Anyone who has been closely following SAF-T announcements over the past few years may be forgiven for thinking that it all seems rather like Groundhog Day. Commencement dates and reporting requirements have been announced and subsequently amended and re-announced as the respective countries re-evaluate their needs and the readiness of companies to provide the data in the prescribed formats.
Earlier this month Poland announced that the changes planned for 1 July 2019, requiring mandatory filing of SAF-T information and the corresponding withdrawal of the requirement to submit a periodic VAT return, have now been deferred to January 2020.
Also this month, Romania announced plans to become the eighth country to introduce SAF-T by introducing requirements for transactional reporting by the end of 2020.
So, what is SAF-T, what is the latest position for countries which have introduced legislation and what lies ahead?
The Standard Audit File for Tax (SAF-T) was developed by the Organisation for Economic Co-operation and Development (OECD) with the aim of producing a standardised format for electronic exchange of accounting data from organisations to their national tax authority and external auditors.
The two key principles behind SAF-T are that;
In 2005 the OECD released the first version of the SAF-T schema which provides details of what should be included in a SAF-T xml reporting file and how that data should be formatted and structured. The original schema was based on the general ledger and details of invoices and payments, together with customer and supplier master files. A second version of the SAF-T schema was released in 2010 to incorporate information about Inventory and Fixed Assets.
What the OECD have not defined, and what remains the responsibility for the tax administration in each country to decide, is the exact format in which the data is to be captured and when and how it is required to be sent to the tax administration.
What has emerged from those countries which have adopted SAF-T are three broad approaches;
In some cases, the mandate starts with a requirement to produce data on request and evolves through to periodic submissions.
There are currently seven countries which have introduced legislation enforcing SAF-T requirements.
Portugal was one of the first adopters and Portuguese entities have been required to extract data into the SAF-T file format (based on version 1 of the OECD SAF-T schema) since 2008 on an annual basis. Further extensions to collect sales invoice data and other documents on a monthly basis followed in 2013.
Luxembourg introduced the requirement to extract data in the relevant format in 2011. It only applies to Luxembourg resident companies subject to the local chart of accounts and is only required to be submitted when requested by the tax authority.
France introduced a SAF-T requirement in 2014, using a proprietary format rather than the OECD standard SAF-T schema, requiring files to be submitted in txt format. It is currently only required to be filed on demand when requested by the French tax authority.
Austria introduced SAF-T in 2009 and is currently only required on demand when requested by the tax authority.
Possibly the most significant implementor of SAF-T to date, with large companies having had to file monthly JPK (Jednolity Plik Kontrolny) returns since 2016.
Lithuania introduced the requirement to file the SAF-T based i.MAS on a phased basis, starting with the largest organisations in 2016 and working towards mandating SAF-T for all businesses by 2020. The i.MAS comprises three parts, i.SAF reporting of sales and purchase invoices on a monthly basis, i.VAZ reporting of transport/consignment documents and the i.SAF-T accounting transaction report, which is only required when requested by the tax authority.
SAF-T has been in place on a voluntary basis since 2017 and there are proposals to mandate it, on an ‘on-demand’ basis from January 2020.
Countries which are receiving regular, transactional level details under SAF-T may look to reduce the periodic VAT return requirements. This is because the need to prepare a VAT return summarising the details which the tax authority already receives on a transactional basis can be seen as unnecessary duplication.
Poland is proposing that SAF-T data submissions will displace the need for filing a VAT return from January 2020.
Romania is proposing a phased transition to filing of transactional data from 2020, starting with large organisations, with a reduction in the VAT returns which are required to be filed.
To find out more about what we believe the future holds, follow us on LinkedIn and Twitter to keep up-to-date with regulatory news and other updates.
Split payments is one of the methods that European countries with a considerable VAT gap use to tackle it. Across the EU, the VAT gap in the EU in 2016 was reported to be €147.1bn.
Poland introduced voluntary VAT split payments in July 2018. Since then around 25% of taxpayers have adopted this payment method. This equates to 400,000 out of 1.6 million taxpayers currently active on the Polish market. However, only 9% of the total amount of VAT has been paid using this mechanism since last year.
The VAT split payment mechanism means that the amount of commodities or supplies for consideration is being paid to the taxable person into one account, while the VAT amount charged in the underline transaction is deposited in a different bank account designated for this purpose.
On May 16, 2019 the Ministry of Finance published draft legislation which intends to introduce mandatory split payments from September 1, 2019. Poland received temporary approval, valid until 2022, from the European Commission on February 18, 2019, subject to introducing some limitations to the mandate. Consequently, split payments will apply to (and substitute) reverse charge transactions and those with purchaser tax liability; it will also apply to 150 selected goods and services, such as car parts, coal, fuel, waste and some electronic equipment. In addition, to comply with the mandate, the value of the transaction must exceed the threshold of PLN 15,000 (approximately €3,500). The Ministry of Finance reported that the selected industries are those where state tax administration observes the highest tax avoidance.
Since July 2018, taxpayers complained that the way in which split payment is regulated influences their financial liquidity. The bank account to which VAT is paid belongs to the taxpayer, however, its freedom to spend this money is currently limited to paying VAT. With the planned amendments, taxpayers will be able to pay other state charges from the VAT accounts, such as social security charges and other tax liabilities including income tax, excise and customs duties.
Split payments will also apply to non-resident companies subject to VAT in Poland, who are settling transactions by means of bank transfers, and are otherwise in scope of the mandate as per the general rules. Based on the Ministry of Finance estimates, there are around 550 such companies, 150 of which do not even have a local bank account. Complying with the local split payment regime will be more of a challenge for these companies.
Sanctions for non-compliance may affect both the supplier and buyer. Suppliers may be charged with 100% of the VAT due for not including a mandatory statement on the invoice which is subject to split payment (in Polish: “mechanizm podzielonej płatności”). Buyers may be penalised in the same way for not paying VAT to the VAT account, alternatively they may be deprived of the right for tax deduction.
Split payment was either introduced or is being considered in three other European countries. Italy and Romania both introduced a split payment mandate for certain businesses from 2015 and 2018 respectively. In the UK, public consultations were held throughout 2018 with a view to introducing split payments. From April 2019 Romania withdrew mandatory split payments, following the November 2018 order of the European Commission which concluded that the mandate is disproportionate. It will now maintain a voluntary split payment regime.
Read more about split payments across Europe, download Trends: e-invoicing compliance and join our LinkedIn Group to keep up to date with regulatory news and other updates.
For more information see this overview about e-invoicing in Poland or VAT Compliance in Poland.
Companies dealing with complex sales and use tax determination, VAT regulations and other tax challenges across the globe know that SAP alone is not equipped to support the varying requirements from country to country. As SAP sunsets support and updates for ECC and R3, companies must move to HANA to keep their systems up to date. With this inevitable change to S/4HANA or HANA Enterprise Cloud, now is the perfect time to step back and develop a comprehensive strategy to managing tax worldwide.
SAP users must migrate to HANA by 2025, but a majority have not yet started the process. Since the move requires major changes to ERP infrastructure, SAP users with global operations should take advantage of the unique opportunity to be more strategic in their implementation. With the right approach, companies can future-proof their solutions in a way that ensures they can keep pace with constant changes in tax regulations throughout Latin America, Europe and beyond.
Learn how to minimise business disruption during an SAP S/4HANA upgrade project in the wake of modern tax: Read Preparing SAP S/4HANA for Continuous Tax Compliance and don’t let the requirements of modern tax derail your company.
Governments around the world are implementing technology for tax enforcement. In order to keep up, companies must make the digitisation of tax a core pillar of their HANA migrations.
In the move to HANA, companies must consider the new world of tax, which includes:
The move to S/4HANA or HANA Enterprise Cloud requires companies to move all of their processes, customisations and third-party add-ons to the new platform. As such, there are several critical considerations.
Since most companies’ SAP ERP systems have been built and customised over many years, many will benefit from a phased approach to HANA implementation. The less customised modules, such as Financial Accounting (FI) and Controlling (CO) will be easier to move than Materials Management (MM) or Sales and Distribution (SD), which will need a long-term plan for customisations.
Many SAP configurations have become a patchwork of customised code and bolt-on applications. This is especially true when it comes to sales and use tax determination, e-invoicing, and VAT compliance and reporting, since requirements are vastly different in every jurisdiction a company operates. The move to HANA gives companies the opportunity to consolidate, eliminating local configurations in favour of a global strategy. Companies that proactively plan can help to ensure that the next 15 years are simplified, without the constantly changing configurations needed in the previous 15 years as governments have gone digital.
With an upcoming migration to SAP HANA, businesses must consider a solution that maintains SAP as the central source of the truth while keeping pace with constant regulatory change. Learn how Sovos is helping companies do just that, safeguarding the value of their HANA implementation here.
Countries within the European Union (EU) are losing billions of euros in value-added tax (VAT) every year because of VAT fraud, VAT evasion, VAT avoidance and inadequate tax collection systems. As of 2016, the VAT gap in the EU was 159.5 billion euros, or 14% of the total expected VAT revenue for the EU. As a result, EU countries have been introducing several measures to increase VAT compliance and make their VAT systems more fraud-proof. One such measure is the split payment mechanism.
The split payment mechanism changes how VAT is generally collected by making the payment for the tax base (i.e., product price net of VAT) separate from that for the VAT amount. There are variations of the split payment mechanism, but generally, an invoice is paid by the customer to two separate accounts: The net amount is paid to the supplier’s business bank account, and the VAT amount is paid directly to a dedicated bank account of the supplier, called a VAT account. In practice, a single payment will be made and it will be divided by the bank.
Split payments are regarded as a measure to combat VAT fraud and non-compliance by removing the opportunity for suppliers to charge VAT and disappear without declaring or paying it to the tax authority (‘missing trader fraud’). It digresses from the mainstream of VAT collection in the EU, which relies on vendor-based collection of VAT and on periodic remittance of VAT by registered traders.
The European Commission completed a comprehensive study of split payments in December 2017 to design and assess legally and technically feasible scenarios for a split payment mechanism as a VAT collection tool. The study found:
“….no strong evidence that the benefits of split payment would outweigh its costs. The main identified effects were that a wider scope of split payment would potentially provide a larger decrease of the VAT gap, but would also significantly increase the related administrative costs.” [source]
Despite the European Commission’s inconclusive assessment, split payment mechanisms are currently in place around the world, primarily outside of the EU. In the EU, Italy and Romania have implemented split payment mechanisms while Poland plans to implement it, and the UK has started to consider it.
Italy has employed a split payment mechanism since January 1, 2015 for payments to public authorities under Law 23/12/2014, n. 190 (Stability Law). It has been expanded several times, most recently on January 1, 2018. Currently, it applies to supplies of goods and services rendered to several categories of public bodies, such as public economic entities, special companies, foundations and their subsidiaries, as well as companies included in the FTSE MIB index. As per the design of the system in Italy, suppliers charge Italian VAT on goods and services made to the entities listed above. These customers then “split” the payment of the invoice: they pay the taxable amount to the suppliers and pay the VAT to an allocated VAT bank account of the treasury.
In Poland, split payments are scheduled to be implemented as of July 1, 2018. Unlike Italy, Poland’s scheme will not require customers to make two separate payments. Instead, Poland will require a single payment executed to the bank who will then split the payment into two separate bank accounts: one account for the amount net of VAT to be paid to the supplier’s business bank account, and the other account for the VAT amount to be paid directly to a dedicated VAT bank account of the supplier.
The scope of Poland’s split payment mandate is much broader than Italy’s as it will apply to all VAT registered businesses. On the other hand, the Polish split payment mechanism will be optional as the buyer may but does not have to apply it.
In Romania, a split payment mechanism has been implemented since January 1, 2018 for companies which exceed certain thresholds for outstanding VAT liabilities. Under the Romanian split payment mechanism, obligated VAT registrants are required to open separate bank accounts for the collection and payment of VAT. The VAT split payment applies to all their taxable supplies of goods and services, for which the place of supply is in Romania. Similar to Italy but unlike Poland, the split payment mechanism is mandatory. The suppliers charge Romanian VAT on goods and services, then the split payment is made by the business customer, who transfers the VAT directly to the VAT bank account of the supplier. The VAT bank account of the supplier can only be used for output and input VAT payments.
The UK has held a public consultation on adopting anti-VAT fraud split payment mechanism for eCommerce. The split payment mechanism would require the VAT due on online supplies to be paid directly to the UK tax authorities at the time of purchase. The UK is debating several issues:
HMRC has made an initial proposal with respect to how the split payment mechanism would function, titled “Alternative method of VAT collection – split payment,” and is seeking public comment until June 29, 2018. HMRC’s proposal would have the merchant identify and make the split payment for transactions relating to UK residents, and have payment service providers identify and fulfill the split payment for transactions relating to non-UK residents. There would be an approved register of payment companies (both merchants and payment service providers) who could split payments. With respect to overseas sellers, for each payment, the card issuer would check if an approved payment company will be responsible for splitting that payment. If so, the card issuer would pass the payment in full to the payment company. The payment company would then split out the VAT, pay it directly to the HMRC, and pass on the balance to the overseas seller’s bank account. If not, then the card issuer would have to split out the VAT, pay it directly to the HMRC, and pass on the balance to the unapproved payment company which would then pass on that amount to the overseas seller’s bank. Finally, the HMRC would credit the seller’s UK VAT bank account with the output VAT thus collected.
Under a split payment mechanism, suppliers may suffer negative cash flow. Although funds within the VAT account belong to the supplier, the supplier will not be able to use them freely. Such funds may be spent only in specific ways prescribed by the regulatory regime. In Poland, businesses can use the funds only to pay invoiced VAT to the VAT account of the invoice issuer, and to pay VAT to the tax authorities.
In Italy, a large delay has been observed on processing refunds to businesses (up to 90 days after quarterly VAT refund request). This hiatus allows authorities to hold input VAT for a longer period of time, earning interest for the government, while affecting the cash flow of Italian businesses. To fully estimate the cash flow implications of a split payment system, one must consider the costs of borrowing for the businesses and for the government.
The European Commission considered a variety of factors and models of split payment mechanism to determine impacts on businesses. The impact of split payments on different types of businesses varies depending on a number of factors, including the type of transaction, where the liability lies for the payment, whether the transaction is cross-border, and compliance costs that businesses will bear to implement split payment best practices.
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Split payments are emerging as a new VAT collection mechanism in the European Union. Businesses need to continue to stay alert and adaptive in the ever-changing landscape of VAT compliance. Contact us to know how we can help your business to stay on top of VAT Compliance landscape.
By Andy Hovancik – President & CEO
Today, we announced the acquisition of Stockholm-based TrustWeaver to create a clear leader in modern tax software.
TrustWeaver has become a seal of approval for the world’s largest procure-to-pay and AP systems. This is a testament not only to the effectiveness of its e-invoicing software and integrations, but also to its ability to monitor and interpret regulatory change around the world.
With the acquisition, we are poised to do three big things together:
Governments are quickly adopting digital models to better collect every type of transactional tax, including VAT, GST and sales & use tax. As a result, businesses are faced with mounting complexity, rising costs and unparalleled risks.
Last month, the European Commission granted Italy permission to mandate e-invoicing, making it the first country in the European Union to do so. Italy’s move paves the way for rapid expansion of real-time, transaction-level reporting in Europe.
Here at Sovos, we’ve assembled the only solution capable of dealing with the complexities of modern tax, a complete software platform with global tax determination, complete e-invoicing compliance and a full range of tax reporting solutions including e-accounting and e-ledger.
TrustWeaver is our third e-invoicing acquisition in two years, and it’s one of the most important acquisitions in our history.
TrustWeaver has built up coverage across Europe, the Middle East, Africa and Asia Pacific regions, complementing our strength in Latin America. And, it adds support for “post-audit” compliance, including e-signatures in compliance with the eIDAS Regulation, which is an onerous set of standards for electronic trust and identification in Europe.
With the addition of TrustWeaver, we’re one step closer to our mission, which is to reduce the friction between businesses and governments so commerce can grow faster and communities can thrive by simply collecting the tax they’re already owed.
Read the IDC Link: Sovos Acquires TrustWeaver, Strengthening its Market Position, May 17, 2018 by Kevin Permenter.
Find the Sovos E-Invoicing solutions here.
Earlier today, we announced that Sovos has acquired U.K.-based FiscalReps, Europe’s leading solution for Insurance Premium Tax (IPT) compliance. The acquisition does a few important things for our clients and the market as a whole:
Here’s what Sovos CEO Andy Hovancik had to say about the news:
“Insurers across Europe trust FiscalReps because the solution safeguards their businesses from mounting risks from governments looking to close longstanding gaps in IPT compliance. The addition of FiscalReps presents an opportunity to better prepare insurers for the digital future of tax compliance and reporting, while at the same time adding a talented team to support our clients in the region.”
Similar to other indirect tax regulations, IPT compliance has become increasingly burdensome in recent years, requiring insurers to comply with 90 unique taxes and more than 500 complex forms in the European region alone. As governments turn to technology to clamp down on non-compliance, businesses have quickly turned to automation.
Through a combination of managed services and software, FiscalReps helps more than 400 businesses — including 20 of the top 50 insurance companies in Europe — calculate and file IPT in 27 European countries. FiscalReps gives those businesses a more automated and more accurate solution for filing thousands of IPT reports each year.
The addition of FiscalReps to Sovos’ cloud software platform takes the solution one step further, according to FiscalReps CEO Mike Stalley, setting the stage for a unique global solution for the insurance market and accelerating software innovation in IPT compliance.
“The acquisition by Sovos is a great opportunity for our insurance clients, who will now have a truly global solution for all of their premium tax and regulatory reporting needs,” Stalley said. “With a proven track record in delivering tax technology solutions globally, the Sovos strategy aligns perfectly with FiscalReps’ ambitions to remain the market leader in this increasingly complex and challenging environment. We look forward to being part of the Sovos team and contributing to the success story.”
The FiscalReps acquisition is the second major deal in three months for Sovos, following the acquisition of Paperless, a leading software solution for a similar compliance challenge, real-time VAT reporting. For the past few years, we have been actively acquiring leading software businesses around the globe and integrating them into our Intelligent Compliance Cloud, an approach that is critical to keeping businesses ahead of disruptive tax and regulatory reporting requirements.
“The IPT market is another great example of governments pushing businesses toward global software automation by getting aggressive on enforcement of regulations to collect tax revenue,” Gledhill said. “As that trend continues to accelerate, Sovos is committed to adding market-leading solutions, like FiscalReps, to solve our clients’ biggest compliance challenges on a single platform and from a single source of data.”
Learn more about Sovos IPT Determination and Sovos IPT Managed Services here. You want to learn more about IPT? Read this guide about Insurance Premium Tax.