There are a variety of different approaches to Insurance Premium Tax (IPT) treatment for marine insurance across Europe. Before looking at how individual countries treat marine insurance, it is worth noting the challenges in determining the country entitled to levy IPT and any associated charges.

The location of risk relating to marine vessels falls within article 13(13)(b) of the Solvency II Directive. This outlines that in the case of ‘vehicles of any type’ the risk location is the ‘Member State of registration’. There is no definition provided for ‘vehicles of any type’. So there is some uncertainty as to whether this is limited to land motor vehicles or whether it extends to marine vessels and aircraft. Most EU jurisdictions adopt the latter, broader approach, but Malta limits it to motor vehicles.

Marine Insurance IPT Across Europe

Additionally, the German tax authority has been known to rely on a 2017 decision made by the Cologne Fiscal Court to levy IPT in circumstances where a P&I club member had a registered office in Germany, but no ship was registered there. This raises the possibility of double taxation. This is with IPT potentially levied in both Germany and the country of the registration of the vessel. The Law on the Modernisation of Insurance Tax passed in December last year.

Once an insurer has navigated the choppy waters of the location of risk rules, regimes across Europe vary considerably. Marine insurance is a class of business that sees a number of IPT exemptions. Some countries like Bulgaria and Ireland offer fairly broad exemptions for damage and loss to marine vessels.

Other countries adopt a more nuanced approach in distinguishing between commercial vessels and pleasure craft. Belgium offers an exemption in the case of the former, whereas they levy IPT as normal in the case of the latter. A similar distinction exists in France between vessels conducting commercial activities and those operating for pleasure.

Germany has a reduced IPT rate of 3% in relation to marine hull. Where the ship exclusively serves commercial purposes and has insurance against perils of the sea.

Denmark has an exemption for its tax on non-life insurance, but it does impose a separate tax on pleasure boats. Denmark calculates on the sum insured of the vessels themselves.

Reduced Rate Extension

One final point of note is the extension of the regime for the reduced rate, like that in the Portuguese territory of Madeira, in April. The extension lasts until the end of this year at least. The European Commission has extended the State aid initiative which gave rise to the reduction until 31 December 2023, so it may be that this will be reflected in Portuguese legislation in due course.

It’s essential for insurers to understand the tricky location of risk rules associated with marine insurance. In addition to the various approaches taken by different countries in Europe. This ensures companies pay the correct amount of Marine Insurance Tax to the correct administration.

Update: 9 March 2023 by Hector Fernandez

IPT in Spain is complex. Navigating the country’s requirements and ensuring compliance can feel a difficult task.

Sovos has developed this guide to answer prominent and pressing questions to help your understanding of Insurance Premium Tax in the country. Originally created following a Spain IPT webinar we hosted, the guide contains questions asked by industry insiders and answered by legislative experts.

What is the IPT rate in Spain

The current IPT rate in Spain is 8%, as of 2022 and is applied to all classes of insurance, with some exemptions. Classes exempt from IPT include life, health, reinsurance, group pensions, export credit, suretyship, goods and passengers in international transit, agricultural risks, aviation and marine hull insurance.

What makes Insurance Premium Tax in Spain challenging?

The most challenging aspect is correctly submitting to the five different tax authorities: Alava, Guipuzkoa, Navarra, Statal and Vizcaya.

What is the Basis of Spanish IPT Calculation?

The basis of the IPT calculation is the total amount of the premium payable by the insured, excluding funds for the insurance of extraordinary risks and fire brigade tax. Companies must show the tax in addition to the premium.

Spanish IPT Liability

The insurer is liable for calculating and paying the tax. EEA insurers operating under the Freedom of Service regime must appoint a fiscal representative in Spain.

Is all health insurance exempt from IPT in Spain?

Health and sickness insurance is exempt from IPT in Spain, under Article 5 of the IPT law. However, this doesn’t include Accident cover which should be taxable at 8%.

International insurance risks belong to the exemptions. Is this also true for international freight forwarder liability insurance? And for international marine cargo insurance?

Article 5 of the IPT law provides an exemption for “insurance operations related to ships or aircraft that are destined for international transport, except for those that carry out navigation or private recreational aviation”.

Under Act 22 of Law 37/1992 (VAT Law), “international transport is considered to be that which takes place within the country and ends at a point located in a port, airport or border area for immediate dispatch outside the Spanish mainland and the Balearic Islands”.

Therefore, we understand insurance, such as freight forwarder liability and marine cargo, gain the IPT exemption, to the extent they relate to international transport.

I’m preparing CCS monthly reporting manually in Excel. Is there a Microsoft tool that can create the final report?

We’re unaware of any Microsoft tools to prepare the CCS file for monthly reporting. This file can be complex.

What is CLEA?

CLEA is the surcharge to fund the winding-up activity of insurance undertakings. It was included in the Modelo 50 CCS and is due for all insurance contracts signed on risks in Spain. This excludes life insurance and export credit insurance on behalf of or with the support of the State.

The type of surcharge destined to finance the winding-up activity of insurance companies is made up of 0.15% of the premiums above.

Do insurers have to be registered in all the provinces in Spain?

All insurers should register in the provinces where the location of risk is. It is a compliant requirement because insurers must declare premium taxes to the correct tax authorities according to the location of risk.

Policies can be submitted monthly to Consorcio even if the postcode is wrong. How should we proceed in the future for Insurance Premium Tax in Spain?

The postcode is compulsory data that must be sent to the Consorcio monthly, as the CCS needs to know the Location of the risk for each policy subscribed in Spain.

The Fire Brigade Charge (FBC) annual reports are also submitted through the CCS portal. The postcode is a compulsory field that helps the different Councils identify the policies that were subscribed in their territories and collect their portion of FBC accordingly.

When reporting Consorcio liabilities in Spain, should the lead insurer declare on behalf of its co-insurers?

Insurers can elect to declare only their share of the co-insurance agreement, should that be the agreement amongst the insurers that are party to the contract.

Where Consorcio cannot recover an outstanding sum from a co-insurer, it will likely hold the lead insurer accountable for that amount. Alternatively, the lead insurer can pay the surcharges for all fellow insurers. So there is, to some extent, an element of discretion by the relevant insurers.

Is there a list or explanation of each movement and declaration type to report to Consorcio?

We’re able to provide this to our customers upon request. Get in touch with our IPT experts for support.

More Questions about Insurance Premium Tax in Spain?

Watch our webinar, IPT: Spotlight on Spain for a deep dive into Spain’s CCS

Learn how to navigate the complex region with our ebook, Is IPT simplicity in Spain possible?

Read our blog to understand the more challenging aspects of IPT reporting in Spain

Need immediate help for IPT in Spain?

Our team of tax experts are ready to help. Get in touch today. For more information about IPT read our free guide to Insurance Premium Tax. For an overview about other VAT-related requirements in Spain read this comprehensive page about VAT compliance in Spain.

An amendment in the General Communiqué No. 509 has announced healthcare service providers and taxpayers providing medical supplies and medicines or active substances must use the e-invoice application from 1 July 2021.

The mandated scope for transition to e-invoice and e-arşiv invoice applications in the healthcare industry

Published in the Official Gazette the implementation will cover healthcare service providers who have signed contracts with the Social Security Institution (SSI) and all taxpayers providing medicines and active substances and medical supplies.

This includes:

• Hospitals, medical centres, branch centres, dialysis facilities
• Other specialised treatment centers licensed by the Ministry of Health
• Diagnosis, medical examination and imaging centres
• Laboratories, pharmacies, medical device and material suppliers
• Optometry organisations, auditory centres, spas
• Private legal entities providing or producing human medicinal products, in addition to their unincorporated branches and pharmaceutical warehouses.

The transition process to e-invoice and e-arşiv invoice applications in the healthcare industry

Within this scope, organisations must use the e-invoice application as of 1 July. Organisations signing contracts with SSI after this date must use e-invoice prior to their issue of invoices to SSI.

From 1 January 2020 all organisations included in the e-invoice application scope have to apply the e-arşiv invoice on the date of e-invoice application. Any healthcare organisations included in the amendment will then have to apply the e-arşiv invoice on 1 July.

What are the benefits of e-invoice and e-arşiv invoice transition to the healthcare industry?

The digitisation process will minimise physical contact, a significant benefit following the Covid-19 outbreak. Furthermore, organisations will no longer have to prepare or store physical documents as they are stored electronically.

For organisations that issue invoices to SSI, transactions such as payment terms will become faster and more efficient via the e-invoice and e-arşiv invoice applications. In addition to the transfer of all invoice-related processes to the digital environment.

Organisations that carry out the e-issuance process via the TRA Portal or via a third-party integrator will benefit from easy access to documents, improved efficiency, and business continuity as a result.

Italy postpones e-document legislation until 2022. In September 2020, Italy introduced major changes to the country’s rules on the creation and preservation of electronic documents. These new requirements were expected to be enforced on 7 June 2021 however the Agency for Digital Italy (AGID) has now decided to postpone the introduction of the new rules until 1 January 2022.

The new ‘Guidelines for the creation, management, and preservation of electronic documents’ (“Guidelines”) regulate different aspects of an electronic document. By following the Guidelines, businesses benefit from the presumption that their electronic documents will provide full evidence in court.

The postponement of the introduction of the Guidelines is a reaction from the AGID to claims of local organizations who have particularly expressed concern about the obligation to associate metadata with e-documents. The Guidelines set forth an extensive list of metadata fields for keeping alongside e-documents in a way that will enable interoperability.

Metadata requirements modified

In addition to delaying the introduction of the new e-document legislation, the AGID has also modified metadata requirements. They included new pieces of metadata and changing the description of some fields. The AGID has also corrected references – especially to standards – and rephrased statements to clarify some obligations.

The updated Guidelines and their corresponding Appendices are available on the AGID website.

This blog is an excerpt from Sovos’ Annual VAT Trends report. Please click here to download your complimentary copy in full.

VAT requirements and their relative importance for businesses have changed significantly in recent years. For data that is transactional in nature, the overall VAT trend is clearly toward various forms of continuous transaction controls (CTCs).

The first steps toward this radically different mode of enforcement, known as the “clearance model”, began in Latin America in the early 2000s. Other emerging economies, such as Turkey, followed suit a decade later. And today, many countries in the Latin American region now have stable CTC systems where a significant amount of the data required for VAT enforcement is based on invoices. Other key data is harvested and pre-approved directly at the time of the transaction.

Common clearance system features

There are several high-level features and processes that many clearance systems have in common.

However, many variations exist on this reference model in practice; many countries with a clearance system have implemented extensions and variations on these “standard” processes:

1. OK TO ISSUE: Typically, the process starts with the supplier sending the invoice in a specified format to the tax authorities or a state agent licensed to act on its behalf. This invoice is ordinarily signed with a secret private key corresponding to a public certificate issued to the supplier.

2. OK/NOT OK: The tax authority or state agent (for example, an accredited or licensed operator) will typically verify the signed supplier invoice and clear it by registering it under a unique identification number in its internal platform. In some countries, a proof of clearance is returned, which can be as simple as a unique transaction ID, possibly with a timestamp. In some cases, it’s digitally signed by the tax authority/state agent. The proof of clearance may be detached from the invoice or added to it.

3. VALID: Upon receipt of the invoice, the buyer is often obligated or encouraged to check with the tax authority or its agent that the invoice received was issued in compliance with applicable requirements. In general, the buyer usually handles integrity and authenticity control using crypto tools, also used to verify a signed proof of clearance. In other cases, the tax authority or agent completes the clearance check online.

4. OK/NOT OK: If the buyer has used an online system to perform the validation described in the previous step, the tax authority or state agent will re-turn an OK/not OK response to the buyer.

The first “clearance” implementations were in countries like Chile, Mexico and Brazil between 2000 and 2010. They were inspired by this high-level process template. Countries that subsequently introduced similar systems, in Latin America and worldwide, take greater liberties with this basic process model.

Global expansion of CTCs

Europe and other countries passed through a stage allowing original VAT invoices to be electronic. This is without changing the basics of the VAT law enforcement model. This phase of voluntary e-invoicing without process re-engineering is “post audit” e-invoicing. The moment a tax administration audit comes into play is post-transaction. In a post audit system, the tax authority has no operational role in the invoicing process. It relies heavily on periodic reports transmitted by the taxpayer.

Largely due to the staggering improvements in revenue collection and economic transparency demonstrated by countries with existing CTC regimes, countries in Europe, Asia and Africa have also started moving away from post audit regulation to adopting CTC-inspired approaches.

Many EU Member States, for example, are moving toward CTCs not by imposing “clearance” e-invoicing but by making existing VAT reporting processes more granular and more frequent via CTC reporting. These countries will eventually adopt requirements for real-time or near-real-time invoice transmission. This is as well as electronic transmission of other transaction and accounting data to the tax authority. However, it’s not a foregone conclusion that they’ll all take these regimes to the extreme of invoice clearance.

CTC reporting from a purely technical perspective often looks like clearance e-invoicing, but these regimes are separate from invoicing rules. In addition, they don’t necessarily require the invoice as exchanged between the supplier and the buyer to be electronic.

The impact of CTCs on business

The VAT trend towards CTCs is obvious, but situations in individual countries and regions remain fluid. It’s important to align your company with local expertise that understands the nuances of your business and what regulations and rules you’re subject to.

On 22 March 2021 the EU Council approved DAC7, which establishes EU-wide rules meant to improve administrative cooperation in taxation. In addition, the Directive addresses additional challenges posed by a growing digital platform economy.

What is DAC7?

In 2011, the EU adopted Directive 2011/16/EU on administrative cooperation in the field of taxation in the EU (‘DAC’). The aim of the Directive is to establish a system for secure cooperation between EU countries’ national tax authorities. The Directive also sets out the rules and procedures EU countries must apply when exchanging information for tax purposes. DAC7 is the seventh set of amendments to the Directive.

What are the new rules under DAC7?

The new DAC7 tax rules will require digital platforms to report the income earned by sellers on their platforms to EU tax authorities. As a result, reportable activities will include:

• The sale of goods
• The provision of personal services
• The rental of immovable property
• The rental of any mode of transport

Reportable information will include tax identification numbers, VAT registration numbers, in addition to other demographic information for sellers. The new rules extend the scope of automatic exchange of information among EU tax officials to the information reported by the digital platform operators.

The object of these new rules is to address the challenges posed by an ever-expanding global digital platform economy. Each year, more and more individuals and businesses use digital platforms to sell goods or provide services. Sales made online have become an even larger share of total global sales in the last year due to the COVID-19 pandemic.

Income earned through these digital platforms is often unreported and tax is not paid, which causes loss of tax revenue for Member States and gives an unfair advantage to suppliers on digital platforms over their traditional business competitors. The new amendments should address these issues, enabling national tax authorities to detect income earned through digital platforms and determine the relevant tax obligations.

Other rules included within the amendments will improve the exchange of information and cooperation between Member States’ tax authorities. It will now be easier than ever to obtain information on groups of taxpayers. Lastly, the new rules set up a framework for authorities of two or more Member States to conduct joint audits.

When will DAC7 apply?

The new DAC7 tax rules will apply to digital platforms operating both inside and outside the EU from 1 January 2023. The framework for authorities of two or more Member States to conduct joint audits will be operational by 2024 at the latest.

Russia introduces a new e-invoicing system for traceability of certain goods on 1 July 2021. Federal Law No. 371-FZ will amend the Russian Tax Code to introduce the new procedure for the traceability system, which will bring the introduction of mandatory e-invoicing for taxpayers dealing with traceable goods.

Since its introduction, B2B e-invoicing in Russia has remained voluntary. However, this is changing as of this summer when the issuance and acceptance of e-invoices will be mandatory for taxpayers trading goods subject to the traceability system.

What is the traceability system?

The traceability system aims to monitor the movement of certain goods imported into Russia and the Eurasian Economic Union (EAEU). In the scope of the traceability system, each consignment of goods is assigned a registration number during import. This is then controlled at all transaction stages. Businesses within the scope of this new traceability system will need to include the registration number in invoices and primary accounting documents. They must also provide information on the transactions involving the traceable goods through VAT returns and related transaction reports.

Legal entities and individual businesses participating in the circulation of traceable goods are in scope of the traceability requirements. From 1 July 2021, invoices for these goods must be electronic. Buyers of goods subject to traceability must accept invoices in electronic form. Furthermore, the new requirement for mandatory electronic invoices for sales of traceable goods doesn’t apply to export/re-export sales and B2C sales.

What type of goods are subject to the traceability requirements?

The goods included in the list of traceable goods are currently:

• Refrigeration and freezing equipment (refrigerators, freezers)
• Industrial trucks (forklift trucks, bulldozers, graders, planners, power shovels, excavators, shovel loaders, tampers in addition to road rollers)
• Washing and drying machines (household and for laundry facilities)
• Monitors and projectors (not including receiving television equipment)
• Electronic integrated circuits and elements
• Baby strollers and child safety seats

What’s next for Russian regulation of electronic documents?

Considering that by the end of 2024 Russia aims to have 95% of invoices and 70% of waybills in electronic form, it’s likely more digitization changes are coming. The digitization of accounting records is another area the Russian tax authority is making progress on. It would therefore not come as a surprise to see more changes in the Russian legislation in the next couple of years.

Take Action

Get in touch to discuss the July 2021 e-invoicing requirements in Russia. Download VAT Trends to discover more about CTCs and how governments across the globe are enacting complex new policies to enforce VAT mandates.

It’s difficult to pinpoint exactly when new taxes or tax rate increases will happen. Covid-19 has impacted almost everything, including a massive deficit in the economy. Many banks have applied negative interest and governments have put funding in place to aid recovery. It’s highly likely that tax authorities will be looking at ways to bring in additional funding, including Insurance Premium Tax (IPT) rate increases.

Europe’s IPT rate increases

Some of the steepest increases across Europe can be recognised not as an instant from one rate to another but a gradual incline.

The Dutch IPT regime is one of the highest rates across Europe, currently at 21%. Until 2008, the IPT rate was 7% and raised in various stages, finally settling at 21% in 2013. An increase of 14% in a five-year period!

Why the sudden rate increase? Was it because the Dutch tax authorities realised theirs was one of the lowest rates in Europe? Was it due to the economic climate at the time to gain extra revenue? Or was it because tax authorities were beginning to realise IPT was becoming a more recognised tax?

The Netherland’s isn’t the only country to have experienced a dramatic IPT rate increase over a short period of time.

HMRC, the UK tax authority, has also taken the opportunity to implement more rigorous increases, especially with their standard rate. In 2011, the rate increased to 6%, increasing at various intervals until stabilising at 12% in 2017. The rate doubled in a five-year period!

The similarity between the two territories and the way they have increased their rates is uncanny. The five-year structure of rate changes either by 1 or 2%, ultimately reaching much higher rates than initially expected in the market. Looking back at the economy during the time of the increase, Europe was beginning to recover from a recession that hit most territories hard with rising interest rates on loans and mortgages and increased unemployment.

There are changes in the market now that could influence IPT rates. Many insurance companies have increased the scope of insurances offered. Classes of business are more varied and premiums quoted are higher. Emphasis is on ensuring the invoicing is correct with the insurer versus carefully considering insured taxes.

What’s Next?

Many territories now require more granular detail for submissions. Will this trigger more audits? Will it cause more tax authorities to analyse this information to enforce their penalty regimes? Or will there be a number of rate increases across the board? Increases could begin at 1 or 2% and follow the trend of five years as set out above. Either way, there is a financial gap which will need to be filled.

We’ll be keeping a close eye on the latest Insurance Premium Tax rate updates to see how tax authorities respond to this current economic climate.

Get Ready for the 2021 EU e-Commerce VAT Package

Download our infographic to understand the upcoming changes.

If you’re an EU business with B2C sales in other EU Member States or based outside the EU with B2C sales to the EU, 1 July 2021 will bring significant change.

The EU VAT e-Commerce Package aims to simplify cross-border trade and ensure VAT is charged correctly on cross-border B2C sales.

The change to the Distance Selling threshold means that VAT will be immediately due in the Member State of consumption and this could lead to a requirement for several additional VAT registrations. This will add cost and complexity to businesses and so the package introduces a One Stop Shop (OSS) to ease the burden.

OSS has many benefits but it’s not simple.

It’s important that companies prepare and make informed decisions now as to whether or not OSS is right for their business.

Download our infographic

Our One Stop Shop infographic will help you understand the key changes the new EU VAT e-Commerce Package will bring including:

·       Union OSS, Non-Union OSS and Import OSS

·       OSS record-keeping requirements

·       Excise goods eligibility

·       Place of supply rules

·       Changes to distance selling thresholds

·       Marketplace liability

·       Low value consignment relief  

·       How to prepare for OSS

·       The consequences of OSS noncompliance

As part of the changes, it’s important to understand which OSS applies to your business to ensure VAT compliance. Requirements vary for EU and non-EU businesses, for sales D2C or via an online marketplace depending on the final steps of the supply chain.

The three variations of OSS are:

·       Union OSS

·       Non-Union OSS

·       Import OSS (IOSS)

As OSS isn’t currently compulsory it’s better to understand internal timeframes and implement OSS when your business is ready, rather than try and rush to meet the 1 July 2021 introduction date.

The main choice businesses with total intra-community sales of >€10,000 need to make is whether to use OSS or register in every Member State where they trade.

Download our infographic to understand the upcoming changes and how they could affect your business.

Sovos can help you prepare for OSS

Implementing the changes required to comply with the 2021 EU e-Commerce VAT Package into your ERP system could take significant time and resources. Sovos can help ease the tax burden and help you prepare for and understand the right solution for your business.

Our large advisory team can help you navigate the complexities of modern VAT compliance.

Update: 25 August 2023 by Carolina Silva

Croatia to Introduce E-Invoicing and CTC Reporting System

According to official sources from the Ministry of Finance, the Croatian tax authority will introduce a decentralised e-invoicing model alongside a continuous transaction control (CTC) real-time reporting system of invoice data to the tax authority. This move is part of the Fiscalization 2.0 project the authority announced earlier this year.

This is the outcome of a recent project where the tax authority analysed CTC clearance and reporting systems from multiple jurisdictions within the EU – i.e. Spain, France, Italy and Hungary – which all have the common purpose of combating VAT fraud. Further examination of the efficacy of such systems revealed that these procedures are successful in this fight and increase VAT revenue.

Upcoming obligations in Croatia

According to recent news, there will be a phased implementation of two obligations:

• Mandatory electronic invoicing in the B2B sector
• The fiscalization process, consisting of a requirement to perform real-time reporting of a certain set of data to the tax authority

These are two independent obligations for taxpayers and take place separately.

Trading parties will issue and exchange e-invoices and, in parallel, each party will deliver certain invoice data to the fiscalization system within a two-day deadline. The e-invoicing process and data reporting to the fiscalization system can both be performed through service provider access points.

Companies will not perform the e-invoice exchange through a centralised platform but through access points; they can outsource their e-invoicing and real-time reporting processes to service provider access points. To this end, the tax authority will make a directory of access points available.

The Croatian tax authority will use data obtained from the fiscalization of invoices to simplify and facilitate the existing VAT reporting obligations (i.e. forms, records and tax returns), ultimately replacing some of the current returns. Measures proposed are:

• Pre-filled forms for small and medium taxpayers
• Abolishing a certain number of forms and extending deadlines
• Digitalisation of the submission and processing of VAT returns

What is next?

The proposed system should be implemented by the end of 2024, giving time for the necessary adjustments of the current legal framework to be made and for publishing further CTC documentation and specifications before the implementation begins.

Need help preparing for these upcoming changes in Croatia? Sovos can help.

Update: 13 February 2023 by Carolina Silva

Croatia’s Proposed CTC System

The Croatian Tax Administration has announced a new project called “Fiscalization 2.0”, which would implement a broad CTC system that combines e-reporting, mandatory e-invoicing, e-archiving and e-bookkeeping obligations.

Fiscalization 2.0

Fiscalization 2.0 seems to be an extension of Croatia’s current fiscalization system for cash transactions, called online fiscalization. The government is looking at other CTC systems in Europe, and specifically mandatory B2B e-invoicing, as the vehicle to achieve business automation and tax autonomation in the Croatian economy.

Based on the announcement, it is not clear yet what form of CTC system may be implemented and what the requirements will be.

Croatia’s proposed measures are:

• The introduction of a system for reporting non-cash transactions to the tax authority. However, the scope of the obligation – if it covers the whole sector for B2B, B2G and B2C or not – is still unclear.
• The potential introduction of a B2B e-invoicing mandate, combined with e-archiving and e-bookkeeping requirements.
• The introduction of a free e-invoicing platform for small taxpayers.
• The simplification of reporting obligations by reducing the number of forms the tax authority requires and pre-filling tax returns.

The project should be implemented by the end of 2024, giving the authorities enough time to produce necessary CTC legislation and documentation and prepare businesses to comply with the new requirements.

What is next?

Expect the Croatian Tax Administration to publish further documentation and specifications before implementation.

Currently, the tax administration is forming working groups to jointly study the best practices and find the right solutions for the new CTC system. Additionally, the tax authority is conducting a survey on the current state of e-invoicing in the country and expectations for the future.

For more information on Croatia’s evolving fiscalization system, speak to our expert team.

Update: 8 April 2021 by Joanna Hysi

Croatia was one of the first countries in the world to introduce a real-time reporting system for cash transactions to the tax authority. Known as the online fiscalization system, new requirements have been introduced to improve tax controls for cash transactions.

Croatia’s online fiscalization system

The system aims to combat retailer fraud by providing the tax authority with visibility of cash transactions in real-time and encouraging citizens to play a part in tax controls by validating the fiscal receipt through the tax authority’s web application.

Previously, the online fiscalization system required issuers to send invoice data to the tax authority for approval and include a unique invoice identifier code (JIR) provided by the tax authority in the final receipt issued to the customer. Registration of the sale could be verified by entering the JIR code through the tax authority’s web application.

What’s new for Croatia’s online fiscalization system?

The government has introduced a new requirement for fiscal receipts to make citizen participation easier and increase the level of control of tax records and evidence.

As of 1 January 2021 a QR code must be included in fiscalized receipts for cash transactions. Consumers can now validate their receipts by entering the JIR via the web application or by scanning the QR code.

As part of the tax reform, a new procedure for fiscalization of sales via self-service devices came into force on 1 January 2021.

To implement the fiscalization procedure via self-service devices, the taxpayer must enable the use of software for electronic signing of sales messages and provide internet connection for electronic data exchange with the tax administration.

When implementing the fiscalization of self-service devices only the sale is fiscalized and sent to the tax administration, no invoice is issued to the customer.

Secondary legislation specifying the process and measures for data security and exchange has still not been published despite the requirement having gone live, but is expected in the near term.

VAT accounts for 15-40% of all public revenue globally. We estimate that the global VAT gap – i.e. lost VAT revenue due to errors and fraud – could be as high as half a trillion Euros. The GDP of countries like Norway, Austria or Nigeria are at a similar level and this VAT gap is big enough to significantly impact the economy of many countries. For this reason, tax authorities globally are taking steps to boost lost revenue through VAT digitization.

Up until recently, VAT requirements have traditionally followed three broad categories.

1. Invoice and storage requirements

At a high level, the requirements that apply during the processing of business transactions break down into requirements related to:

• The form of invoices: Most countries no longer have such requirements but in some cases businesses still use pre-printed paper invoices from the tax authority. This gives the tax authority tight control over invoice numbering and integrity.
• Minimum content requirements: Most VAT countries only recognise an invoice for VAT purposes if it contains certain information. This would include name of the supplier and buyer, type of supply etc. In addition to VAT and other indirect tax laws, commercial and other laws can also dictate invoice content.
• Tax determination: For every invoice, suppliers must determine the applicable law and, on that basis, decide the applicable tax rate. Application of certain tax rates also requires reference to an article in the VAT law to be stated on the invoice.
• Timing: The moment an invoice must be issued is often set by the VAT law.
• Record keeping: An “original” invoice should be archived by each trading partner. This evidences the underlying supply. Archiving requirements often further specify how long it should be kept, location and specific features – such as human readability – that must be present to ensure auditability.

2. Periodic reporting requirements

These are reports for business transaction data in summary or aggregate form or full data from individual invoices. Historically such reporting requirements have often been monthly, with certain less-common reports being quarterly or yearly.

3. Audit requirements

These occur when, during the mandatory retention period for invoices and other records and books, which is typically seven to ten years, a tax authority request access to such records to assess their correspondence to reports.

The trend toward continuous transaction controls (CTCs)

The requirement types listed above, and their relative importance for both business and tax authorities, have changed significantly in recent years. The overall trend is clearly toward various forms of CTCs.

This radically different mode of enforcement, known as the “clearance model” began in Latin America over 15 years ago. Other emerging economies, like Turkey, followed a decade later. Many countries in Latin America now have stable CTC systems where a large amount of the data required for VAT enforcement is based on invoices and other key data is harvested (and often pre-approved) directly at the time of the transaction.

Europe and other countries went through a stage where original VAT invoices could be electronic without changing the basics of the VAT law enforcement model. This phase of voluntary e-invoicing without process re-engineering is often known as “post-audit” e-invoicing. In a post-audit system, the tax authority has no operational role in the invoicing process relying heavily on periodic reports transmitted by the taxpayer. Being able to demonstrate the integrity and authenticity of e-invoices from the moment of issuance until the end of the mandatory storage period is key for trading partners in post audit regimes.

Largely due to the staggering improvements in revenue collection and economic transparency from countries with existing CTC regimes, countries in Europe, Asia and Africa have also started adopting similar schemes. This rapid adoption of CTCs in many additional countries doesn’t follow the same simple path of quick migration of the early adopters. In fact, as the trend spreads around the world, it’s becoming increasingly clear there will be many different models adding to the complexity and challenges faced by multinational companies today.

Given the complexity of international VAT and the potential risk, pitfalls and associated costs, finance directors face a predicament. Unlike direct taxes, which tend to be retrospectively determined, VAT is effectively calculated in real-time. It’s linked to various aspects of the supply chain. If the related transaction has incorrect VAT calculations or erroneous codes, these errors can result in unintended financial consequences. These include fines, loss of the right to deduct input VAT etc.

For most finance departments their first and only involvement with VAT is when they are processing sales or purchase invoices. In the absence of a customer purchase order, there is often little, or no appreciation of what sales invoices are coming through until they need raising. However this may be too late. The transaction completing crystalises the VAT liability and the taxpayer cannot make any retrospective changes.

Incoterms and VAT

One component of VAT determination for goods is an understanding of if they are moving across a border and if yes, who is responsible for moving them – supplier or customer.

Within international trade the Incoterms issued by the International Chamber of Commerce are used to determine which party has responsibility for which aspect of the movement.

Within the EU the Incoterm used doesn’t determine the correct VAT treatment of a movement of goods. Although it can help to understand the intention of the parties. Most contracts for the supply of goods within the EU do, nevertheless, mention incoterms. In many cases contracts quote “Delivery Duty Paid” (DDP) even though it is often inappropriate. If a French company sells goods DDP to a German customer then the incoterm implies that the French supplier is responsible for all taxes due on the delivery. But if this is a B2B transaction, meeting the exemption conditions, then it’s the German customer who accounts for the acquisition tax.

While the UK was a member of the EU, incoterms weren’t really relevant for VAT. It also had little impact on the ability to move goods within the EU. It also had little impact on the need for EU VAT registrations since in many cases the customer would account for acquisition tax.

Unintended Consequences

But now, post-Brexit, UK companies may have “DDP” contracts with EU customers where there are potentially unintended consequences:

• DDP requires the UK seller to export the goods from the UK and then import them into the EU. This gives rise to import VAT and possibly duty which may not be catered for in the budget.
• DDP also requires the UK seller to account for local VAT unless the extended reverse charge applies – and for this, a local VAT registration may be required resulting in yet more cost and possibly a delay in delivery.

Renegotiate Incoterms

Now the only possible course of action is to renegotiate incoterms. This will take time and will only work if the goods haven’t already been delivered.

If the goods have been delivered but the required VAT registration is not in place there is the possibility of penalties and interest for late registration and late payment of VAT.

Automation can help here. A tax engine can process order information and determine the correct tax code. This is when placing the order and not when raising the invoice.

If this gives an unintended result, there may be time to renegotiate the incoterms or arrange the relevant VAT registration.

As vice president of product management for VAT EMEA, Ayhan leads product and solution strategies in his region with an emphasis on SAP. He manages a team comprised of a large group of tax experts that turn product vision into reality at the right time to meet the continuous changes of the global value added tax environment.

Ayhan was the chief technology officer at Foriba, which was acquired by Sovos in 2019. Here he led a team of 150+ people from product, project, and support organizations. At Foriba, he developed a management philosophy that the best results come when product strategy is led by the customers and designed by the experts. He continues to impress upon his teams the importance of listening to the customer and understanding their needs as the backbone of innovation.

A problem solver at heart, Ayhan credits his ability to solve complex problems with unusual methods obtained during his pursuit of his bachelor’s degree in nuclear physics from the Istanbul Technical University.

Outside of the work, Ayhan spends his time with sailing, cycling, and slowly but surely converting his vinyl record collection to audiophiles.

For more information, see Ayhan’s LinkedIn profile.

It’s good to see light at the end of the tunnel. Nonetheless, it’s too little, too late for many smaller – but also plenty of larger – companies. Thousands couldn’t weather the storm because they were particularly dependent on human contact. Others were affected disproportionally simply because COVID-19 hit them just as they traversed a difficult period in their life cycle. As we see the first successes of anti-COVID-19 vaccines, businesses and markets are gaining confidence that by the last quarter of 2021, countries will be back at a new cruising speed. With a few notable exceptions, many of the world’s strongest economies will take years to recover from the aftermath.

Internet to the rescue – but flaws remain

As with all crises, the past year has accentuated weaknesses and accelerated failures. Whilst it must be acknowledged that the COVID-19 crisis would have been far worse without the internet and the current state of technology adoption worldwide, remaining pockets of legacy processes where companies were lagging in their digital transformation have become highlighted as employees struggled to balance health concerns with the imperative to keep things running in deserted offices and data centers.

One area where inefficiencies have been exposed is on-premises software. Many companies have started adopting cloud-based software to support different categories of workflows and connections with trading partners; however, many larger companies have been reluctant to move core enterprise systems – such as ERPs, logistics or reservation systems – to the cloud. The reason behind this reluctance is often that legacy systems have been highly customized. Whilst many enterprise software vendors offer public-cloud versions that present many benefits over on-premises deployment in theory, the practical challenges of adapting organizations and processes to ‘canned’ workflows designed around standard best practices have often outweighed them.

Another set of challenges are more intricate. Manual processes still dominate in order and invoice management across companies of all sizes globally. Where workflow software allows accounting personnel to access the system remotely, approvals and postings could be managed from home offices, but the prevalence of paper in many vendor and customer relationships still required people to manage scanning, printing, and mailing or – yes – faxing key documents from offices with limited access.

These problems will be harder to overcome, as expensive industrial-strength machines for the processing of paper documents cannot easily be put in home offices. The answer to this challenge doesn’t lie in creative ways to convert people’s kitchens into scan or print centers, but in finally taking the big leap towards end-to-end data integration.

The good, the bad and the ugly of tax as an automation driver

Interestingly, if COVID-19 isn’t enough of a reason to take that automation leap, businesses can expect a helping hand from tax administrations. Many countries had already started large-scale programs to push continuous transaction controls (CTCs). Such as mandatory real-time clearance of digital invoices. The current global health crisis is pushing tax administrations to accelerate these programs. We have seen announcements of plans towards such compulsory e-invoicing or digital reporting of accounting data in countries like France, Jordan and Saudi Arabia. In addition to several countries including Poland and Slovakia who stated their intent to follow in the footsteps of countries in Latin America and also European frontrunners like Italy and Turkey. Even in Germany, which has long resisted the call of CTCs, a significant political party has proposed decisive action in this direction.

These initiatives are still often motivated by the need to close tax gaps. However the need for resilience in revenue collection is clearly another driver. Also, examples from countries like Brazil have shown that CTCs massively improve governments’ ability to track and monitor the economic effects of a crisis down to the smallest sectoral detail. This gives them granular data that can be used for surgical fiscal policy intervention to guide the most severely affected activities through a crisis.

With all circumstances conspiring to give businesses a reason to get across that last mile towards full automation – the interface between their and their trading partners’ sales and purchasing operations – you would think that companies are now putting plans in place to get ready for a fully digital, much more resilient set of processes and organizational structures.

Unfortunately, the way that CTC mandates get rolled out and the way that companies respond to them have historically rather slowed down investment in business process automation and the adoption of modern cloud-based enterprise software.

CTC mandates are unbelievably diverse, ranging from a full online second set of accounting books to be maintained through – among other things – additional classification of supplies in the government-hosted system in Greece, to a completely different setup including service providers and transaction payment reporting being designed in France. Representatives from China are talking about blockchain-based invoicing controls, whilst countries like Poland and Saudi Arabia prepare for centralized, government-run invoice exchange networks. Mandate deadlines tend to be too short, and tax administrations make countless structural adjustments – each typically also with short deadlines and only available in local language – during implementation periods and for years thereafter.

Tax administrations could however claim with some legitimacy that deadlines are always too short, almost regardless of how much transition time taxpayers are granted, because many businesses structurally prepare too late. The global trend towards CTCs, SAF-T and similar mandates has been apparent to companies for years, yet many are ill-prepared; particularly many multinational businesses continue to consider that VAT compliance is a matter to be resolved by local subsidiaries, which step by step creates a massive web of localized procedures which rather than corresponding to corporate best practices were designed by tax administration offices.

Creating a virtuous circle towards tax automation during Covid-19

Which brings us back to why companies aren’t adopting flashy new releases of enterprise software packages in public cloud mode. Or further automating their trading partner exchanges, more quickly. All parties in this equation want the same thing. That is seamless and secure sharing of relevant data among businesses, and between businesses and tax administrations. However kneejerk reactions to regulatory mandates by businesses, and lack of tax administrations’ familiarity with modern enterprise systems, are creating the opposite effect. Companies panic-fix local mandates without a sufficient understanding of the impact of their decisions. Neither on their future ability to innovate and standardize. The enterprise resources come first to put systems in place post-haste. They then manage the problems stemming from adopting a patchwork of local tax-driven financial and physical supply chain data integration approaches. This comes from IT budgets that then don’t get spent on proper automation.

Several things can break this vicious circle. Businesses should change their way of addressing these VAT digitization changes as revolutionary rather than evolutionary. By being well informed and well prepared, it is possible to adopt a strategic approach to take advantage of CTC mandates rather than suffer from them. Tax administrations must do their part by adopting existing good practices in designing, implementing, and operating digital platforms for mandatory business data interchange purposes. The ICC CTC Principles are an excellent way to give the world economy that much-needed immunity boost, allowing businesses and governments to improve resilience while freeing up resources locked up in inefficient manual business and tax compliance processes.

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Is IPT Simplicity in Spain Possible?

Insurance Premium Tax (IPT) in Spain is tricky. There are national and regional tax authorities. Let’s not forget numerous IPT variations. Compliance requires in-depth and far-reaching knowledge – mountains of which have been added to our ebook.

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Table of contents

1. What this IPT in Spain ebook covers
2. Understanding IPT in Spain
3. Need help with IPT compliance? Get in touch
4. More resources for Spain IPT compliance

Deep Spain IPT insight

Essential reading for insurers

The latest developments

What this ebook about IPT in Spain covers

Download now to navigate the nuanced IPT landscape in Spain, no matter where your company is based within the country or from afar.

As well as IPT on a national and regional level, it breaks down the fundamental components of the Consorcio de Compensación de Seguros (CCS) and the Fire Brigade Tax.

• Overview of IPT
• IPT rates and exemptions, challenges, settlement and penalty regime
• Overview of the CCS
• CCS rates and exemptions, challenges, settlement and penalty regime
• Overview of Fire Brigade Tax (FBT)

• FBT rates and exemptions, challenges and settlement
• Green Card
• Key takeaways
• How Sovos can help

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Understanding IPT in Spain

Spain is one of the most complicated European countries for IPT compliance. It has several tax authorities, and each has its own penalty regime.

After determining which authorities are relevant to your company, you need to understand the rates, exemptions, settlements and penalties.

Consider these three points when complying with IPT rules in Spain:

Spain has national and regional tax authorities
No region is the same

The CCS reporting requirements are significant
Accuracy is paramount to avoid penalties

Timing is key with the Fire Brigade Tax
Registration for new members only opens once a year

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Need help with IPT compliance? Get in touch

IPT is complex and failing to comply can have serious implications.

At Sovos, we focus on the details to provide you with peace of mind. We’re global tax compliance specialists. Our team of regulatory specialists monitor and interpret regulations around the world, so you don’t have to.

From understanding and meeting the demands of national IPT regulations to delivering dedicated fiscal representation and payment solutions, our business is in helping your business meet its specific regulatory requirements.

Sovos is a market leader for IPT compliance in Europe, filing up to 30,000 tax returns annually valued at €600m+ for our insurance clients. We do this in over 100 countries and 19,000+ jurisdictions around the world.

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