The global trend in the e-invoicing sphere for the past decade has shown that legislators and local tax authorities worldwide are rethinking the invoice creation process. By introducing technologically sophisticated continuous transaction control (CTC) platforms tax authorities get immediate and detailed control over VAT, which has proven a very efficient way to reduce the VAT gap.
However, many common law countries, that don’t have a VAT system, including the United States, Australia and New Zealand, haven’t followed the same path. They have stood out in international comparisons by providing little regulation in the field of e-invoicing. The reason why there is no need to have control over the invoices is the lack of a VAT tax regime. Recent developments, however, indicate that also common law countries try to spur e-invoicing, driven by the business process efficiencies rather than the need for tax control. Accordingly, the upcoming developments will be addressed in this blog, focusing on the Unites States e-invoicing pilot program and the Australian and New Zealand initiatives to promote e-invoicing.
United States
E-invoicing has been permitted for a very long time in the United States but is still not widespread business practice. According to some sources, e-invoicing currently only amounts to 25% of all invoices exchanged in the country. With the introduction of the Business Payments Coalition (BPC) e-invoicing pilot program in cooperation with the Federal Reserve, this may be about to change.
The BPC’s e-Invoice Exchange Market Pilot aims to promote faster B2B communication and provide an opportunity for all kinds of businesses to exchange e-invoices in the US.
The BPC e-Invoice Exchange Market Pilot
The pilot program is a standardised e-invoicing network across which structured e-invoices can be exchanged between counterparties using various interoperable invoicing systems to connect and exchange documents. It’s intended to drive efficiency and productivity while reducing data errors. A federated registry services model enables authorised administrators or registrars to register and onboard participants into the e-invoice exchange framework.
The e-invoice exchange framework operates similarly to the email ecosystem. Users can sign up with an email provider to send and receive emails. The provider serves as an access point to email exchanges for their users and delivers emails between them over the internet. It allows multiple registrars to register participants within the e-invoice exchange framework. This is reminiscent of the globally established PEPPOL model, which standardizes the structure of an invoice as well as provides a framework for interoperability.
Future vision
The US is following the European e-invoicing model based on open interoperability functionality. It enables parties using various invoicing systems to connect and exchange documents through the e-invoicing network easily. The digitization process in the e-invoicing sphere will enable large and small organisations in the US to save resources, promote sustainability and provide business efficiency.
Australia and New Zealand
Similarly, to the US, the move towards e-invoicing in Australia and New Zealand is not primarily driven by tax issues but process efficiency. Neither country has any plans concerning a traditional B2B e-invoicing mandate. However, the New Zealand and Australian governments have committed to a joint approach to e-invoicing, and the first steps are ensuring that all government entities can receive e-invoices.
Australia
In Australia, all commonwealth government agencies must be able to receive PEPPOL e-invoices from 1 July 2022. Moreover, the government also seeks to boost e-invoicing in the B2B space without the traditional mandate for businesses to invoice electronically. Instead, the proposal is to implement what is referred to as Business e-Invoicing Right (BER).
Under the government’s proposal, businesses would have the right to request that their trading parties send an e-invoice over the PEPPOL network instead of traditional paper invoices. Businesses need to set up their systems to be able to receive PEPPOL e-invoices. Once a business has this capability, it would be able to exercise its ‘right’ and request other companies to send them PEPPOL e-invoices.
This reform is expected to be introduced in July 2023, by which businesses will be able to request to receive PEPPOL e-invoices only from large businesses, followed by a staged roll-out to eventually cover all businesses by 1 July 2025.
New Zealand
Following the Australian e-invoicing reform from July 2022 for the B2G sector, the New Zealand Government is encouraging businesses and government agencies to adopt e-invoicing. One step in this direction is the possibility for all central government agencies to be able to receive e-invoices based on PEPPOL BIS Billing 3.0 since 31 March 2022.
Outside of these B2G requirements, there are currently no published plans to move the full economy to mandatory e-invoicing.
To find out more about what we believe the future holds, download Trends 13th Edition.
Take Action
Need help ensuring your business stays updated on the changes in the US, Australia and New Zealand e-invoicing systems? Get in touch with our team of experts to learn how Sovos’ solutions can help.
The Italian government has taken important steps to broaden the scope of its e-invoicing mandate, more specifically by widening the scope of taxpayers subject to electronic invoice issuance and clearance obligations, starting 1 July 2022.
On 13 April 2022, the draft Law-Decree, known as the second part of the National Recovery and Resilience Plan (Decreto Legge PNRR 2 – Piano Nazionale di Ripresa e Resilienza), was approved by the Italian Council of Ministers (Consiglio dei ministri).
The Italian government-approved National Recovery Plan is part of the European Union’s Recovery and Resilience Facility (RRF), an instrument created to assist Member States financially in recovering from the economic and social challenges raised by the Covid-19 pandemic.
The expansion of Italy’s e-invoicing mandate is one element of the government’s anti-tax evasion package and addresses, in particular, the advancement of digital transformation, one of the six pillars of the RRF.
New taxpayers in scope
The draft Law-Decree PNRR 2 expands the obligation to issue and clear electronic invoices through the Italian clearance platform Sistema di Intercambio (SDI) to certain VAT taxpayers exempt from the mandate thus far. This means that from 1 July 2022, the following additional taxpayers are obliged to comply with the Italian e-invoicing mandate:
Taxpayers who benefit from the flat-rate tax regime (regime forfettario)
Amateur sports associations and third sector entities with revenue up to EUR 65,000
The regime forfettario is available to taxpayers who fulfil specific requirements, allowing them to adopt a reduced flat-rate VAT regime of 15%, decreased to 5% for new businesses during the first five years. These taxpayers have, up until now, been exempt from the obligation to issue e-invoices and clear them through the SDI, according to Legislative Decree 127 of 5 August 2015.
Additionally, amateur sports associations and third sector entities with revenue up to EUR 65,000 who have also been exempt from the e-invoicing mandate, are included as new subjects. Starting 1 July 2022, e-invoicing will also become mandatory for them.
The mandate still excludes microenterprises with revenues or fees up to EUR 25,000 per year, which instead will be required to issue and clear e-invoices with the SDI starting in 2024.
Short grace period introduced
The draft decree also established a short transitional grace period from 1 July 2022 until 30 September 2022. During this time taxpayers subject to the new mandate are allowed to issue e-invoices within the following month when the transaction was carried out, without being subject to any penalties. This gives the new subjects time to conform to the general rule stating electronic invoices must be issued within 12 days from the transaction date.
What’s next?
The definitive text of the decree has not yet been published in the Italian Official Gazette; only once this final step is taken will the decree formally become law, and the extended scope become binding. The start of the second semester of this year brings additional significant changes in Italy concerning the mandatory reporting of cross-border invoices through FatturaPA, also set to begin on 1 July 2022.
Take Action
Need help ensuring your business stays compliant with evolving e-invoicing obligations in Italy? Contact our team of experts to learn how Sovos’ solutions for changing e-invoicing obligations can help you stay compliant.
It’s been just over nine months since the introduction of one of the biggest changes in EU VAT rules for e-commerce retailers, the E-Commerce VAT Package extending the One Stop Shop (OSS) and introducing the Import One Stop Shop (IOSS).
The goal of the EU E-commerce VAT Package is to simplify cross-border B2C trade in the EU, easing the burden on businesses, reducing the administrative costs of VAT compliance and ensuring that VAT is correctly charged on such sales.
Under the new rules, the country specific distance selling thresholds for goods were removed and replaced with an EU wide threshold of €10,000 for EU established businesses and non-EU established businesses now have no threshold. For many businesses this means VAT is due in all countries they sell to, requiring them to be VAT registered in many more countries than pre-July 2021. However, the introduction of the Union OSS allowed them to simplify their VAT obligations by allowing them to report VAT on all EU sales under the one OSS return.
How the EU E-commerce VAT Package has affected businesses
Whilst for many businesses the thought of having to charge VAT in all countries they sell to may have been overwhelming to begin with, they are now seeing the many benefits that the introduction of OSS was meant to achieve. The biggest benefit for businesses is the simplification of VAT compliance requirements with one quarterly VAT return as opposed to meeting many filing and payment deadlines in different EU Member States.
Businesses who outsource their VAT compliance have been able to reduce their costs significantly by deregistering from the VAT regime in many Member States where they were previously VAT registered. Although some additional registrations may be required depending on specific supply chains and location of stock around the EU. Businesses also receive a cash flow benefit under the OSS regime as VAT is due on a quarterly basis as opposed to a monthly or bi-monthly basis as was the case previously in many Member States. As part of the implementation of the EU E-Commerce VAT Package we also saw the removal of low value consignment relief, which meant import VAT was due on all goods coming into the EU. This has brought many non-EU suppliers into the EU’s VAT regime with the European Commission (EC) announcing that there are currently over 8,000 registered traders.
We have seen some early hiccups with EU Member States not recognizing IOSS numbers upon import, leading to double taxation for some sellers. But for the majority of businesses IOSS has enabled them to streamline the sale of goods to EU customers for orders below €150. The EC has also recently hailed the initial success of this scheme by releasing preliminary figures which show that €1.9 billion in VAT revenues has been collected to date.
The future of OSS and IOSS
The EC is currently undergoing a consultation, gathering feedback from stakeholders on how the new schemes have performed with a view to making potential changes. Some of the changes being discussed include making the IOSS scheme mandatory for all businesses, which would significantly widen its use as it brings significantly more traders into scope. There has also been talk of increasing the current €150 threshold which would allow more consignments to be eligible for IOSS, although with the current customs duties threshold also being €150 it would be interesting to see how they align these rules. The EC will also be publishing proposals later in the year on the possible extension of the OSS to include B2B goods transactions, with a view to implementing this by 2024.
Take Action
Get in touch with our team to find out how we can help your business understand the new OSS requirements.
Want to know more about the EU E-Commerce VAT Package and One Stop Shop and how it can impact your business? Download our e-book.
Last updated: 19 July 2023
Insurance Premium Tax in Croatia
Under the Freedom of Services (FoS), Croatia currently levies an Insurance Premium Tax (IPT), Compulsory Health Insurance Contributions (CHIC) and Fire Brigade Charge (FBC) on the premium amounts of insurance policies written by EU and EEA insurance companies.
In Croatia, IPT only applies to selected classes of business such as motor coverage, which includes the mandatory Motor Third Party Liability insurance policies. Only the latter policies are subject to CHIC. FBC is applicable only to fire premium amounts.
Read on to understand the different IPT requirements and classes of business in Croatia.
Insurance Premium Tax (IPT)
There are currently two different IPT tax rates in force for motor insurance policies in Croatia:
Motor Hull Insurance policies are subject to an IPT rate of 10%
Mandatory Motor Third Party Liability insurance policies are subject to an IPT rate of 15%
Motor vehicle IPT is an insured-borne tax that is required to be reported monthly and payable within 15 days following the end of the month. There is an annual Motor IPT Report obligation too, which must be submitted on 31 January following the end of the reporting year.
Compulsory Health Insurance Contributions (CHIC)
This contribution is payable to the Croatian Institute of Health Insurance but must be disclosed quarterly to the Croatian Tax Office. In addition, the annual return must be submitted to the Tax Office by 30 April.
Until 31 March 2023 the rate of the contribution rate was 4%. The rate was raised to 5% as of 1 April 2023.
Fire Brigade Charge (FBC)
The Act on Firefighting governs the fire brigade regime in Croatia. The FBC rate on fire insurance premiums is 5%.
The law does not include a definition for the fire premium. Sovos gained clarification on the definition of the fire premium from the Croatian Financial Services Supervisory Agency (HANFA), the body which supervises FBC. HANFA indicated there is no specific definition of the fire premium, but the insurance company should determine this amount on a case-by-case basis.
The declaration on the fire premium is due annually, by the end of February following the payment year. The return should be submitted to the Croatian Firefighter Association.
There is no set date in the law for the payments, but payments are said to be due at least quarterly.
5% FBC payments should be split and sent to:
30% to the bank account of the Croatian Firefighting Association
30% to the special bank account of 20 county Firefighting Associations and/or the city of Zagreb
40% to the special account of the 500+ Firefighting Associations of the municipalities or cities where the insured property is located
If you would like to settle this tax compliantly:
Firstly: You need to know the postcode of the property. But what is the postcode of an immovable property?
Secondly: You need to match a county with a postcode. This would not be too challenging as the first two digits of the five-digit Croatian postcode reveal the county’s name if you search Croatian postcodes online.
Thirdly: You need to know your local firefighting organisation’s name and bank account number or, if these organisations have established an association, the association’s name and bank account number. That is difficult but not impossible if you know where to look.
Finally: In the annual return you need to list each payment you made in the previous year.
Following the complaint method might be time-consuming if the insurance firm has written multiple fire businesses in Croatia. Because there is no minimum contribution threshold, even EUR 0.01 cent FBC should be paid to the local firefighter’s organisation or association (i.e., 40% of FBC)
Sovos has developed a robust system to settle your Croatian fire brigade charges. We have also established a constructive relationship with the Croatian Firefighters Association and HANFA.
E-commerce continues to grow, and tax authorities globally have struggled to keep pace. Tax authorities developed many VAT systems before the advent of e-commerce in its current format and the evolution of the internet. Around the world this has resulted in changes to ensure that taxation occurs in the way that the government wants, removing distortions of competition between local and non-resident businesses.
The European Commission made changes on 1 July 2021 with the E-commerce VAT Package, which modernised how VAT applies to e-commerce sales and also how the VAT is collected. As the previous system had been in place since 1 July 1993, change was well overdue.
Taxation at Place of Consumption
The principle of the taxation of e-commerce in the European Union (EU) is that it should occur in the place of consumption – this normally means where the final consumer makes use of the goods and services. For goods, this means where the goods are delivered to and for services, where the consumer is resident – although there are some exceptions.
Where the VAT is due in a different Member State than where the supplier is established, this requires the supplier to account for VAT in a different country. Micro-businesses are relieved of the requirement to account for VAT in the place of consumption. Though, most e-commerce businesses selling across the EU will have to account for VAT in many other Member States which would be administratively burdensome.
Expansion of the One Stop Shop (OSS)
To overcome this problem, the European Commission decided to significantly expand the Mini One Stop Shop (MOSS), which was previously in place for B2C supplies of telecoms, broadcasting and electronically supplied services. Three new schemes allow businesses to register for VAT in a single Member State and use that OSS registration to account for VAT in all other Member States where VAT is due.
Union OSS allows both EU and non-EU businesses to account for VAT on intra-EU distance sales of goods. It also allows EU businesses to account for VAT on intra-EU supplies of B2C services.
Non-Union OSS allows non-EU businesses to account for VAT on all supplies of B2C services where EU VAT is due.
Import OSS allows both EU and non-EU businesses to account for VAT on imports of goods in packages with an intrinsic value of less than €150.
Currently, none of the OSS schemes are compulsory, and businesses can choose to be registered for VAT in the Member State where the VAT is due. The European Commission is currently consulting on the success of the OSS schemes, and one of the proposals is that the use of Import OSS would become compulsory. There are also questions about whether the threshold should be increased, although that would require consideration of how to deal with customs duty as the €150 threshold is the point at which customs duty can become chargeable.
Benefits of OSS
The use of the Union and non-Union OSS schemes can provide a valuable alternative to registering for VAT in multiple Member States. However, there can be other reasons why a business will need to maintain VAT registrations in other countries. Businesses should carry out a full supply chain review to identify the VAT obligations.
There are also many benefits to using the Import OSS, including the ability to recover VAT on returned goods and a simplified delivery process for both the supplier and customer.
Any businesses using any OSS schemes should fully understand the scheme’s requirements. Non-compliance can result in exclusion with the requirement to register for VAT in those countries where it is due. This will remove the benefit of the OSS schemes, increasing costs and administrative burden for the business.
Take Action
Get in touch with our team to find out how we can help your business understand the new OSS requirements.
Want to know more about the EU E-Commerce VAT Package and One Stop Shop and how it can impact your business? Download our e-book.
Insurance Premium Tax (IPT) in Luxembourg moved to online filing from the first quarter 2021 submission. Alongside this, they also changed the authority deadline to the 15th of the month following the quarter. This change caused some upheaval as many insurance companies were already pulling data from the underwriting systems, reviewing the information (sometimes manually), and ensuring the declarations would be correct for other territories also due by the 15th.
More European tax authorities going digital
Luxembourg wasn’t the first or last territory to move to an online platform. Germany and Ireland followed within a year of Luxembourg’s implementation. In contrast, French authorities have delayed implementing their online filing process until 2023. Additionally, more tax authorities require accounts for Direct Debit set up rather than the usual SEPA or priority payments being made with specific references.
Why is tax filing moving online?
It’s clear why tax authorities are moving to online platforms. Having a digital filing process is an easier and more efficient process for what could be thousands of declarations being submitted by various sources. Plus, online filing gives tax authorities greater visibility, meaning they have more opportunities for analysis. What puzzles us, is why so many tax authorities choose to have their deadlines on or around the 15th? This deadline only provides a short timeframe for insurance companies to close the month, pull the data and make the declarations.
IPT changes in Luxembourg
Apart from these updates, Luxembourg hasn’t implemented many changes in the past, regarding IPT. The most recent that we can recall is the introduction of the Tax for Rescue Services on Motor Class 10 policies, which came into effect on 1 October 2016. As the tax rates are relatively low compared to other territories, it’s entirely plausible that we could see a future increase.
IPT is a niche tax that isn’t always at the forefront of the business radar. It wasn’t until we began to look at the actual process of filing the online declarations did we realize that the process is an adaption of what is used for VAT and other taxes or designed around domestic insurers rather than freedom of services. At least that’s what it seems for Luxembourg.
Over the past year, we have found that the online filing system has become quicker and easier to navigate, with the delays between authentication of a declaration taking seconds rather than minutes. The declaration is still similar to what was submitted on the paper form, breaking down the liabilities per class of business, entering the premiums and then an automatic application of the percentage rate.
Is this the end of territories moving to an online filing solution? Probably not. Will there be more digitization from tax authorities to bring IPT in line with most other tax reporting? We think so.
Take Action
Need to understand Luxembourg’s IPT requirements? Get in touch with our experts and keep up to date with ever-changing European IPT rules by following us on LinkedIn and Twitter.
The Philippines continues in constant advance towards implementing its continuous transaction controls (CTC) system, which consists of near real-time reporting of electronically issued invoices and receipts. On 4 April, testing began in the Electronic Invoicing System (EIS), the government’s platform, with six companies selected as pilots for this project.
The initial move toward a CTC system in the Philippines started in 2018 with the introduction of the Tax Reform for Acceleration and Inclusion Act, known as TRAIN law, which has the primary objective of simplifying the country’s tax system by making it more progressive, fair, and efficient. The project for implementing a mandatory nationwide electronic invoicing and reporting system has been developed in close collaboration with the South Korean government, considered a successful model with its comprehensive and seasoned CTC system.
Electronic invoicing and reporting are among many components set forth by the TRAIN law as part of the country’s DX Vision 2030 Digital Transformation Program. With this, the Philippines is making headway toward modernising its tax system.
Introduction of mandatory e-reporting in the Philippines
The Philippines CTC system requires the issuance of invoices (B2B) and receipts (B2C) in electronic form and their near real-time reporting to the Bureau of Internal Revenue (BIR), the national tax authority. The EIS offers different possibilities in terms of submission, meaning that transmission can be done in real-time or near real-time. Documents that must be electronically issued and reported include sales invoices, receipts, and credit/debit notes.
According to the Philippines Tax Code, the following taxpayers are covered by the upcoming mandate:
Taxpayers engaged in the export of goods and/or services
Taxpayers engaged in e-commerce
Taxpayers under the jurisdiction of the Large Taxpayers Service (LTS).
However, taxpayers not covered by the obligation may opt to enroll with the EIS for e-invoice/e-receipt reporting purposes
E-invoices must be issued in JSON (JavaScript Object Notation) format and contain an electronic signature. After issuance, taxpayers can present their invoices and receipts to their customers. The tax authority´s approval is not needed to proceed. However, electronic documents must be transmitted to the EIS platform in real-time or near real-time.
E-archiving requirements
The Philippines introduced somewhat unusual requirements in this period of digitization, when it comes to e-invoice archiving. The preservation period is ten years and consists of a system in which taxpayers are obliged to retain hard copies for the first five years. After this first period, hard copies are no longer required, and exclusive storage of electronic copies in an e-archive is permitted for the remaining five years.
What’s next for taxpayers?
With tests officially underway, the next phase should begin on 1 July 2022, with the go-live for 100 pilot taxpayers selected by the government, including the six initial ones. After that, the government plans to advance a phased roll-out in 2023 for all taxpayers under the system’s scope. Meanwhile, taxpayers can take advantage of this interim period to conform with the Philippines CTC reporting requirements.
Take Action
Need to ensure compliance with the latest e-invoice requirements in the Philippines? Speak to our team.
Sovos SAF-T Extraction
Save Time and Reduce Data Extraction Cost Required for SAF-T Report Preparation
Automate tax data extraction from SAP
Remove the pain of getting data into diverse country SAF-Ts with changing schemas.
The data needed to complete a SAF-T report is diverse. It ranges from accounts receivable and accounts payable data, such as billing and purchasing documents, to accounting data found in general ledger entries. It can also include information about fixed assets and inventory, more often associated with the annual financial statement than with VAT returns and other VAT-related periodic declarations. Getting such large quantities of varied data (depending on the country, this can be as extensive as 1,000 fields) from across different modules in SAP or from multiple SAP instances, using traditional extraction methods is both time-consuming and labor-intensive.
Sovos automates extraction of your data from SAP as a first step to preparing a compliant SAF-T report. This frees up SAP experts to focus on more strategic IT initiatives that affect your business. We continually track changes to different jurisdictional SAF-T requirements and ensure these are codified in the Sovos SAP Framework that extracts data for mapping to the approved legal structure.
If you opt to extract your own data for SAF-T generation in SAP or have other ERP/source systems, we have complementary modules in our triple play SAF-T solution to help you achieve accurate and robust SAF-T output.
You can also present your data to us in various electronic formats (e.g., CSV, TXT) then use both SAF-T analysis and SAF-T generation to ensure the SAF-T file you plan to submit meets the expectations of the relevant tax authority.
Alternatively, if your data is prepared in the legal SAF-T XML structure for the specific jurisdiction, it will be ready to be validated using our SAF-T Analysis module.
Automatically extracted data pushed to the Sovos APR cloud for mapping to the relevant country-specific SAF-T file
Eliminate need for a bespoke solution designed, built and maintained by SAP experts
Update extraction requirements as SAF-T expands to more jurisdictions
Align to APR SAF-T common data model, which covers the full requirements of the OECD’s revised standard SAF-T schema from 2010
Ensure the data extracted is always aligned with country-specific schema requirements as existing SAF-T obligations evolve
Build up the required data gradually, by extracting the required data on an ongoing basis, rather than waiting for the end of a reporting period or a request from the tax authority
Use Sovos’ complementary SAF-T analysis and SAF-T generate modules to review the data integrity and make any necessary adjustments well ahead of SAF-T reporting deadlines
Assess Accuracy, Integrity and Data Quality to Ensure Compliance with Country-Specific SAF-T Obligations
Full visibility, user-friendly interface
Automate the process of preparing robust and accurate data structures required for tax and compliance purposes, including SAF-T
A VAT return, like an annual financial statement, consolidates and summarizes lots of information in a format that can be easily read and interpreted. By contrast, a SAF-T report compiles large quantities of diverse data in an XML format. A company’s SAF-T report can be used for auditing purposes, with the tax authority referring to it as a primary source against which all historical tax returns are queried. Ideally, SAF-T data determines whether fraudulent practices or transactions have taken place. However, the format, origins and volume of SAF-T data makes it very challenging for companies to evaluate and interpret what is sent to tax authorities. This unknown creates a major risk for companies, their accountants and advisors.
As part of Sovos’ SAF-T triple play, integral analysis provides a human-readable view of otherwise indecipherable SAF-T data. A summary of findings is presented in a user-friendly interface, pinpointing information inconsistencies and tax anomalies that may expose business problems. Through this deep SAF-T analysis of structured data, Sovos powers internal due diligence to ensure organizations achieve compliance peace of mind.
Sovos uses a broad set of rules and tests for the accuracy, integrity and quality of data that’s intended for any SAF-T report. It searches for errors in syntax and calculations and to ensure statistical and logical consistency. After the SAF-T report is generated, Sovos analyzes the structured file, giving organizations confidence the XML will be accepted by the tax authority without further scrutiny.
Maximize operational efficiency by revealing information inconsistencies and tax anomalies that may hinder business progress
Decodes SAF-T data and presents results in a standard, logical way that’s readily interpreted and understood prior to submission.
Advances preparedness for inevitable inspections and audits by improving data quality and accuracy as a result of data checks on an ongoing basis.
Pinpoints the source of errors through root-cause analysis, enabling ongoing, seamless navigation through all data. This includes immediate on-screen access to information, such as invoice issued, product sold and account balance when consulting a specific customer account.
Allows audit notes (e.g., explanations, justifications, actions required) to be added to a specific document, error or finding (e.g., billing later than shipment). This guides internal teams on any necessary operational changes and increases transparency by recording contextual information that can be readily accessed during subsequent audit or tax inspection.
Ensures alignment between SAF-T data, financial statements and other interim KPIs that are reported to executive-level stakeholders.
Enables navigation through reports and transactions referenced in the SAF-T data, automating previously manual tasks with live updates.
Mitigates risks of tax exposure/possible disputes, automated checks that mimic automated analysis run by tax administrations on the same data set and allows any data outliers to be addressed prior to submission.
The Sovos SAF-T Analysis module can be used to check and validate the contents of a SAF-T report, whether the Sovos SAF-T Generate module has been used to compile the file or if it’s been generated in another way.
Produce Full Range of SAF-T Reports Compliant with Different Jurisdictional Requirements
Keep pace with evolving SAF-T schemas
Generate SAF-T reports, ready for timely submission
The Organization for Economic Co-operation and Development (OECD) first introduced the Standard Audit File for Tax (SAF-T) in May 2005. Since then, a growing number of tax authorities have embraced it as a way to get a broad view of companies’ tax affairs. Many of the countries that have introduced SAF-T so far have also applied their own individual interpretation of the original, or subsequent 2010 version, of the SAF-T structure. However, the quantity of diverse data required by these unfamiliar, jurisdiction-specific SAF-T schemas makes it challenging for companies to meet their obligations. A tax authority’s request also leaves a relatively short window for companies to collate the data and present it in the prescribed format, especially if they need to do this across jurisdictions and in different formats.
Sovos SAF-T generation maps data into the correct schema, ensuring that format requirements are met. There is also the value of our complementary SAF-T analytics to ensure the final SAF-T generated comprises robust data and is truly submission-ready. This powerful combination of modules in the Sovos SAF-T solution provides peace of mind that the SAF-T reporting sent to the tax authority will satisfy its requirements for more detailed information, without need for additional scrutiny.
Consolidate and present data in country-specific, legal XML structures
Deliver the outputs required by each individual tax authority that has introduced SAF-T
Expand coverage as new jurisdictions introduce a SAF-T requirement
Ensure data is fully consolidated from all relevant sources to generate create the SAF-T report in the correct legal structure
Produce valid, submission-ready content when used in conjunction with APR SAF-T analytics.
Provide a repository of the SAF-T files reporting generated, so they the reports can be accessed at a later date.
Used together with Sovos’ SAF-T Analysis module, with its application of data accuracy and fraud inference rules, this ensures appropriate action can be taken to address any anomalies and correct or explain errors. It also provides greater assurance that SAF-T submission will not result in further tax authority scrutiny.
Luxembourg is one of many European countries to implement SAF-T and e-invoicing to provide greater visibility into a wide range of business, accounting and tax data.
Luxembourg introduced SAF-T requirements in 2011. In 2019 the country introduced an e-invoicing legislation.
Luxembourg is part of the EU single market economy and falls under the EU VAT regime. The EU issues VAT Directives laying out the principles of how the VAT regime should be adopted by Member States. These Directives take precedent over any local legislation.
VAT law within the country is administered by the Administration de l’Enregistrement et des Domaines and is contained within the General Tax Code.
Get the information you need
Quick facts
Just like in any other EU Member State, e-invoicing is permitted in Luxembourg, subject to the buyer accepting the exchange of electronic invoices.
Businesses must ensure integrity of invoice content and authenticity of origin for their invoices. Integrity and authenticity can be proved using Advanced Electronic Signatures, ‘proper EDI’ with an interchange agreement based on the EC 1994 recommendation, and Business Controls-based Audit Trail.
In May 2019, Luxembourg adopted legislation about e-invoicing in public procurement following the EU Directive 2014/55/EU. The Directive states that e-invoices will continue to be exchanged voluntarily by suppliers to the government and the centralised PEPPOL access point will continue to be used.
Prior authorisation is required before outsourcing to a service provider – written authorisation is recommended.
Invoices stored in electronic form must have evidence of their integrity and authenticity stored electronically as well.
E-invoices may only be stored in EU Member States (or other countries) of which Luxembourg has signed a mutual tax assistance treaty – prior to notification and access.
VAT returns may be filed monthly, quarterly or annually electronically through Luxembourg’s online platform (eCDF) via PDF or XML format. Alternatively, annual filings can be made either in electronic format through the portal or via sending a paper copy of the VAT return to the requisite tax office.
To submit tax returns electronically, taxpayers must ensure the service provider they use is certified within eCDF.
SAF-T reforms
Officially implemented in 2011, Luxembourg’s Standard Audit File for Tax (SAF-T) is locally known as Fichier Audit Informatisé AED (FAIA).
Businesses must, if requested, submit their financial data electronically in a format that is compliant with AED electronic audit file specifications (i.e., in the specified FAIA format). Only resident businesses subject to the Luxembourg Standard Chart of Accounts must file the FAIA.
Mandate rollout dates
2011 – Introduction of SAF-T, known as Fichier Audit Informatisé AED (FAIA)
2019 – Adoption of e-invoicing legislation in public procurement with 2014/55/EU Directive
How Sovos can help
Need help to ensure your business stays compliant with evolving e-invoicing, reporting and SAF-T obligations in Luxembourg?
Keeping up with VAT compliance obligations has become more difficult as Luxembourg continues to take steps to reduce its VAT gap and modernise the system.
Our experts continually monitor, interpret and codify changes into our software, reducing the compliance burden on your tax and IT teams.
Learn how Sovos’ solutions for changing SAF-T and VAT obligations can help companies stay compliant.
Transition from voluntary to mandatory e-invoicing expected from 1 April 2023
From 1 January 2022, taxpayers have been able to issue structured invoices (e-invoices) using Poland’s National e-Invoicing System (KSeF) on a voluntary basis, meaning electronic and paper forms are still acceptable in parallel. Introduction of the KSeF system is part of the digital transformation happening in Poland following the establishment of continuous transaction control (CTC) mandates all around Europe, supporting faster and more effective identification of tax fraud.
The KSeF system enables taxpayers to issue and receive invoices electronically. It is one of the most technologically advanced tools in Europe for exchanging information on economic events. Structured invoices issued via the system are prepared in accordance with the invoice template developed by the Ministry of Finance. After issuance, the invoices are sent from the financial and accounting system via an interface (API) to the central database (KSeF). Afterwards they are available in the system and can be downloaded by the recipient.
On 5 August 2021, the Republic of Poland requested authorisation to derogate from Articles 218, 226 and 232 of the VAT Directive to be able to implement an obligation to issue electronic invoices, processed through the National e-Invoicing System (KSeF), for all transactions that require the issuance of an invoice according to Polish VAT legislation.
Subsequently, on 9 February 2022, Poland modified its request, asking for the authorisation to derogate only from Articles 218 and 232 of the VAT Directive and specified that mandatory electronic invoicing would only apply to taxable persons established in the territory of Poland.
Poland considers the introduction of a generalised obligation to issue electronic invoices would bring significant benefits in terms of combating VAT fraud and evasion while simplifying tax collection. Moreover, the implementation of the measure will accelerate the digitalization of the public sector.
The European Commission derogatory decision
As derived from Article 218 of the VAT Directive, Member States are obliged to accept all documents or messages in paper or electronic form as invoices. Poland strived to obtain a derogation from the above-mentioned Article of the VAT Directive so that only documents in electronic form could be considered as invoices by the Polish tax administration.
Additionally, based on Article 232 of the VAT Directive the use of an electronic invoice is subject to acceptance by the recipient. Therefore, the introduction of an electronic invoicing obligation in Poland requires a derogation from this Article, so that the issuer no longer has to obtain the consent of the recipient to send an invoice in a paperless format. Currently, under Article 106n of the Polish VAT law, the use of electronic invoices requires the approval of the invoice recipient, which hinders the possibility to impose mandatory electronic invoicing.
As announced by the European Commission on 30 March 2022, Poland has been granted the derogatory decision both from the Article 218 and Article 232 of Directive 2006/112/EC. The decision will apply from 1 April 2023 until 31 March 2026, after receiving the last approval from the EU Council. The mandatory phase of the mandate is expected to begin on 1 April 2023.
The KSeF taxpayer application – on the horizon
To allow taxpayers to issue and make electronic invoices available using KSeF, the Polish Ministry of Finance will offer several tools free of charge:
e-Mikrofirma, an online app accessible via smartphone and a web form to any taxpayer logged on to e-Urząd (e-Office).
e-Urząd, will provide taxpayers with online tools that will make it easier to meet tax obligations, including paying taxes, through an online electronic payment service.
On 31 March 2022 the Ministry of Finance announced that the test version of the KSeF Taxpayer application will be made available on 7 April 2022. It will enable management of authorisations, issuing and receiving invoices from the KSeF.
Next steps
With the published decision of the European Commission Poland has entered into the next implementing stage of mandatory e-invoicing. The next steps will follow after receiving the approval from the EU Council (which is now a formality and should take place within a few weeks). Subsequently, the Ministry of Finance will implement universal electronic invoicing in Poland giving adequate time for the businesses to adapt to new solutions.
Need help with Poland’s evolving CTC requirements?
Development of Sovos’ CTC solution for Poland is already well-advanced and will shortly be ready for implementation. To get ahead of the inevitable rush to comply with Poland’s CTC mandate, contact us today.
Update: 12 September 2023 by Robson Satiro de Almeida
Tax Reform in Brazil: Simplification Statute Published
Recent developments in Brazil indicate changes on the horizon, as the country continues to move towards a tax reform for simplification of e-invoicing obligations.
A significant reform of ancillary tax obligations is underway aiming to create a unified system for issuing tax documents. The government has long anticipated and discussed this project, but it now shows promise of becoming a reality.
The Brazilian government published Complementary Law no. 199 (Lei Complementar no. 199) in August 2023, establishing the National Statute for the Simplification of Additional Tax Obligations (the Statute). The Statute derives from Draft Law Proposal no. 178/2021 and seeks to streamline ancillary tax obligations, including filing tax returns, keeping accounting records and issuing electronic invoices.
What will change in e-invoicing?
The Statute’s primary change provides the unification of rules for issuing electronic invoices and fulfilling other ancillary obligations. There are currently more than a thousand different electronic invoice formats throughout the country, driving up business maintenance costs and resulting in adversities in company budgets.
Specifically, the Statute establishes integrated action at the Federal, State and Municipal levels to reach the following:
Unified issuance of electronic tax documents
Use of e-invoicing data to calculate taxes and provide pre-filled tax returns
Simplification of tax and contribution payments by consolidating collection documents
Centralisation of tax records and their sharing in accordance with legal mandates
How will changes occur?
To achieve unified e-invoice issuance and integration of other ancillary obligations, the government will assess existing systems, legislation, special regimes, exemptions and electronic tax platforms. The next step is to standardise legislation and the respective systems used to fulfil such obligations.
As per the Statute, this integration effort aims to provide benefits such as:
Cost savings for taxpayers
Encouraging taxpayer adherence at all federative levels
Modernising systems and digitalising operations
The Statute also creates the National Committee for the Simplification of Ancillary Tax Obligations (CNSOA) to establish and improve the processes for simplifying tax obligations in line with a definition of a national standard process. However, the Union, States, Federal District and Municipalities may establish additional tax responsibilities related to their respective taxes, if they are aligned with the CNSOA provisions.
What’s next?
After formal composition of the National Committee, the Federal Executive Branch must adopt the necessary measures to allow it to carry out its activities as defined in the Statute. This is essential to start the official move towards national unification of e-invoicing processes and other ancillary obligations.
Additionally, the National Congress will still analyse and vote on certain points of the Statute that the President vetoed, which could result in further alignment or changes within the National Statute for the Simplification of Additional Tax Obligations.
Starting to prepare for eventual changes with e-invoicing in Brazil? Sovos can help.
Update: 21 March 2022 by Kelly Muniz
Brazil is, without doubt, one of the most challenging jurisdictions in the world when it comes to tax legislation. The intricate fiscal system that encompasses rules fromhttps://sovos.com/vat/tax-rules/brazil-e-invoicing/ 27 states and over 5000 municipalities has created a burden on companies, especially for cross-state and cross-municipality transactions.
Furthermore, taxpayers must carefully examine the numerous e-invoicing formats and requirements (and, sometimes, the lack of such). Therefore, hopes for tax reform in Brazil have existed for quite some time.
Simplifying e-invoicing compliance
In recent years, several legislative initiatives towards integrating indirect taxation mandates across the country have not met successful outcomes. Meanwhile, a feasible step into bringing forth such changes may be through the unification of rules on digital compliance with tax obligations, such as VAT e-invoicing and e-reporting.
In late 2021 a draft law proposal (Projeto de Lei Complementar n. 178/2021) was initiated by the private sector. Named the National Statute for the Simplification of Ancillary Fiscal Obligations, it has been welcomed this year by the House of Representatives. Its primary purpose is to introduce a significant reform within digital tax reporting obligations by creating a unified e-invoicing system.
By establishing national fiscal cooperation, the proposal intends to reduce costs with compliance, allow information sharing among tax authorities, and create an incentive for taxpayers’ conformity across all federal, state and municipal levels.
The principal agenda of the draft law proposal is to introduce:
A unified national standard for e-invoicing
A unified e-bookkeeping format, the Digital Fiscal Declaration (DFD)
A pre-filled tax return using e-invoice data
A unified fiscal registry file and information sharing system (RCU)
What this means for businesses
The most significant change is the introduction of the NFB-e (Nota Fiscal Brasil Eletronica), a national standard for e-invoicing. It entails the unification of the NF-e (Nota Fiscal Eletronica), NFS-e (Nota Fiscal de Servicos Eletronica) and NF-C (Nota Fiscal do Consumidor Eletronica) in one single document. This will cover Brazil’s VAT-like taxes, in this case, ICMS (VAT on products and certain services) and ISS (services VAT).
In practice, this means that instead of complying with numerous e-invoicing formats and mandates, according to the state and municipality of the transaction, one national digital standard will provide uniform country-wide compliance for e-invoicing. The NFB-e will cover invoicing of goods and services on state and municipal levels for B2G, B2B and B2C transactions.
The reform will drastically reduce the burden on taxpayers and expand the scope of e-invoicing to municipalities where such a mandate hasn’t been adopted yet.
It’s essential to add clearance requirements for e-invoicing in Brazil will be maintained, meaning that businesses will still need to comply with rules for real-time clearance of invoices with the tax authority.
What’s next?
The draft law proposal is still in early discussions and will follow to the Justice and Citizenship Constitutional Commission (CCJC) for approval and possible amendments before voting by Congress. Until then, compliance with e-invoicing rules across Brazil remains at its current challenging status.
Take Action
Need to ensure compliance with the latest Brazilian e-invoicing requirements? Speak to our team or download Trends Edition 13 to keep up to date with the latest regulatory news and updates.
The modernization of tax and tax controls remains a high priority for Slovakia’s tax authority. The Slovakian Ministry of Finance plans to introduce a continuous transaction control (CTC) scheme, with the aim to lower Slovakia’s VAT gap to the EU average and obtain real-time information about underlying business transactions.
The Slovakian tax authorities have begun to introduce mandatory business to government (B2G) and government to government (G2G) e-invoicing via the IS EFA platform. Regarding business to business (B2B) and business to consumer (B2C) e-invoicing, there is currently no indication when the mandate will be rolled out, yet the IS EFA platform is planned to also be used for B2B e-invoicing.
Have questions? Get in touch with a Sovos Slovakia CTC expert.
Quick facts on Slovakia e-invoicing and VAT reporting
e-Invoicing
Just like in any other EU Member State, e-invoicing is permitted in Slovakia, subject to the buyer accepting the exchange of electronic invoices.
While Slovakia today is considered a post audit jurisdiction, a CTC reform is currently underway.
The implementation of the mandatory B2G and G2G schedule for the involvement of government and public administration institutions as well as for their suppliers, is expected to happen progressively throughout 2023 and 2024.
E-invoices can be stored in another Member State without notification, provided they are made available in Slovakia should they be requested by the tax authority.
VAT Reporting
Filed either monthly or quarterly and must be submitted through a downloadable form issued by the Slovakian tax authority.
Additionally, Slovakia requires the submission of the Slovak Control Statement.
Data submitted to the tax authority must be in XML format.
Infographic
Slovakia CTC Requirements
Understand more about Slovakia’s CTC requirements including when businesses need to comply and how Sovos can help.
The Slovakian tax authorities have begun to slowly introduce mandatory B2G and G2G e-invoicing via the IS EFA platform, but there is currently no indication if/when a business to business (B2B) and business to consumer (B2C) mandatory e-invoicing mandate will be rolled out. The previous government decided to freeze the B2B and B2C element of the CTC mandate, with no clear date when it will be implemented, or if the information outlined in the original draft legislation will be maintained in the future.
According to the unpublished CTC draft law, which has been put on hold by the current government, suppliers would have to report invoice data to the tax authority’s e-invoicing platform, IS EFA, before issuing them to their customer. Similarly, buyers would have to report data from the received invoice.
Mandated e-invoicing rollout dates
B2G and G2G throughout 2023 and 2024
B2B and B2C TBD
How can Sovos help with VAT compliance?
Sovos software already addresses the periodic reporting requirements facing companies with VAT compliance obligations domestically in Slovakia, as well as those with obligations due to trade with counterparties in other EU Member States and third countries.
Building on our existing commitment to Slovakia and pending the release of official information and detailed specifications, we’re planning further development to our core CTC platform to ensure our customers remain continually compliant with Slovakian CTC regulations, in line with the emerging digitization of tax controls in Slovakia.
Learn how Sovos’ solution for VAT compliance changes can help companies stay compliant.
In our earlier article, Optimising Supply Chain Management: Key B2B Import Considerations, we looked at the possibility of UK suppliers establishing an EU warehouse to facilitate easier deliveries to customers. In this article, we look at this one solution in more depth – again from the perspective of B2B transactions.
The pros and cons of creating a permanent establishment in the EU
When looking to set up a warehouse facility in the EU, the first consideration should be whether the warehouse will create a permanent establishment (PE) or not. Permanent establishment is a direct tax concept, but creating one can have VAT consequences if that permanent establishment is also considered a fixed establishment.
The OECD defines a permanent establishment as a fixed place of business through which the business of an enterprise is wholly or partly carried on.
The EU defines a fixed establishment as the permanent presence of the human and technical resources necessary to facilitate a supply.
However, the trend towards local warehousing, ‘just in time deliveries’, the gig economy with local contractors and other developments are causing tax authorities to adapt these definitions.
For example, with regards to warehousing, the traditional view is that a taxpayer would need to own or lease a warehouse and employ the staff for it to be considered a fixed establishment for VAT purposes. However, one tax authority has ruled that a fixed establishment can also be created where a warehouse keeper makes a defined area within a warehouse exclusively available to a taxpayer and also provides the warehouse staff.
Creating such a permanent establishment that is also considered to be a fixed establishment will have both advantages and disadvantages. On the plus side, the supplier will be required to charge VAT on local sales involving the fixed establishment, and VAT registration can be used to deduct import VAT paid. Additionally, the supplier may not be required to appoint an indirect customs agent to act as the declarant for imports. On the negative side, the business will incur local VAT on some supplies that would otherwise attract a reverse charge in the UK and may be a liability to direct tax.
As this is a blog on VAT, we will not dwell on the above, but clearly the possible use of a warehouse is one consideration in the supply chain setup.
In deciding whether and where to establish an EU warehouse there are several considerations. For the purposes of this blog, we will first consider a UK supplier looking to set up a warehouse to service customers in Spain.
Spain considers that a third-party warehouse can constitute a permanent establishment where the supplier has exclusive access to a defined area of the warehouse. Therefore it will be important to carefully review the warehouse contract for VAT consequences before signing it.
Reverse charge and import VAT
Spain has a reverse charge for domestic B2B sales. Therefore, a UK supplier importing goods into Spain and making only domestic B2B sales will not be required to charge local VAT. There will also be no requirement to submit a local VAT return, and therefore import VAT will be recovered via the 13th Directive. This will potentially be a significant negative cash flow.
To avoid this, the UK supplier could change where the goods are imported as follows:
When sending the goods to Spain, the import occurs in France. The UK supplier will declare the goods for import into France and then report a transfer of own goods from France to Spain when the goods arrive in the Spanish warehouse. Where the goods are moving by lorry, this should not be too much of an issue.
Since 1 January 2022, France has a compulsory reverse charge for import VAT, and therefore there is no issue with recovering the import VAT paid so long as the conditions are met. The supplier will need a French VAT number to report a dispatch from France and report an acquisition in Spain. The supplier will also require a Spanish VAT number to report acquisitions, but will not be required to submit a VAT declaration since all sales from the Spanish warehouse are under the extended reverse charge.
Alternatively, the goods could be imported into a French warehouse from which the UK supplier can make intra-EU deliveries to its Spanish customers, thereby avoiding the need for a Spanish VAT number and the need for SII reporting should the threshold be breached.
VAT is a transactional tax, and once a transaction has happened, it cannot be undone. Therefore, it is important to fully understand the VAT consequences of a proposed transaction before a contract is signed. Once a contract is signed, the parties are committed to the VAT consequences unless the contract can be renegotiated before the goods are shipped. Once the goods are shipped, the VAT consequence is crystallised and cannot be changed.
Meet the Expert is our series of blogs where we share more about the team behind our innovative software and managed services.
As a global organisation with indirect tax experts across all regions, our dedicated team are often the first to know about new regulatory changes and the latest developments on tax regimes across the world, to support you in your tax compliance.
We spoke to Russell Brown, senior IPT consulting manager, about Sovos’ IPT consultancy, supporting tax teams and his thoughts about the future of IPT.
Can you tell me about your role and what it involves?
I head up the Insurance Premium Tax (IPT) consultancy practice within Sovos. We’re responsible for providing advice, mostly to compliance clients on tax issues of different types of insurance that they write in EU and non-EU countries. We provide clarity on applicable tax rates and their compliance requirements in various countries, as well as location of risk queries.
One of my main responsibilities is to review and approve the reports written by consultants in the team. I also assist our sales team with clients interested in registering for IPT in different countries. This involves discussing the insurance the client provides and the countries involved and helping to onboard new customers. I also participate in writing regular IPT blogs and articles on a variety of subjects, and in webinars and other client events where we discuss a wide range of IPT issues around the world.
We also assist the compliance managed services team with any questions from their clients that they need help with. This can include legislative references or just confirmation of tax rates.
Can you tell us about Sovos’ IPT consultancy and typical projects you help with?
The short answer is we help insurers with their IPT compliance queries but that can vary from project to project.
A typical project for the consultancy team would be for a client to approach us and say, “We’re thinking of writing this type of insurance policy in 10 countries. Could you please tell us all the taxes and tax rates that apply, who bears the cost of those taxes and how they’re calculated. Could you also provide us with guidance on the compliance requirements in each country?”. This could be for EU and non-EU countries.
Another common project is to look at insurance policies and confirm the type of insurance to ensure its taxed correctly or looking at location of risk for an insurance type. This will involve analysing a sample policy from the client to confirm what the insurable risk is so that the correct rules are applied on taxing it in the relevant countries.
Sovos’ IPT customers tend to deal in non-life insurance; we’re often asked to look at property policies or liability risks. Spain, France, Portugal and Belgium are the countries we’re asked most about due to their complicated IPT and parafiscal charges regimes and different rates.
We are also asked questions about non-admitted insurance. For example, if a company is writing insurance but isn’t licensed in that country, they might have questions about how the taxes are calculated, who is liable for the taxes, who should settle taxes etc. These questions tend to be from non-EEA insurers writing policies in EEA countries.
Brokers are another type of client we deal with, or as part of discussions with insurers when there are queries around who is responsible for settling taxes on premiums. We’re able to offer advice to both the insurer and the broker in these cases.
Where do tax teams need support and how does Sovos help?
Tax teams want certainty that they’re charging the correct taxes, and that they’re compliant in settling those taxes with the relevant countries’ authorities. That’s where we come in, providing guidance as well as reporting. We’ve received feedback from clients saying the reports have been especially useful to show senior stakeholders that tax compliance is being maintained. The reports are also an important document to have on file that demonstrates that there was an issue identified and they received external advice. Having this activity on record for senior managers and both internal and external auditors is important. If a tax team is asked any questions by tax authorities, they can provide evidence.
We tend to work with tax teams in the planning stages, when an organisation wants to identify any potential tax issues ahead of time to ensure systems are updated and compliant from day one.
What are your thoughts about the IPT landscape the future of IPT?
I have a few thoughts.
The first is about Germany’s IPT laws. When the country changed its IPT law at the end of 2020, the authority extended the scope of who could potentially be taxed for German IPT. There was some thought that other countries in Europe might try to do the same, the Dutch being a good example where current legislation does potentially allow this under certain circumstances. But because the application of Germany’s law wasn’t the most successful, there’s a feeling that other countries are unlikely to follow this path for the moment.
There is also the question whether or not IPT will be abolished in the UK and replaced with VAT. The government is in the process of starting a VAT consultation on financial services, and it’s likely that this proposal will be included in the discussions between HMT, HMRC and the insurance market including both insurers and brokers. This consultation will likely run for a couple of years, so we won’t know the results for some time, and it is possible that any decisions on this point may be delayed by the timing of the next general election.
There is also always the discussion of the digitization of IPT. There hasn’t been much movement on this recently. Ireland is in the process of digitization and France was due to follow suit but has postponed until next year. We are already helping our customers to possess the ability to file IPT online when this does become a requirement.
In the European Union, the VAT rules around supplies of goods, as well as ’traditional’ two-party supplies of services, are well-defined and established. Peer-to-peer services facilitated by a platform, however, do not always fit neatly into the categories set out under the EU VAT Directive (Council Directive 2006/112/EC). There are ambiguities around both the nature of the service provided by the platform operator, and the status, for tax purposes, of the individual service provider (i.e., a driver for a ride-sharing service, or an individual offering their property for rent on an online marketplace). This creates a unique challenge for VAT policymakers.
The EU Commission has recently opened a public consultation on VAT and the platform economy to address these issues. We have previously discussed other initiatives proposed by the Commission including a single EU VAT registration and VAT reporting and e-invoicing. This blog will discuss the underlying challenges policymakers face and the specific proposals set out in the consultation, which could significantly impact digital platform operators and users.
Digital platforms and existing VAT law
A threshold question for the VAT treatment of digital platforms is whether the platform merely connects individual sellers with individual customers – i.e., acts as an intermediary – or whether it actively provides a separate service to the customer. This question is significant because services rendered to a non-taxable person by an intermediary, under Article 46 of the VAT Directive, are sourced to the location of the underlying transaction.
In contrast, services provided to a non-taxable person under a taxpayer’s name are sourced either to the supplier’s location or, in certain circumstances, to the customer’s location. Whether a particular platform is acting as an intermediary can be very fact-specific and can depend, for example, on the level of control exercised by the platform over pricing or user conduct.
To further muddy the waters, there are potential ambiguities for VAT involving:
Whether platform operators act as disclosed or undisclosed agents of individual sellers, or
Whether services of platform operators, to the extent they are not intermediary services, are electronically supplied, and thus sourced to the customer’s location.
A final source of ambiguity is whether an individual service provider qualifies as a taxable person when making only occasional supplies; this could raise the question of whether said supplies would attract VAT.
These ambiguities present an obvious challenge to the consistent VAT treatment of platforms across the Member States.
Proposed solutions
As part of its public consultation on “VAT in the Digital Age”, the EU Commission has proposed several solutions to the challenges listed above. Of these, three proposals directly address the ambiguous nature of services provided via platforms:
An EU-wide “clarification” of the nature of the services provided by platform operators
A rebuttable presumption for the status of service providers who use platforms
A “deemed supplier regime” for digital platforms – similar to what exists now for platforms that facilitate supplies of goods
These proposals aim to provide clear guidelines to Member States on how platform services should be categorised, and, therefore, which VAT rules should apply under the Directive. Perhaps the most direct is the “deemed supplier” proposal, which would attach VAT liability to platform operators under defined circumstances.
A “deemed supplier regime” already exists for platforms that facilitate sales of low-value goods in the EU, so it is likely the Commission will seriously consider this option. Notably, the public consultation solicited comments on three different permutations of the deemed supplier regime, differing only in the scope of services covered.
Whichever direction the EU ultimately goes in, it is clear that a significant change is on the horizon for digital platforms. Platform operators and platform users should pay close attention to these ongoing consultations in the coming months.
Governments throughout the world are introducing continuous transaction control (CTC) systems to improve and strengthen VAT collection while combating tax evasion. Romania, with the largest VAT gap in the EU (34.9% in 2019), is one of the countries moving the fastest when it comes to introducing CTCs. In December 2021 the country announced mandatory usage of the RO e-Factura system for high-fiscal risk products in B2B transactions starting from 1 July 2022, and already now they are taking the next step.
The Ministry of Finance recently published a draft Emergency Ordinance (Ordinance) introducing a mandatory e-transport system for monitoring certain goods on the national territory starting from 1 July 2022. The RO e-Transport system will be interconnected with existing IT systems at the level of the Ministry of Finance, the National Agency for Fiscal Administration (ANAF) or the Romanian Customs Authority.
According to the draft Ordinance, the transportation of high-fiscal risk products will be declared in the e-transport system a maximum of three calendar days before the start of the transport, in advance of the movement of goods from one location to another.
The declaration will include the following:
Data relating to the consignor and the beneficiary
The name, characteristics, quantities, and value of the goods transported
Places of loading and unloading
Details of the means of transport
The system will generate a unique code (ITU code) following the declaration. This code must accompany the goods that are being transported, in physical or electronic format with the transport document. Competent authorities will verify the declaration and the goods on the transport routes.
The first question that comes to mind is what the definition of high-fiscal risk products is. The Romanian Ministry of Finance had already established a list of high-fiscal risk products for mandatory usage of the RO e-Factura system. However, it is still unknown if the high-fiscal risk product list will be the same. The Ministry of Finance will establish a subsequent order defining the high-fiscal risk products in the coming days.
If the transportation includes both goods with high-fiscal risk and other goods that are not in the category of high-fiscal risk, the whole transportation must be declared in the RO e-Transport system.
Which transportations are in scope?
The RO e-Transport system is established to monitor the transportation of high-risk goods on the national territory.
This includes the following:
Intra-community acquisitions
Intra-community deliveries
Imports and exports
Domestic transportation between different economic operators
Domestic transportation between two locations belonging to the same economic operator
Transport of goods that are subject to intra-community transactions in transit through Romania
The carriage of goods intended for diplomatic missions, consular posts, international organisations, the armed forces of foreign NATO Member States or as a result of the execution of contracts, are not in the scope of the RO e-Transport system.
What happens next?
The draft Ordinance is expected to be published in the official gazette in the coming days. Following the publication, the Ministry of Finance will establish subsequent orders to define the categories of road vehicles and the list of high-fiscal risk products for the RO e-Transport system. Moreover, as of 1 July 2022, using the RO e-Transport system will become mandatory for transporting high-fiscal risk products.
Noncompliance with the rules relating to the e-Transport system will result in a fine reaching LEI 50,000 (approx. EUR 10,000) for individuals and LEI 100,000 (approx. EUR 20,000) for legal persons. In addition, the value of undeclared goods will be confiscated.
