During the last decade, the Vietnamese government has been developing a feasible solution to reduce VAT fraud in the country by adopting an e-invoice requirement for companies carrying out economic activities in Vietnam. Finally, on 1 July 2022, a mandatory e-invoicing requirement is scheduled to enter into force nationwide.

2020 e-invoicing mandate postponement 

Despite the postponement of the original starting date for the mandatory nationwide e-invoicing obligation, which was first intended to enter into force in July 2020, the Vietnamese government quickly established a new deadline.

Later that year, in October 2020, the new timeline was communicated through Decree 123, delaying the e-invoicing mandate until 1 July 2022. This new deadline is also in line with the implementation dates for the rules concerning the e-invoicing system envisaged in the Law on Tax Administration.

Ongoing regional readiness plan

Vietnam’s General Taxation Department (GTD) announced its plan to work first with the local tax administrations of six provinces and cities: Ho Chi Minh City Hanoi, Binh Dinh, Quang Ninh, Hai Phong and Phu Tho to start implementing technical solutions for the new e-invoice requirements and the construction of an information technology system that allows the connection, data transmission, reception, and storage of data. According to the GTD’s action plan, by March 2022, these six cities and provinces should be ready for the e-invoice system’s activation.

The GTD announced that, from April 2022, the new e-invoicing system will continue to be deployed in the remaining provinces and cities.

Finally, under this local implementation plan, by July 2022, all cities and provinces in Vietnam must deploy the e-invoicing system based on the rules established in Decree 123 and the Circular that provides guidance and clarification to certain aspects of the new e-invoicing system.

Next steps for businesses

Taxable persons operating in Vietnam will be required to issue e-invoices for their transactions from 1 July 2022 and must be ready to comply with the new legal framework. Enterprises, economic organisations, other organisations, business households and individuals must register with the local tax administration to start using e-invoices according to the rules established in the mentioned Decree 123.

Vietnam is finally moving forward to adopt mandatory e-invoicing. However, there is plenty of work related to the necessary technical documentation and local implementation of the new e-invoicing system. We will continue to monitor the latest developments to determine whether the GTD can meet all the requirements in time for the mandatory e-invoicing roll-out.

Take Action

Need help staying up to date with the latest VAT and compliance updates that may impact your business? Get in touch with our team of experts today.

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

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

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

The European VAT landscape

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

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

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

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

Take Action

Contact us or download Trends to keep up with the changing regulatory landscape for VAT.

Identifying the Location of Risk in the case of health insurance can be a tricky subject, but it’s also crucial to get it right. A failure to do so could lead to under-declared tax liabilities in a particular territory and the potential for penalties to be applied once these deficits are identified and belatedly settled. We examine the situation from a European perspective.

Legal background

The starting point in this area is the Solvency II Directive (Directive 138/2009/EC). Notably, Article 13(13) outlines the different categories of insurance risks that are used to determine risk locations. As health insurance doesn’t fall within the specific provisions for property, vehicles and travel risks, it is dealt with by the catch-all provision in Article 13(13)(d).

This Article refers to the ‘habitual residence of the policyholder’ or, where the policyholder is a legal person, ‘that policyholder’s establishment to which the contract relates’. We will consider these scenarios separately, given the distinction between individuals and legal persons.

Where the policyholder is an individual

For natural persons, the situation is generally straightforward. Based on the above, the key factor is the habitual residence of the policyholder. The permanent home of the policyholder tends to be relatively easy to confirm.

More challenging cases can arise where someone moves from one risk location to another. For example, when an individual purchases insurance in a particular country, having lived there for a significant period before moving to another country soon afterwards, the Location of Risk will be the original country. As EU legislation does not go into detail on the point, examples of no apparent habitual residence will be dealt with on a case-by-case basis.

Where the policyholder is a legal person

In this scenario, we have to consider the ‘policyholder’s establishment to which the contract relates’ in the first instance. The establishment is treated quite broadly, as evidenced by the European Court of Justice case of Kvaerner plc v Staatssecretaris van Financiën (C-191/99), which pre-dates Solvency II.

Notwithstanding the above, the habitual residence of the insured should be used to identify the risk location even where the policyholder is a legal person in certain circumstances. This will occur when the insured is independently a party to an insurance contract, giving them a right to make a claim themselves rather than through the corporate policyholder.

This logic can also potentially be extended to dependents of the insured person added to the policy and who can also separately claim under the contract. They will also create a risk location, although this will often be in the same country as the insured person. Ultimately, the compliant approach will be dictated by the overall set-up of the policy.

If any insurers writing business in Europe have any questions on the location of risk rules, whether concerning health insurance or any other insurance, then Sovos is best placed to provide advice to ensure taxes are being correctly declared.

Take Action

Contact us for help with complying with health insurance location of risk rules or download our Location of Risk Rules for IPT e-book for more information.

On 30 January 2022, the Zakat, Tax and Customs Authority (ZATCA) published an announcement on its official web page concerning penalties for violations of VAT rules, and it is currently only available in Arabic. As part of the announcement, the previous fines have been amended, ushering in a more cooperative and educational approach for penalizing taxpayers for their non-compliance with VAT rules than previously.

What’s the new approach?

If ZATCA officials detect a violation during a field visit, the taxpayer will first be given a warning about the violation without any penalty. The ZATCA aims to raise awareness instead of penalizing taxpayers for their first violation. Taxpayers will be granted three months to comply and make necessary changes in their processes.

If non-compliance continues after the first inspection, the taxpayer will be fined 1.000 Riyals, roughly 267 USD. The penalty charge will gradually increase if the taxpayer fails to comply with the rules and doesn’t make necessary changes within three months after the notice.

The fine for each additional repetition time will be as follows: 5.000 Riyals for the third time, 10.000 Riyals for the fourth time and 40.000 Riyals for the fifth time. If the same violation is repeated 12 months after its discovery, it is considered a new violation, and the process will begin with a warning without a fine.

What are the violations of e-invoicing?

According to the announcement, the violations of e-invoicing rules will be penalized per the new procedure described above. The instances that require a notice/fine are slightly different than the initial violations described previously and highlighted as follows:

What´s next?

The ZATCA states that the new approach ensures proportionality between the violation and the penalty imposed on taxpayers while giving taxpayers a chance to comply within a specific time frame. Considering that the introduction of both VAT and mandatory e-invoicing is fairly recent in the country, there are certain aspects that are unclear for taxpayers. This approach will educate businesses and is expected to be welcomed by stakeholders.

Take Action

Download the 13th annual Sovos’ Trends report to find out more about what we believe the future holds. Follow us on LinkedIn and Twitter for the most up-to-date regulatory news.

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

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

Scope of e-fatura expanded

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

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

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

E-arsiv invoice scope expanded

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

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

E-delivery note scope expanded

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

Take Action

Get in touch with our team of tax experts to find out how Sovos’ tax compliance software can help meet your e-fatura and e-document requirements in Turkey.

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

Introduction of a new e-invoice type

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

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

Characteristics of the fully digitized e-invoice

Verification of fully digitized e-invoices

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

What’s next for e-invoicing in China?

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

Take Action

To find out more about what we believe the future holds for VAT, download the 13th edition of Trends. Follow us on LinkedIn and Twitter to keep up-to-date with regulatory news and updates.

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

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

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

Changes to the VAT return

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

France Implements Mandatory Postponed Accounting on Imports

Figure 1: Draft extract of 2022 FR VAT Return

Impact on Taxpayers

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

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

Take Action

To find out more about what we believe the future holds, download Trends and follow us on LinkedIn and Twitter to keep up-to-date with the latest regulatory news and updates.

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

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

What are high fiscal risk products?

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

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

The five product categories are as follows:

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

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

Looking ahead: introduction of an e-transport system

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

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

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

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

Take Action

Need to ensure compliance with the latest Romanian regulatory requirements? Speak to our team. Follow us on LinkedIn and Twitter to keep up-to-date with the latest regulatory news and updates.

A new year has arrived, marking an excellent opportunity to continue our blog series addressing Insurance Premium Tax (IPT) compliance in different countries.

You can read other blogs in this series by visiting our Denmark, Finland, and the UK entries or by downloading Sovos’ Guide on IPT Compliance. Written by our team of IPT and regulatory specialists, this guide is packed full of insight to navigate the ever-changing regulatory landscape.

How does IPT operate in Slovakia?

To start, IPT in Slovakia became effective on 1 January 2019, with the default IPT tax rate of 8%.

There are three tax points for IPT in Slovakia:

  1. Booked date – when the premium receivable is booked into the system
  2. Cash received date – when the premium payment is received
  3. Payment due date – when the premium is due to be paid

Insurers are not required to separately notify or request permission to use one tax point over another but an insurer must notify on the quarterly tax return which tax point they’re using. It’s important to note the choice of tax point must be used for eight consecutive calendar quarters.

Interestingly, Slovakia’s approach to tax points provides flexibility for insurers when choosing to pay tax, giving the option to pay upfront or spread out IPT payments in instalments across multiple returns.

Slovakian IPT is due on a calendar quarterly basis (e.g. January to March return declared in April). This is the same for the payment due at the end of the month. It’s worth noting that all returns are filed electronically so there are no paper returns.

An issuance of a premium is treated according to the relevant class of business and is placed in the corresponding section on the return. A renewal would be treated in the same manner.

For treatment of mid-term adjustments, in the case whereby a premium or part thereof, is increased, reduced or cancelled, there is a separate box on the return used for submission (Box 19). This is unusual in comparison to other countries, predominantly because an increase in premium results in a different treatment.

What happens about the treatment of error corrections?

A correction error can be categorised in two ways.

Mistakes can happen and typos can occur in the supply chain. Maybe there was a multi global risk covering multiple countries and apportionment was incorrectly allocated in the first instance.

In the case of a correction of an error a supplementary declaration must be submitted for the appropriate period affected.

For example, if in the first quarter EUR 1,000 was declared for a particular risk based on apportionment produced. Later down the line in Q3, on further review it should have been EUR 1,200. In this case, the additional EUR 200 cannot be submitted on the Q3 declaration. An amended return would need to be considered for Q1 and submitted separately – this is true for both increases and decreases.

Overall, negatives are allowed and the Slovakian tax authority should refund the money back to the insurer. Therefore, the credit cannot be carried over to the next reporting period. There are no limits regarding how much the insurer can regularise but a degree of caution is advised.

Whilst there’s no official guidance, it would be wise to keep any documentation as evidence if a large amount needs to be reclaimed.

Historicals need to be submitted as a supplementary return (i.e. outside the current return). The Slovakian tax authority can impose penalties between EUR 30.00 and EUR 32,000.00.

Take Action

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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In a blog post earlier this year, we wrote about how several Eastern European countries have started implementing continuous transaction controls (CTC) to combat tax fraud and reduce the VAT gap. However, it’s been an eventful year with many new developments in the region, so let’s take a closer look at some of the changes on the horizon.

Latvia

Latvia has recently revealed its new CTC regime plans. The Latvian government approved a report prepared by the Ministry of Finance to implement an electronic invoicing system in the country. The concept described in the report envisages the introduction of electronic invoicing as mandatory for B2B and B2G transactions from 2025 under the PEPPOL framework. The details about the system, including the legislation and technical documentation, are expected in due course.

Serbia

Serbia is another country moving rapidly towards a CTC framework, and apparently, various stakeholders find this movement rather quick. The Ministry of Finance recently announced that upon the request for a transition period to adapt to the new system of e-invoices, they have decided to postpone the date for entry into force of CTC clearance for B2G transactions until the end of April 2022. It must be noted that there has been no delay concerning B2B transactions. 

According to the revised calendar:

Slovenia

Slovenia is also looking to introduce CTCs. In June 2021, the Ministry of Finance submitted a draft law to the Slovenian parliament, aimed at introducing mandatory B2B e-invoicing in the country. According to the draft regulation, all business entities would be obliged to exchange e-invoices exclusively in their mutual transactions (B2B). In the case of B2C transactions, consumers could opt to receive their invoices in electronic or paper form. However, the Ministry of Finance withdrew the draft law due to disagreement with various stakeholders but intends to review it by simplifying the process and reducing the administrative burden on businesses. 

Discussions around the introduction of CTCs in the country continue among various stakeholders, e.g., the local Chamber of Commerce. However, seeing as national elections are expected in Slovenia in April 2022, the CTC reform is not expected to gain much traction until summer 2022 at the earliest.

Slovakia

Earlier this year, we reported that the Slovakian Ministry of Finance had prepared draft legislation to introduce a CTC scheme. The aim was to lower Slovakia’s VAT gap to the EU average and obtain real-time information about underlying business transactions. Public consultation for the draft law was completed in March 2021. However, no roll-out timeline was published at the time.

Over the past months, the Slovakian government has launched the CTC system and published new documentation. The CTC system is called Electronic Invoice Information Systems (IS EFA, Informačný systém elektronickej fakturácie) and is a unified process of electronic circulation of invoices and sending structured data from invoices to the financial administration. The timeline for the gradual roll-out of entry into force looks as follows: 

Poland 

There have been serious developments regarding Poland’s CTC framework and system, the Krajowy System e-Faktur (KSeF). The CTC legislation was finally adopted and published in the Official Gazette on 18 November 2021. Starting from January 2022, KSeF goes live as a voluntary system, meaning there is no obligation to use this e-invoicing system in B2B transactions. It is expected that the system will be mandatory in 2023, but no date has been set yet for the mandate. 

Romania

With the largest VAT gap in the EU (34.9% in 2019), Romania has also been moving towards introducing a CTC regime to streamline the collection of taxes to improve and strengthen VAT collection while combating tax evasion. In October 2021, Government Emergency Ordinance (GEO) no. 120/2021 introduced the legal framework for implementing e-Factura, regulating the structure of the Romanian e-invoice process and creating the framework for basic technical specifications of the CTC e-invoicing system. While the Romanian e-Factura went live as a voluntary system on 6 November 2021, no timeline has yet been published for a mandate. Suppliers in both B2B and B2G transactions may opt to use this new e-invoicing system and issue their e-invoices in the Romanian structured format through the new system.

Take Action

Contact us or download VAT Trends: Toward Continuous Transaction Controls to keep up with the changing regulatory landscape.

The EU e-commerce VAT package was introduced in July 2021. The new schemes, One Stop Shop (OSS) and Import One Stop Shop (IOSS) bring significant changes to VAT treatment and reporting mechanisms for sales to private individuals in the EU.

In the last of our series of FAQ blogs, we answer some of the more common questions asked on the IOSS.

In previous pieces, we’ve looked at understanding marketplace liability, understanding OSS and understanding IOSS and imports

Q: What is IOSS VAT?

IOSS VAT is the VAT collected at the time when the supply takes place and subsequently remitted to the tax authority in the Member State of Identification (MSI).

Under the old rules, when goods imported from third countries were sold to private individuals, the normal steps would require the supplier to account for import VAT, then account for the VAT on the subsequent supply (the sale to the private individual) then deduct the import VAT.

Instead, with IOSS, the VAT on the import is exempt and only the VAT on the subsequent supply is to be collected and remitted to the tax authority.

Q: What is IOSS?

IOSS is short for Import One Stop Shop. This is a special scheme that simplifies the registration obligations for taxpayers who carry out distance sales of goods imported from third countries to private individuals in the EU.

Similar to the OSS, the IOSS scheme allows taxpayers to register in a single EU Member State where they account for VAT that was actually due in other Member States.

Here’s an example. A business registered for IOSS in the Netherlands, can account for its sales to German, French, Italian, Polish etc. customers in its Dutch IOSS return thus avoiding the requirement to register in multiple jurisdictions.

Other advantages of using the schemes are:

The scheme, however, is restricted to consignments of up to €150. Additionally, signing up for the scheme requires careful analysis of the taxpayer’s profile, the way the supply chain is structured and other factors. All of these would affect the business’ eligibility for the scheme, and the requirements to appoint a special type of representative for the purposes of the scheme that is required in certain cases.

If such representative is required, they will be jointly and severally liable with the taxpayer’s IOSS obligations. It’s also important to note that such representative must be established in the EU.

Q: What is an IOSS number?

An IOSS number is the specific identification for the IOSS scheme that is designated by the MSI (the country where the taxpayer is eligible or decides to register for the scheme) to the taxpayers that have decided to make use of this mechanism.

Although IOSS identification is a type of VAT identification it’s not an actual resident VAT registration in the MSI.

Instead, it’s an IOSS number specifically for the purposes of the scheme. In this sense only the eligible type of supplies can be accounted for using the IOSS number and the IOSS registration. In case the taxpayer will carry out other type of supplies which require a regular VAT registration the latter should be obtained for the purposes of being compliant.

Q: How much does IOSS cost?

The cost of IOSS compliance can vary depending on multiple factors. This would be ultimately affected by:

Q: Who needs an IOSS number?

An IOSS number is required for any taxpayer that wants to make use of the IOSS special scheme. This mechanism isn’t mandatory hence there’s no obligation to apply for an IOSS number.

However, it is advisable that any taxpayer that carries out supplies eligible to be reported using IOSS should consider this option as it has some considerable advantages. Of course, the consideration should also include the numerous requirements and conditions that must be met if a person opts to use the IOSS scheme.

Q: What’s the difference between IOSS and OSS?

Both are special schemes used to simplify the registration obligations for taxpayers involved in B2C supplies. They provide an option to account for VAT, that is due in multiple EU VAT jurisdictions, using a single registration and only one IOSS or OSS return.

The difference between both schemes is the different types of supplies that can be accounted for. More precisely:

Considering the above, the main difference is that with IOSS the goods are located in a third country (outside the EU customs territory) at the time of the sale, whereas with OSS the goods are located within the EU’s territory.

Q: Do I need to register for IOSS?

No, IOSS is currently an optional scheme for taxpayers. If not used, the taxpayer’s supplies are subject to the normal rules and depending on the way the supply is structured normal VAT registration/s may be required instead.

Q: What is IOSS tax ID?

IOSS tax ID is the special IOSS VAT number assigned to a taxpayer that has chosen to opt in for the IOSS scheme. It‘s not a regular VAT number that is assigned in the course of a normal VAT registration but is instead used to identify a taxpayer specifically for the purposes of the scheme.

Also, in more practical terms, the IOSS number must be indicated in a specific way on each shipment/supply in order to identify it as eligible under the IOSS as this would allow for:

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In our previous blog, we completed the compliance cycle with tax authority audits. However, that’s not the end of the challenges businesses face in remaining compliant in the countries where they have VAT obligations. VAT rules and regulations change as do a business’s supply chains – these need to be carefully reviewed and appropriate action taken so that the business remains complaint.

Changes in supply chain

Supply chains develop over time for a variety of reasons: changes are made to improve efficiency, provide a better customer experience in delivery times or because of entry into new markets. Sometimes, these changes are instigated by the business seeking optimisation, whereas others are forced by external changes such as Brexit forcing businesses trading between the UK and EU to alter supply chains following the UK’s exit from the EU.

Whatever the reason for the change, it’s essential to review the impact on the VAT position of the business. This involves determining the VAT obligations that arise from the new transactions – which we covered in our previous blog. An early warning system of impending supply chain changes is required so they can be reviewed before the new transactions commence. Key to this is awareness of the importance of VAT within the business; the supply chain changes cannot be reviewed if the finance team is not aware of them.

Also, it’s not possible to undo a transaction once it’s taken place so the business must deal with the consequences even if they are adverse. Proactive action can ensure that the business goes into the new supply chain prepared and aware of all the consequences.

There are different ways to structure a supply chain to achieve the same commercial aim; they can have differing VAT implications so consideration of the consequences should form part of the evaluation process to determine the appropriate strategy.

Changes in legislation

Whilst businesses can control some element of when their supply chains change, responding to changes in legislation is much more difficult.

The first step is to be aware of what has changed. Changes can happen on a pan-EU basis or in an individual Member State so a mechanism needs to be in place to identify changes as soon as they are announced. Often this will require external support, especially if there are obligations in multiple territories.

Once the change has been identified, the next step is to determine the impact on the business. Some changes will have minimal impact whereas others will require proactive action to be compliant with the new rules. Significant changes may require a redesign of the supply chain. An action plan with clear responsibilities and timescales should be put in place to manage the necessary changes.

Managing new mandates

The EU has seen the introduction of numerous new mandates over recent years, often in respect of continuous transaction controls (CTCs), and this is set to continue as Member States seek to reduce the VAT gap.

The latest information published by the European Commission is for 2019 where the VAT gap was €134 billion. Whilst this showed a reduction from the previous year, it still represents 10.3% expressed as a share of the VAT Total Tax Liability.

Governments need to generate revenue in a post-pandemic world and addressing the VAT gap provides one solution without imposing additional tax burdens as it involves collecting tax that should already have been charged. Based on current trends, it will take 13 years to eradicate the gap so new initiatives are needed, hence the increase in CTCs.

Managing these new mandates will be a critical challenge for business in the coming years as they are introduced in more Member States. A clear strategy is essential to avoid becoming overwhelmed by disparate local requirements.

Over this series of blogs, we’ve looked at the key aspects of ensuring ongoing VAT compliance. Once the necessary processes and controls are in place, businesses can focus on trade knowing that VAT compliance is assured. However, maintaining VAT compliance is a continuous process which should be constantly reviewed to maximise efficiency and minimise risk.

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The EU e-Commerce VAT Package is nearly six months old and businesses should have submitted their first Union One Stop Shop (OSS) return by the end of October 2021. Union OSS provides a welcome simplification to the requirement to be registered for VAT in multiple Member States when making intra-EU B2C supplies of goods and services.

Whilst a simplification, there are several conditions that need to be met on an ongoing basis to continues its use. The European Commission produced a number of guides on the application of Union OSS prior to its introduction which provided guidance on its operation. However, there are still several questions about how Union OSS interacts with other compliance obligations in place for e-commerce sellers around the EU.

Union OSS – interaction with Intrastat

Intrastat is the EU’s mechanism to provide details of intra-EU trade in the absence of customs borders. It’s made up of two components: dispatches declarations submitted in the Member State where the transport starts and arrivals declarations in the Member State of delivery.

E-commerce businesses selling intra-EU goods have long had to comply with Intrastat obligations when they exceeded the reporting thresholds. For lots of businesses an obligation arose in the Member State from where the goods are dispatched given that goods were delivered to multiple other EU countries, so thresholds were often exceeded.

In addition, larger e-commerce sellers also had obligations to submit arrivals declarations in the country of delivery of the goods even though they were not the purchaser of the goods. The very largest may also have had obligations to submit dispatches declarations in the Member State of their customer because of returned goods.

There is no mention of Intrastat in any of the European Commission’s guides about OSS so no guidance is provided on how it will apply when a business adopts Union OSS. Furthermore, many Member States do not currently seem to have a finalised position on the interaction with Union OSS.

The position in the Member State of dispatch of the goods seems clear but there are potentially complexities when goods are dispatched from more than one Member State especially if there is no VAT registration in that country. Whilst this is unlikely, there are circumstances where no VAT registration is required or even allowed.

The real complexity is with regards to Intrastat arrivals declarations. The principle of Union OSS is that no VAT registration is required in the Member State of the customer for intra-EU supplies. There may be other reasons for a VAT registration there but for many e-commerce sellers, they will not have to be registered in the Member State of delivery.

This raises the question of whether arrivals declarations are required in those territories. Some Intrastat authorities have provided guidance and those that have are taking different routes. Some are clear it is not required for arrivals when using Union OSS whilst others still require declarations to be made even though there is no local VAT registration in place.

We continue to monitor the situation and will update further as more information is available.

Unions OSS and other declarations

E-commerce sellers of goods can have other compliance and tax obligations in the countries to which they deliver goods. These include meeting local country rules with regards to environmental taxes. For example in Romania there is a requirement for e-commerce sellers to submit Environmental Fund returns even if the business has opted to use Union OSS. This creates complexity as the Romanian VAT number is normally used to file the returns. A separate registration seems to be possible to ensure compliance with the environmental regulations.

There is also potentially an issue in Hungary with the retail tax that is payable by businesses with a turnover in excess of HUF 500 million. There is still a liability to pay the tax even if there is no VAT registration because of Union OSS. Affected businesses will need to ensure that they remain compliant.

Teething problems can be expected with any new regime but there is an argument that some of these should have been predicted and clear guidance provided, especially for Intrastat. It is clear that some authorities have not considered the matter at all prior to Union OSS’s introduction. We will continue to monitor the situation and provide further updates when more information is available.

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Get in touch to discuss your Union OSS queries with our tax experts and follow us on LinkedIn and Twitter to keep up-to-date with regulatory news and updates.

Currently, Poland doesn’t have an Insurance Premium Tax (IPT). Instead, there is a parafiscal tax called Insurance Ombudsman Contribution (IOC). It is currently charged at a rate of 0.02% and was effective from 1 January 2020 for all insurance companies operating under Freedom of Services (FOS) in Poland.

IOC applies to all 18 classes of non-life insurance. It is applicable to all insurance companies either selling insurance in Poland or collecting premiums from Polish persons. Prior to its origination date of 1 February 2014, it only applied to domestic insurers or foreign insurers with Polish branches.

The basis for IOC is the premium that must be paid to the insurer to obtain the insurance cover.

Insurance Ombudsman Contribution Reporting

Reporting for IOC can be tricky because of the different name and numbering system for quarterly declarations. For Example: Quarter I (Quarter 1) of the current year covers October, November and December of the previous year. The quarterly submission is due 90 days from the reporting period. In this example, Q1’s declaration must be filed by 31 March of the current year.

All the payments made throughout the year are considered prepayments or advance payments. For instance, the liabilities that arose in Q1 2021 are declared in the Q2 2021 tax period as an advanced payment for Q2 2021.

The Annual Report is due by 30 June of the following year. This report is submitted to the Insurance Ombudsman summarising the actual premiums received in the previous year (i.e., for 2020, a report is submitted by 30 June 2021 summarising the total amount of premiums received by the insurer in 2020).

The Insurance Ombudsman then determines its funding requirements, and an adjustment is made based on the difference between the insurer’s share of the market percentage multiplied by the funding requirements and the previously made payments for the reporting year.

The Ombudsman’s adjustment may result in the tax authorities requiring additional funds or providing a refund. Either result is communicated by the authorities through Annual Settlement Letters that usually arrive by the end of October.

Insurers are obligated to keep records of insurance contracts and the documents required for tax declaration for five years from the contract’s expiry date.

If the taxpayer doesn’t declare and remit the tax in accordance with the regulations, the relevant authority may demand delayed interest and require an assessment of the tax. In such cases, the court can award a penalty fee and/or imprisonment of the company’s management for up to three years, as per the fiscal penalty code from 10 September 1999.

For any insurance company operating under FOS in Poland, understanding the details of the Insurance Ombudsman Contribution and the reporting requirements are key to ensuring compliance.

Take Action

Need help to ensure your business stays compliant with current and upcoming changes to IOC? Contact the Sovos team today.

Several EU Member States have been introducing continuous transaction controls (CTCs), aiming to close their VAT gaps, increase revenue and have more control over the data of their economy. However, the CTC regimes adopted by those countries are far from uniform. So far, Italy is the only country that obtained a derogation from the VAT Directive to introduce mandatory e-invoicing in domestic flows. Other countries, such as Hungary and Spain, instead adopted an e-reporting approach, which avoids the need for a derogation from the European Council as it does not mandate e-invoicing.

Current status

These national movements towards CTCs have not passed unnoticed by the European Commission which commissioned a study to assess the current CTC landscape and analyse different scenarios involving new technologies and digitization of business processes. This project is broadly called “VAT in the Digital Age”. It includes the analysis of CTC regimes, the VAT treatment of the platform economy, and the creation of a single EU identification number.

Although the final study is yet to be published, preliminary findings have been discussed in some forums. The study has found that CTCs exist in Europe, with southern and central-eastern Europe at the forefront of local implementations. That also means that the Member States have implemented local flavours of CTCs in a non-uniform and non-standardised way, often creating a burden to multinational companies and cross-border commerce.

Looking ahead

One of the study’s goals is to assess the cost-benefit for tax authorities and businesses trading under CTC rules. The study investigates a few approaches, including real-time reporting, mandatory e-invoicing, and periodical reporting (including SAF-T schemes). It is expected that the research will consider EU-wide standards/platforms for CTC models and analyse the possibility of leaving things as they are (but removing the need for the Member States to ask for a derogation before the implementation of mandatory e-invoicing schemes).

CTCs on the EU agenda

The “VAT in the Digital Age” initiative is not the sole CTC project on the EU’s agenda. Italy has also asked the European Council to extend the country’s derogation for its e-invoicing mandate. The ongoing discussion, which includes Italian data estimating an increase in public revenue of more than EUR 2 billion might considerably influence the conclusions of the “VAT in the Digital Age” initiative.

Next steps

After the study’s publication, the European Commission is expected to open a public consultation to debate the future of CTCs in Europe, a single EU VAT registration, perhaps expanding the One-Stop-Shop (OSS) scheme for transactions and subjects currently out of scope and the VAT treatment of the platform economy. The public consultation is expected to open before the end of this quarter.

Take Action

Get in touch or download VAT Trends: Toward Continuous Transaction Controls for an essential guide VAT compliance.

In our previous blog, we looked at the challenges that businesses face in submitting VAT and other declarations on an ongoing basis. However, the compliance cycle doesn’t end there as tax authorities will carry out audits for a variety of reasons to validate declarations.

Why do tax authorities carry out audits?

When VAT returns consisted of only numbers, audits were carried out to obtain more information about the business activities taking place behind those numbers. The increased amounts of transaction data provided to tax authorities via SAF-T, local listings and continuous transaction controls (CTCs) means this is changing. Audits are still carried out even with the additional VAT information, mainly to determine that VAT declarations accurately reflect the activities of the business.

Whilst the frequency of audits varies considerably between Member States, it is common across the EU for an audit to be carried out if the business requests a repayment of VAT. In some countries, this will happen whenever a repayment is requested, whereas others will take a more risk-based approach and only audit if the repayment is higher than expected from a business that regularly receives repayments.

Speed is of the essence for audits as cashflow is impacted until the repayment is made. This needs to be at the forefront of whoever is managing the audit but careful consideration of the questions being asked by the tax authority and responses being made by the business remains essential.

Preparing for an audit

Audits can either be done in-person or via correspondence although In-person audits are currently less common due to Covid-19. The audit is normally carried out via correspondence if the taxpayer is not established in the country of registration, which in some countries requires a local advisor.

This leads to a key question: whether to handle the audit in-house or bring in external expertise. Whilst managing an audit in-house will save fees, it is essential to consider the consequences of the audit. An external advisor could be brought in at a later stage but they may be hampered by responses provided to the tax authority at the outset of the audit. Proper consideration should be given to utilising specialist external advisors, especially if there is a significant amount of VAT or complex issues are involved.

The priority for any audit is to successfully resolve it as quickly as possible with no detrimental impact to the business. This will minimise the amount of management time, fees and exposure to penalties or interest.

Managing the audit process

Many audits will start with the tax authority asking some specific questions – this could be about the business generally or about specific transactions. The questions are asked for a reason so businesses need to consider why they’re being asked to determine how to respond and minimise the risk of problems later in the audit.

Managing deadlines is important as failure to do so can have detrimental effects. Some tax authorities impose very short deadlines so prompt attention is required. It may be possible to agree an extension, but this is not always the case. Providing clear unambiguous answers and supporting documentation is essential to obtain the desired outcome.

Once the audit has been concluded, any corrective action needs to be taken. In the ideal situation, nothing must be done and the business can continue to trade successfully. If an adverse decision or payment request has been issued by the tax authority, consideration needs to be given as to whether to appeal the decision; again, strict deadlines must be met.

Even without such a decision, the audit may have highlighted areas where work is required to avoid problems arising in the future. An action plan should be created with clear responsibilities and deadlines.

Once all work has been done, the business can return to the normal compliance cycle of submitting VAT returns and other declarations. An ongoing challenge is making sure the business successfully manages changes in their VAT position, and we will be looking at this in our final blog in this series.

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Get in touch about the benefits a managed service provider can offer to ease your VAT compliance burden.

As we inch closer to the implementation date of 1 January 2022 for Norway’s new digitized VAT return, let’s take a second look at the details.

Norway announced its intentions to introduce a new digital VAT return in late 2020, with an intended launch date of 1 January 2022. With this update comes the removal of box numbers, which will be replaced by a dynamic list of specifications. The report will also repurpose the Norwegian Standard Tax Codes from the SAF-T financial file to provide more detailed reporting and flexibility. It’s important to note that the obligation to submit a SAF-T file will not change with the introduction of this new VAT return.

This change is for the VAT return only – with the SAF-T codes being re-used and re-purposed to provide additional information. Businesses must still comply with the Norwegian SAF-T mandate where applicable and must also submit this new digital VAT return. With the new VAT return, the Norwegian Tax Administration (Skatteetaten) seeks to simplify reporting, better administration, and improved compliance.

Details on technical specifications

Skatteetaten has created many different web pages with detailed information for businesses to look through over the next few months, including the following:

Submission method

Norway is encouraging direct ERP submission of the VAT return where possible. However, the tax authorities have announced that manual population via the portal will still be available.

Login and authentication of the end user or system is carried out via the ID porten system. Originally, Norway didn’t allow for XML upload; however, the tax authorities have recently updated their guidance to ensure that XML upload will be accepted. Changing numbers or notes in the uploaded XML file will not be possible, but it will be possible to upload attachments.

Additionally, Norway has provided a method for validation for the VAT return file, which should be tested before submission to increase the probability that the file is accepted by the tax authorities. The validator will validate the content of a tax return and should return a response with any errors, deviations, or warnings. This is done by checking the message format and the composition of the elements in the VAT return.

Please note that Norway is not allowing for any grace period for the submission of this newly designed return.

What’s next?

In addition to the new VAT return, Norway has also announced plans to implement a sales and purchase report by 2024. The proposal is currently in the mandatory public consultation phase, which ends on 26 November 2021.

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To find out more about what we believe the future holds, download Trends: Toward Continuous Transaction Controls and follow us on LinkedIn and Twitter to keep up-to-date with the latest regulatory news and updates.

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