT problem, not a tax issue. For multinational companies that do business in dozens of countries, there could be some painful moments along the way if they don’t plan early and develop a sound strategy for each of the locations in which they have operations.

Here is my advice for meeting government mandates and ensuring operations continue uninterrupted. 

IT should focus on the end goal: implementing a centralized approach to managing these government mandated e-invoicing laws to ensure a globally consistent approach to all digital filings. I can’t overstate the importance of implementation synergies as requirements increase and expand. This is only going to get more complex as time goes on.

And perhaps most importantly, don’t be afraid to ask for help. This is complicated stuff that is changing by the day. This is not the time or the issue to try going it on your own.

Take Action 

Reach out to our experts for more help and information.

Part I of V – Steve Sprague, chief commercial officer, Sovos 

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 now an omni-present influence in your data stack reviewing every transaction in real time as it traverses your network. Real-time monitoring has also brought about real-time enforcement that can range in severity from significant fines to shutting your business down completely. All of this has created a new reality for IT leaders who need a strategy to deal with these global changes. We asked our chief strategy officer, Steve Sprague to offer his guidance on how this will affect IT departments and how they can best prepare.

Q: With government authorities now in companies’ data and demanding real or near real-time reporting, what impact will this have on IT departments? 

Seve Sprague: CIOs need to make a choice – do they pivot with these changes and adopt a centralized approach to their data, systems, business processes and applications, or do they run a decentralized platform where every country is left to make their own decisions? More than 95% of companies have implemented a decentralized approach as these mandates have grown country by country. However, as Latin America has grown from only three countries instituting these mandates in 2014 to more than 14 countries implementing them now, and with another 30 countries around the globe beginning the process of implementing similar regimes, including economies across Asia and Europe, like France and Germany – a decentralized approach leads to several long-term problems, including:

• Limited visibility outside of the country
• Multiple tools and vendors across different countries
• Disjointed processes with a focus on fulfilling local obligations only
• Solving the “problem at hand” vs. looking at the bigger picture
• Poorly defined roles and responsibilities
• Inconsistent approach to implementing additional countries

Q: To meet government mandates and ensure operations continue uninterrupted, what should IT prioritize? What approach would you recommend? 

Seve Sprague: IT should focus on the end goal: implementing a centralized approach to these government mandated e-invoicing laws to ensure a globally consistent approach to all digital filings. There will be cost reduction as the number of vendors and tools are consolidated, and risk will be further mitigated through increased standardization and visibility. I can’t overstate the importance of implementation synergies as requirements increase and expand. This is only going to get more complex as time goes on. The clarity of roles and responsibilities is the other benefit to IT teams, as this approach will lead to clearly defined areas of focus for the team. Finally, alignment of analytics through one data hub will now be possible, providing a centralized dashboard for your global operations.

A lot has changed in the world of government mandated e-invoicing. Continued investment in technology by government authorities has put regulators in the position to demand greater transparency along with more detailed and real-time reporting. To meet these demands, companies are looking to their IT organizations. The good news is you don’t need to go it alone. Sovos has the expertise to guide you through this global evolution based on our experience working with many of the world’s leading brands.

Take Action

Need help keeping up with global mandates? Get in touch with Sovos’ team of tax experts.

Update: 25 October 2022 by Kelly Muniz

Changes in EFD-REINF Reporting

Since 2007, the Brazilian government has imprinted high efforts in digitizing the relations between revenue offices and taxpayers, by introducing electronic instruments to ensure taxpayers provide accurate and timely information on the collection of the various existent taxes, duties, charges, and contributions.

One result of such efforts was the creation of the Public Digital Bookkeeping System (Sistema Público de Escrituração Digital) or SPED. This platform is where taxpayers submit fiscal and accounting information using different electronic instruments referred to as SPED modules.

There are significant upcoming changes to one of the modules, the Digital Fiscal Record of Withholdings and Other Fiscal Information (Escrituração Fiscal Digital de Retenções e Outras Informações Fiscais), known as EFD-REINF.

The latest regulatory updates within this module concern steps towards the substitution of other records by the EFD-REINF, with important changes taking place in 2023.

Main changes in the EFD-REINF

In August 2022 version 2.1.1 of the EFD-REINF layout was introduced, expanding the reach of events covered by the record. The current 1.5.1 version is valid until February 2023 and from March 2023 layout version 2.1.1 must be used.

The main change is the inclusion of the ‘R-4000’ series events. These events cover the registration of withholdings on income tax (IR), Social Contribution on Net Income (CSLL), Social Integration Program (PIS), and Contribution to the Financing of Social Security (COFINS), among other fiscal contributions.

Another relevant change is the removal of the requirement to submit the EFD-REINF ‘without movement’. Previously, only a certain group was permitted for this exemption if they didn’t generate any records to be reported in the respective declaration period but this has now been expanded to all taxpayers in scope of the EFD-REINF.

New obliged taxpayers

Earlier this year, RFB Normative Instruction n. 2.096 of 2022 postponed mandatory submission of the EFD-REINF for the fourth and last group of taxpayers: entities that are part of the ‘Public Administration’ and entities classified as ‘International Organisations and Other Extraterritorial Institutions’. Since August 2022 this group is now obliged to comply.

However, the same regulation established that from 1 March 2023 taxpayers currently obliged to submit the DIRF (Withholding Income Tax Return) will be required to comply with the EFD-REINF obligation. This is an extensive list found in article 2 of RFB Normative Instruction n. 1.990 of 2020, which includes individuals and legal entities that have paid or credited income for which Withholding Income Tax (IRRF) has been withheld and certain entities of the Federal Public Administration, among others.

Finally, the annual submission of the DIRF will be abolished regarding events that occur from 1 January 2024, meaning that taxpayers won’t be required to submit it in 2025. Until then, the information declared in the DIRF and EFD-REINF will coexist.

Compliance challenges

Keeping up with the mosaic of fiscal requirements within the federal, state, and municipal levels in Brazil normally requires engaging the services of an expert or risk incurring high penalties. Modifications to fiscal obligations are implemented regularly in the country, which means companies must ensure readiness to comply.

Still have questions about Brazil’s EFD-REINF? Speak to our tax experts.

 

Update: 9 July 2018 by Ramón Frias

What is EFD-REINF?

A complement to eSocial (which covers tax withholdings on wages), EFD-REINF reports withholdings made to individuals and corporations resulting from the application of the income tax and social security taxes (CSLL, INSS COFINS, PIS/PASEP). It also applies to payments received by sport associations and revenues generated by sport events.

EFD-REINF replaces reporting obligations that the Brazilian taxpayers have to comply with under the EFD-Contribucoes.

Who must comply?

  • Legal entities:
    • That provide and contract outsourcing services in accordance with art. 31 of Law No. 8,212 of July 24, 1991
    • Who are responsible for withholding the social security taxes PIS/Pasep, the Cofins and the CSLL
    • Opting for payment of social security contribution on gross revenue (CPRB)
  • Entities considered rural producers and agro-industries when subject to substitutive social security contribution on the gross revenue from the commercialization of rural production
  • Sports associations that have professional soccer teams receiving revenues related to sponsorship, licensing of use of brands and symbols, marketing, advertising and broadcasting of sports shows
  • Sponsors that provide resources to those sports association
  • Entities marketing any sport event held in Brazil, involving at least one sport association that owns a professional soccer team
  • Entities and individuals that have paid or credited income on which the federal income tax has been withheld by themselves or as representatives of third parties

How is the EFD-REINF structured?

There are three groups of reports, or “events,” that must be submitted to the tax administration:

  • Table Events (Eventos de Tabela): Intended to optimize and validate the information that identifies the taxpayer and some administrative and legal processes that may affect them (if they exist).
  • Non-Periodic Events (Eventos Não Periódicos): Information related to transactions that do not occur on a regular basis and therefore should only be reported when they occur.
  • Periodic Reports (Eventos Periodicos): Events related to periodic information that should be reported on a regular basis by the taxpayer. These include:
    • Withholdings for Social Security tax for services received
    • Withholdings for Social Security tax for services provided
    • Revenues received by sport associations
    • Revenues Transferred by sport associations
    • Social Security tax on gross receipts
    • Withholding taxes (IR, CSLL, Cofins, PIS/PASEP)

When does it go into effect?

The EFD- REINF is being rolled out in three stages.

  • May 1, 2018: Companies with revenues greater than 78 million Real annually
  • November 1: Companies with revenue less than 78 million Real
  • May 1, 2019: All public entities

What are the penalties for non-compliance?

Events that are incomplete, or reported with errors, will a face fines totaling 3% of the amount involved, with a minimum of $100 Real in the case of legal entities, and half of the above amounts when the taxpayer is an individual. Fines for late reports will range between from $500 Real to $1,500 Real per month or fraction of month.

Take Action

To learn more about other changes impacting companies operating in Brazil and throughout Latin America, download the Definitive Guide to Error-Free Compliance in Latin America.

Registering for Insurance Premium Tax (IPT) across Europe is often complex and can raise several additional questions. This is particularly pertinent if your company has branches established in different territories: can we register our head office and file a single return for all branches via this registration? What about branches operating on a freedom of service (FoS) basis? What about domestic branches? Is it mandatory or optional to register branches?

Before we dive into these questions, let’s take a closer look at why branches are useful. Some insurers prefer to have a separate IPT registration for their branches, even if it’s not a mandatory requirement of the country. It’s often an easier method of handling IPT compliance for the country, based on the reports generated from internal accounting systems. For acquisitive insurance companies who may be using legacy systems, it’s simpler to have individual branch registrations rather than consolidating all branches into a single return filed via the head office.

Can we register our head office and file a single return for all branches via this registration?

For many territories, it’s not mandatory to have branches operating as it’s possible for EU domiciled companies to register and file taxes through their head office, operating under FoS across the European Union. However, this is territory dependent and some require branch registration, as we will explain later.

Can branches operate on a Freedom of Services basis?

In addition to the registration of your head office operating on a FoS basis, it’s also possible to register branches in some territories. Each branch must also be authorised independently by the regulators in their country of domicile to operate on a FoS basis.

Is it mandatory to register branches?

In some territories such as Spain, Portugal and Italy it’s not mandatory to have a branch as taxes can be filed via a company’s head office. However, if your company does operate branches in these territories it is mandatory to be registered separately to head office. This requires companies with multiple branches to have multiple registrations, each with their own independent tax identification number. The registrations are managed separately, and a tax return is required for each of them.

Country requirements are also subject to change. For example, in Austria it was previously mandatory for branches to be registered separately to their head office. This rule changed and branch registrations are no longer permitted, with all returns being filed through the FoS head office. Any existing branch registrations had to be deregistered with the Austrian tax authorities.

Domestic branches – what are they and when is registration required?

A domestic branch is a branch of a company whose headquarters are located in a different country to where the branch is domiciled, and where the registration is required. For example, your head office could be in Germany, you write insurance business liable to IPT in Italy and you have an established branch domiciled in Italy – the Italian branch will be considered as your domestic branch.

If your company has branches and wishes to register for IPT in the country where your branch is domiciled, some tax authorities insist the domestic branch has a separate registration to its head office. This applies in Hungary, Germany, Italy, Portugal, Slovakia, and Spain.

Are there different rules for domestic branches?

In some instances, domestic branches will have different tax points to those operating under FoS.

Why is this information so important?

If a branch or head office operating in the territory is operating noncompliantly, this will directly impact all parts of the business operating in the territory, and the fines will be levied accordingly.

Take Action

Want to learn more about branches and IPT registration? Speak to Sovos’ tax experts today.

Continuing our IPT prepayment series, we take a look at Italy’s requirements. In previous articles we have looked at Belgium, Austria, and Hungary.

All insurers authorised to write business under the Italian regime have a legal obligation to make an advance annual payment for the following year.

What is the prepayment rate in Italy?

The amount of prepayment is calculated as a percentage of the total IPT and Anti-Racket contribution made in the previous year, deducting any IPT paid in respect of Motor Third-Party Liability business. The IPT prepayment rates increased from 85% for tax year 2020 to 90% for 2021 and 100% for tax year 2022 onwards.

All insurers writing non-life insurance risks in Italy need to pay 100% of their 2021 tax bill in November 2022 as a 2023 prepayment, in anticipation of their future tax liabilities. Once settled, the prepayment can be offset against IPT liabilities (excluding Motor third-party liabilities) arising from February 2023, when the January 2023 tax liabilities are due. Businesses can use excess prepayment to offset tax liabilities in the next period or offset against the next prepayment.

When is the prepayment due?

Prepayment is due by 16 November each year. No prepayment is required if the insurance company deregistered for IPT purposes prior to the prepayment deadline. Penalties and interest for late payments are strictly applied by the Italian tax authorities. They are time sensitive and calculated daily and payable alongside tax liabilities/prepayments.

How can prepayment be recovered?

Where the prepayment for the year is not fully utilised, balances can be carried forward to offset against future liabilities or used towards next year’s prepayments. If a company is no longer writing business in Italy and doesn’t expect further premiums to be received, they should formally file for a reclaim of any prepayment credits. Recovery is made through a formal reclaim and takes significant time (a few years) for the authorities to process and return the funds.

Why is Italian prepayment painful?

Although prepayment shouldn’t represent an additional cost to insurance transactions, it can pose some cash flow considerations for insurers. It’s Important to note prepayment is due on a historical basis and cannot be settled based on an estimate of future tax liabilities. The legal obligation to pay the prepayment doesn’t cease, even if the insurance company foresees termination of their insurance risks in Italy. This creates issues for insurance companies winding down their Italian exposures, starting underwriting Italian risks through EU based subsidiaries, or when closing the business.

Most UK insurers changed their company structure due to Brexit. A special application for transferring the prepayment credit needs to be made to the Italian tax authorities for mergers or portfolio transfers and a response or approval from the tax office can take significant time.

When an insurer is exiting Italy, be it due to Brexit or any other reason, being aware of their current and ongoing prepayment obligations is key to minimising unnecessary pain in the future.

Take Action

Get in touch with our tax experts today for advice on how to navigate this often confusing IPT procedure in Italy.

Brazil is known for its highly complex continuous transaction controls (CTC) e-invoicing system. As well as keeping up with daily legislative changes in its 26 states and the Federal District, the country has over 5,000 municipalities with different standards for e-invoicing.

The tax levied on consumption of services (ISSQN – Imposto Sobre Serviços de Qualquer Natureza) lies under the competence of the municipalities. Each municipality has authority over the format and technical standard of the services e-invoice (NFS-e – nota fiscal de serviço eletrônica). This poses a significant compliance challenge, as e-invoicing is mandatory for nearly all taxpayers in the country.

However, important steps have been taken towards changing this scenario. An agreement (Convênio NFS-e) recently signed by the Brazilian Federal Revenue Agency (RFB), the National Confederation of Municipalities (CNM), and other relevant entities, has established the National System of the NFS-e with a countrywide unified standard for the services e-invoice.

The National System of the NFS-e (SNNFS-e)

The SNNFS-e introduces a unified standard layout for the issuance of the NFS-e, as well as a national repository of all e-documents generated within the system. Adhesion to the system is voluntary for municipalities. Since the bill proposed to regulate this issue (PLP 521/2018) has been static in Congress since 2019, the agreement was designed to allow municipalities to voluntarily adopt the national standard, which then becomes mandatory for taxpayers.

The system will allow issuance of the NFS-e in a national standard, through the web portal, mobile app or API (application programming interface). It also creates the National Data Environment (ADN), the NFS-e unified repository.

The SNNFS-e offers several service modules and municipalities can choose which ones to adopt. The ADN is the only mandatory module, as it ensures the integrity and availability of information contained in the documents issued is in the unified standard. Additionally, the ADN allows adhering municipalities to distribute issued NFS-e among themselves and taxpayers.

Once the agreement is signed, the municipality must activate the system within a certain deadline, which hasn’t been established. Activation involves configuring system parameters and amending municipal legislation to reflect the national system requirements. Only after complete activation will taxpayers be able to issue invoices based on the unified standard.

Technical documentation of the NFS-e has also been released, but these are not the definitive specifications, which are still to be approved by the National Standard Electronic Service Invoice Management Committee (CGNFS).

What this means for businesses

The NFS-e national standard provides substantial simplification of taxpayers’ e-invoicing obligations. With a standard layout, compliance with multiple formats can be drastically reduced. The document format for issuance of the standard NFS-e is XML and it must be digitally signed.

Another benefit is that one of the available modules allows taxpayers to pay the ISSQN owed in several municipalities at once, using one single document (Guia Única de Recolhimento) issued by the system.

Although municipalities may choose to keep their current NFS-e issuance system, they must still adhere to the communication deadlines, layout, and security standards of the national NFS-e. They must also ensure transmission of all issued documents to the national data environment. This ensures that taxpayers will only be required to issue the NFS-e in one standard layout.

What’s next for e-invoicing in Brazil?

The first phase of production started on 23 July 2022 with five pilot municipalities. Transmission will be available through different methods, with gradual implementation. According to the initial implementation schedule of the National Confederation of Municipalities, API transmission is set to happen from mid-October 2022 or later, depending on the stability of the other transmission methods. Further development of this schedule can be expected in the coming months.

São Paulo, Salvador, and Florianópolis are among the many municipalities that have already signed the agreement. The success of this national NFS-e standard relies on significant adoption by municipalities, so taxpayers must ready themselves to comply as this takes place across the country.

Take Action

Need to ensure compliance with the latest e-invoicing requirements? Get in touch with our tax experts.

It’s time to return to Insurance Premium Tax (IPT) prepayments – a continuation of our blog series on this important IPT topic. You can find the first entry in our blog series here.

IPT is declared and settled differently throughout Europe. Monthly, quarterly, or biannual declarations – the frequency varies across Member States – and some jurisdictions request prepayments to ensure the liabilities due from insurance companies are collected in good stead.

Hungary is one country where legislation states prepayments are required. However, the prepayment obligation is a new requirement, introduced alongside the so called ‘extra profit tax’ or supplemental IPT, which is payable on an annual basis. No prepayment is required in relation to the ‘normal’ insurance premium tax paid monthly.

What is a prepayment?

Prepayments are defined as a tax payment credit made to a tax authority before the payment is actually incurred.

This prepayment tax will be deducted to cover the tax liabilities until the total credit is used, then current liabilities must be paid by the basis applied in each “jurisdiction“.

You can learn more about IPT prepayments in our blog.

IPT prepayments in Hungary

Before the introduction of extra profit tax, or supplemental IPT, prepayment for IPT in Hungary wasn’t a requirement. The ‘normal’ IPT is paid monthly with no prepayment obligation and there is no need to submit an annual return.

In Hungary the prepayment concept is used for taxes where there is an annual declaration obligation, such as in the case of corporation tax.

Regarding IPT, the prepayment obligation was introduced with the extra profit tax regime. Extra profit tax or supplemental IPT is an annual tax. This might be the reason for the introduction of the prepayment obligation for this tax type.

Supplemental IPT prepayment is due on 30 November 2022 regarding 2022 (bi)annual supplemental IPT, while for 2023 the prepayment is due by 31 May 2023.

Based on the original concept, the basis of the prepayment for 2022 was the premium collected during the period between July 2021 and June 2022, applying the rates applicable for 2022. However, this was modified shortly after the issuance of the Government Decree of 197/2022 on extra profit taxes.

This adjustment most likely occurred as the original concept would have generated a substantial overpayment since the base period to calculate 2022 prepayment is one year and the supplemental tax is due only for the second half of 2022. According to the updated rules the basis of the 2022 prepayment remained the same but the applicable rates were changed from 2022 rates to the rates normally applicable for 2023. The 2023 rates are half of the 2022 rates, decreasing the prepayment amount by reducing the rate instead of changing the base period from one year to half year.

Regarding 2023, the calculation of the prepayment is equal to the supplemental tax paid for 2022 in January 2023.

The tax office confirmed that any overpayment regarding the extra profit tax/supplemental IPT can be offset against the ’normal’ IPT and vice versa. This is because the extra profit tax has the same tax code (number 200) and is payable to the same bank account as the IPT.

For example, if the prepayment for 2022 is higher than the 2022 extra profit tax there will be an overpayment on the 200 tax account at the end of January. This overpayment can be offset against the January 2023 IPT liabilities which are payable by 20 February 2023. Or if the insurance company has an IPT overpayment at the end of November 2022, this overpayment can be used to cover the extra profit tax/supplemental IPT prepayment obligation.

Take Action

Get in touch with our tax experts today for advice on how to navigate this often confusing IPT procedure.

The Congress of Spain has approved the Law for the Creation and Growth of Companies, and it is expected to be published in the Official Gazette (BOE) in the following days.

This Law also amends Law 56/2007 on Measures to Promote Information to adopt the mandatory electronic invoice issuance requirement for all entrepreneurs and professionals in their commercial relationships.

Introducing mandatory electronic invoicing in Spain for the private sector

According to this Law, all entrepreneurs and professionals must issue, send, and receive electronic invoices in their business relationships with other entrepreneurs and professionals. Additionally, the recipient and the sender of electronic invoices must provide information on the status of the invoices.

The main rules of the Law related to e-invoicing establishes that:

  • Technological solutions and platforms for electronic invoicing offered by service provider companies to entrepreneurs and professionals must guarantee their free interconnection and interoperability.
  • Recipients may request a copy of an electronic invoice for four years from the date of issuance without incurring additional costs.
  • Recipients can’t force the invoice issuer to use a solution, default e-invoicing service provider or platform.
  • Electronic invoices must comply with the provisions of the invoicing regulations.

The process for accreditation of interconnection and interoperability of the platforms will be determined by the regulations at a later stage.

Additional electronic invoicing obligations for certain sectors

The law establishes that companies providing the supply of certain services to final consumers must issue and send electronic invoices in their relations with individuals who agree to receive them or who have explicitly requested them. This obligation affects companies supplying telecommunication services, financial services, water, gas, and electricity services among other sectors and activities prescribed in Article 2.2 of Law 56/2007.

These companies must provide access to the necessary programs so that users can read, copy, download and print the electronic invoice for free without having to go to other sources to obtain the necessary applications. They must also enable simple and free procedures so users can revoke the consent given to the receipt of electronic invoices at any time.

Companies within scope that refrain from offering users the possibility to receive electronic invoices will be sanctioned with a warning or a fine of up to 10,000 euros.

Next step: regulatory framework

The Government will develop provisions of this Law in accordance with the regulations, and within the scope of its powers. Therefore, the Ministries of Economic Affairs and Digital Transformation and of Finance and Public Administration will determine the information and technical requirements to be included in the electronic invoice to verify the payment dates and obtain the payment periods.

It is also necessary to establish the minimum interoperability requirements between the providers of electronic invoice technology solutions, and the security, control, and standardisation requirements of the devices and computer systems that generate the documents.

The Government will have 6 months from the publication of this Law in the Official Gazette to approve the regulatory framework.

Entry into force for Spain’s mandatory B2B e-invoicing

The provisions regarding mandatory B2B electronic invoicing will be effective according to their annual turnover:

  • Entrepreneurs and professionals whose annual turnover is over €8 million will have one year after the regulatory framework is approved.
  • For the rest of the entrepreneurs and professionals, the electronic invoicing obligation will take effect two years after the regulatory framework is approved.

This means that the B2B e-invoicing obligation could be effective for large taxable persons by the first quarter of 2024.   

It is important to highlight that the entry into force of the B2B e-invoicing obligation is subject to obtaining the community exception to articles 218 and 232 of the VAT Directive. This exception is less difficult to obtain the previously as has been granted to other Member States such as Italy, France, and Poland to allow them to adopt the mandatory e-invoicing regime in their jurisdictions.

Take Action

Need to ensure compliance with the latest e-invoicing requirements in Spain? Get in touch with our tax experts