The French Minister of Public Accounts and Action, which has authority over all tax matters, has taken advantage of the process that is required to transpose the EU E-Commerce Directive to launch a number of initiatives to curb VAT fraud, including a renewed attempt to create a system of mandatory e-invoicing.
A program for the gradual implementation of electronic invoicing for business-to-government (public procurement) transactions is currently entering its final stages whereby even small companies will soon be required to send their invoices to public entities via the so-called Chorus platform.
Current President Macron had previously, as Finance Minister under his predecessor François Hollande, already proposed to introduce a similar obligation for B2B e-invoicing, but this proposal was rejected due to inconsistencies with the VAT Directive and a perceived increase in the administrative burden on companies.
However, times have changed and France – like other EU Member States – is seeing new opportunities to go down the B2B e-invoicing mandate path since Italy led the way on 1 January 2019. The Italian government obtained an EU derogation from certain provisions in the VAT Directive which allowed the country to go live with a countrywide e-invoicing mandate that is based on prior real-time controls by the tax administration. Such ‘clearance’ e-invoicing systems, which are generally inspired by the approach taken in the past 5-10 years by Latin American countries, have proven to be very effective tools in the fight against VAT fraud.
While it’s still too early to talk about a concrete (or theoretical) French proposal for B2B e-invoicing, it is clear that the government means business. Minister Gérald Darmanin has stated that the government will begin a consultation process that involves the private sector to discuss how to best get small and medium sized companies up-and-running as smoothly as possible.
To find out more about what we believe the future holds, download Trends: e-invoicing compliance and follow us on LinkedIn and Twitter to keep up-to-date with regulatory news and other updates.
To help reduce delays in the payment of invoices, the French authorities by Ordinance No. 2019-359 of 24 April 2019 have clarified their invoicing rules to include two new mandatory content requirements. These are in addition to those already in place.
The two new requirements stipulated in the France invoice mandate are:
1) To provide the billing address of the buyer and the seller if it is different from their office / home address and
2) To include the purchase order number if it has been previously established by the customer.
The addition of this extra information on the invoice should help businesses which have their head office in one location and the invoicing department located in another. It should ensure that invoices are sent directly to the billing address and speed up the payment process by adding a purchase order number where this has previously been created.
In addition, the Ordinance has also considered it necessary and aligned commercial legislation and tax legislation to provide a single date of issue of the invoice to ensure legal certainty for both trading parties. According to the Ordinance, the date of issue of the invoice is set to be the day the products or services are delivered.
The cost of non-compliance
Failure to include this mandatory information on the invoice, incurs an administrative penalty of up to €75,000 for an individual and up to €375,000 for a business.
To find out more about what we believe the future holds, download Trends: e-invoicing compliance and 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.
The Danish government has introduced new law creating a state-owned insurance scheme for compensation for losses arising from a terrorist attack using chemical, biological, nuclear and radioactive (CBNR) weapons. The scheme comes into effect on 1 July 2019. There had been concerns that CBNR terror coverage available in the market was limited and, as it is not a mandatory cover, many insurers were considering whether to continue to offer it at all.
In basic terms, under the new scheme, the financial risk of a CBNR attack in Denmark will initially be borne by the State, but those costs are subsequently recovered from policyholders. It is the way those amounts are recovered, however, which will be of interest to tax managers. Following a CBNR attack and the State paying claims, a 5% levy will be applied to policies covering fire risks in relation to buildings, land, moveable property, railway vehicles, motor vehicles and ships.
Insurers will be required to collect the additional amount from their policyholders along with the first premium of the next calendar year. This will then be remitted in to a fund on a quarterly basis until the cost of the claims are fully recovered by the State, at which point the contributions will cease and any excess amounts held by the fund will be refunded to policyholders proportionally.
This way of funding terrorism cover is a less common approach. Additional (re)insurance pools, such as Pool Re in the UK or ongoing charges including the Victim of Terrorism Contributions to the Fonds de Garantie in France, are more frequently used forms of funding.
This ‘after the event’ method of collection means that hopefully the levy will never need to be collected. However, insurers writing risks in Denmark should be aware of their potential obligations under the new law.
To read more about the insurance landscape, download Trends: Insurance Premium Tax and follow us on LinkedIn and Twitter
Beyond the implications outlined in our last blog, Decree-Law 28/2019 (the Decree-Law) impacts areas beyond invoicing, introducing modifications to both archiving and the reporting of tax data.
A novelty of the Decree-Law is the explicit introduction of an obligation to archive electronic invoices in electronic format which in turn further promotes the adoption of electronic formats. Portugal has chosen a closed system in which by law the invoice must remain in the same format in which it was issued. This means that even those companies who are not engaged in e-invoicing, but who receive an electronic invoice from a supplier, will have to acquire and maintain an electronic archive. The alternative would be to reject the invoice and request a printed version. For archiving, the law does not allow for the invoice format to change.
The law also establishes archiving requirements:
It is mandatory for taxpayers to report to the tax authority the location of the electronic archive. All taxpayers must comply with the transition rules of the Decree-Law within 30 days from when it comes into force – i.e. by 17 March 2019.
As well as the e-archiving rules, changes have been introduced to the reporting of invoice data to the tax authority through SAF-T (PT) files by modifying provisions set in Decreto -Lei n.º 198/2012 regarding the time of filing the SAFT-T (PT) file. Until now, taxpayers could file the SAF-T file to fulfill reporting obligations until the 25th of the following month of issuing the invoice.
A reduced time to report comes into force according to the following schedule:
Taxpayers can still choose to report in real-time through webservice integration instead of uploading the SAF-T (PT) file. The Decree-Law enhanced this option as taxpayers who choose to report in this way are not obliged to print B2C issued invoices unless it is explicitly requested by the buyer and provided they comply with the requirement of inserting the unique invoice code to the invoice and use certified invoicing software.
To read more about what we believe the future holds, download Trends: e-invoicing compliance and join our LinkedIn Group to keep up to date with regulatory news and other updates.
On 15 February 2019, Portugal published Decree-Law 28/2019 regarding the processing, archiving and dematerialisation of invoices and other tax related documents including:
The decree aims to consolidate rules and to promote the adoption of electronic means of dealing with tax documentation and archiving. It also aims to eliminate tax fraud by tightening controls through the identification of invoicing software, identifying where invoicing terminals are located, the mandatory obligation to include a unique document code (UUID) in the tax document and, finally, identifying the location of the transaction.
According to the Decree-Law, invoices (paper or electronic) must be processed using certified invoicing software, which must, amongst other things, complete the invoice’s content in line with the VAT law. Simplified invoices (issued for less than €100 Euro) can, however, be processed by “other electronic invoicing means” such as cash machines. The Decree-Law also regulates contingency situations where the invoice must be based on pre-printed documents.
Having to use invoicing software that has been certified by the tax authority is not new in Portugal. However, the changes in the new Decree-Law mean that more taxpayers must now comply with the obligation as the mandate threshold has reduced. Previously it only affected companies (with a permanent establishment in Portugal) with a revenue in the previous year of €100K. It now includes companies with a revenue of over €75K (applicable during 2019) and reduces to €50K from 2020.
The decree also mandates that from 1 January 2020, invoices must carry a unique invoice code (UUID) following the government’s requirements. The code will also be represented as a QR code on printed invoices. Both requirements are new and software providers will have to adapt their solutions in the future to meet these new legal requirements.
Another new requirement set by the Decree-Law is that taxpayers must communicate to the tax authority the invoice series used by each establishment before issuing any invoice. The tax authority will assign to each series a code that must be included in the new mandatory UUID. While not the same, a similar requirement applies in many other countries, more specifically, in countries that have introduced a clearance model. In fact, Latin American countries with a clearance system often require taxpayers to either request prior invoice ranges from the tax authority, or to have an invoice series authorised by the tax authority, or to have the numeration done directly by the tax authority in connection with the clearance process. A good example of the first scenario is in Chile or Colombia, where taxpayers must request prior authorisation of an invoice range by the Chilean tax authority. An example of the second process is Mexico, where the invoice is numbered by the state agent that intervenes in the clearance process. However, such a requirement is new in the EU context, demonstrating once more that Europe is drawing inspiration from Latin America’s success in closing their VAT gap.
When it comes to guaranteeing the integrity and authenticity of invoices, it is worth noting that the decree deviates from the Directive 2010/45/EU as the possibility to use business controls provides a reliable audit trail (hereinafter BCAT) as a method of guaranteeing integrity and authenticity is expressly limited to paper-based invoices only. Furthermore, such controls must be properly documented.
For electronic invoices (ie those that are issued and received electronically) integrity and authenticity are guaranteed when one of the following methods is used: qualified e-signature; qualified e-seal in accordance with e-IDAS Regulation; or electronic data interexchange (EDI) with secure and documented processes to ensure integrity and authenticity. Taxpayers have until 31 December 2020 to migrate to the new methods of guaranteeing integrity and authenticity for electronic invoices.
Portugal is implementing its own vision when it comes to guarantees of integrity and authenticity putting itself, once more, closer to Latin American clearance countries where such guarantees are only achieved by digitally signing e-invoices. The distinction between methods (BCAT for paper invoices vs. e-signatures and EDI for electronic invoices) is an explicit preference of e-signatures and EDI over BCAT methods as the most efficient way to guarantee e-invoice integrity and authenticity.
In addition to the new invoicing requirements, the Decree-Law imposes taxpayers with new obligations to notify the tax authority with additional information. This includes:
Taxpayers who have already carried out activities subject to VAT must present the above-mentioned information by 30 June 2019.
To keep up to date with regulatory, news and other updates join our LinkedIn Group
Christiaan Van Der Valk is vice president, strategy. Elected a World Economic Forum Global Leader for Tomorrow in 2000, Christiaan is an internationally recognised voice on e-business strategy, law, policy, best practice and commercial issues.
Formerly co-founder and president of Trustweaver (acquired by Sovos), Christiaan also holds long-standing leadership roles at the International Chamber of Commerce (ICC) and the European E-invoicing Service Providers Association (EESPA).
Over the past 20 years, he has presented at and authored key papers for international meetings at the Organisation for Economic Cooperation and Development (OECD), the Asia Europe Meeting, World Trade Organisation and several other UN agencies.
Christiaan earned his Master of Laws degree from Erasmus Universiteit Rotterdam.
More than six months ago the Greek authorities announced their intention to introduce mandatory e-invoicing and e-bookkeeping rules, and enough information is now available to assess what the proposed rules will mean for Greece.
Although formal legislation has yet to be published, it’s expected the new e-invoicing measures by the Independent Public Revenue Authority, the Greek authority responsible for all tax matters (AADE; in Greek, “ΑΑΔΕ”), will be mandated by January 2020.
The Director of AADE recently stated that e-invoicing is incomplete without e-reporting, so the proposed rules must encompass both areas of tax compliance. By January 2020 the goal is for reporting to occur in real-time at the same time as the invoice is issued. The new rules would make e-invoicing and e-reporting mandatory, with a real-time connection from the invoicing system (by transmission of all relevant invoice data) to the electronic system (TaxisNet) of the Greek tax authorities.
So far, no real action has been taken regarding the implementation of the new e-invoicing system, e.g. the e-invoicing process, e-invoice format requirements and the software systems to connect to the tax authority have not yet been defined. However, the Ministry of Finance recently published a Decision establishing certification requirements and describing the certification process and responsibilities for e-invoicing service providers, who would be able to perform services of issuance, delivery and archiving on behalf of the taxable person.
By comparison, more progress has been made for implementing real-time reporting. AADE has published the technical specifications for transmission of invoice data – however, the scope of the reporting framework covers other tax as well as invoice data – e.g. income tax – to the government portal (TaxisNet) and invoice data will need to be reported on a daily basis (instead of periodically as currently). These technical specifications apply to the connection from the so-called Greek “electronic fiscal devices” – which is the most commonly used compliant method for issuing (and ensuring integrity and authenticity of) B2C invoices in Greece – to TaxisNet, as well as the data transmission software operated by e-invoicing service providers.
For B2B invoices, whose integrity and authenticity can be guaranteed by any method of the EU Directive, no technical specifications have been published yet. Further clarification and legislative action by the tax administration is required. Details about service providers’ software systems and the government infrastructure are expected to be finalised by mid-2019.
Until the implementation of the new reporting framework whereby invoice data will be reported in real-time at the same time as the invoice is issued, AADE is working on the alternative that invoice data will be reported on a regular basis by the issuer only, and not the buyer, which should minimise the overall reporting workload and ensure uniqueness of data. The buyer will be able to amend the relevant reporting field on TaxisNet where there is insufficient invoice data from the supplier.
On 29 October 2018 the Government published a Bill to transpose the Directive 2014/55/EU on e-invoicing in public procurement; it however still needs to be approved. The Bill makes e-invoicing mandatory for both the supplier and the buyer/government in public procurement scenarios as of 1 April 2019.
AADE has clearly stated that mandatory e-invoicing would be incomplete without some type of combined transactional reporting; data should be created once and not several times as is currently the case. Therefore, we expect a type of “clearance” e-invoicing model in Greece, however at this stage it’s still too early to categorise the reform as being similar to Italy (“real” clearance e-invoicing) or more like Hungary (real-time reporting as soon as the invoice has been issued). Clearly, Greece is in line with the EU paradigm shift towards increased governmental control over transactional data and recognises the benefits of tighter tax compliance and in taking steps to close its tax gap.
Even if the new measures aren’t particularly welcomed by many individuals in Greece – much in the spirit of a well-held opposition against EU austerity measures which have led to riots and social unrest in the past – these new measures are well positioned to provide the Greek tax administration and government with an opportunity for structural change. The use of technology will enable more effective tax controls and enforcement as well as a more efficient tax environment for business, leading to a positive knock-on effect for future restructuring and rebuilding of the Greek economy.
Find out how Sovos can keep companies compliant with e-invoicing regulations in Greece and around the world.
Companies struggling to meet Italy’s electronic invoicing deadline of January 1 will get some relief from financial penalties if they can’t immediately issue invoices at the moment of supply, but it seems the Italian Tax Authority will not delay rolling out the system.
The government had stated that invoices that did not comply with the new mandate after January 1 would be subject to penalties ranging from 90 to 180 percent of the applicable tax. The tax authority will consider invoices not correctly formatted or not issued through the new SDI reporting system to be non-compliant.
But many businesses, especially smaller firms, have had trouble transitioning from their existing processes to the new e-invoicing framework that requires real-time e-invoice clearance through the state-operated Sistema di Interscambio, or SDI, platform.
In response to business concerns, the government is opening up to a grace period of sorts: Instead of postponing the e-invoicing roll-out as such, Italy will waive penalties for delayed clearance transmission. Furthermore, as of July 2019, Italy will loosen the main rule for when an invoice must be issued, which effectively will allow businesses more flexibility in the e-invoicing process.
The new rules on penalties allow for a short grace period. The tax authority will not apply penalties for e-invoices that are issued and cleared by the SDI within the VAT liquidation period to which the invoice belongs – in other words, by the 15th of the following month in which the invoice should be issued and consequently cleared (according to Decree n. 100 from 1998, updated in 2018). For e-invoices that the SDI issues and clears by the end of the following VAT liquidation period (usually the end of the following month), the tax authority will reduce the penalty by 80 percent.
For example, if a business can’t transmit invoices in compliance on January 1, it can delay the clearance transmission of an invoice that should have been issued to February 15 without any penalties for the delay. If the business still needs more time, it can delay the clearance transmission of invoices through the SDI until March 15 and pay an 80 percent reduction of the regular penalty.
Italy is also loosening its requirement for the timing of issuing an invoice. Since 1972, Italian VAT law has stated that suppliers must issue invoices to the government at the point of supply. However, beginning in July, suppliers will be able to issue invoices through the SDI platform within 10 days of supply. Invoices not cleared by SDI are not valid for fiscal purposes, so taking 10 days to issue an invoice could cause delays in receiving payment.
For companies doing business in Italy, the relief is welcome, but it is also a sign that Italian e-invoicing is moving forward on schedule. That means companies with Italian operations need to get their systems ready to comply with the new mandate or face penalties by mid-February.
What is also clear from the latest developments is that e-invoicing regulations in Italy can change at any time. The problem becomes exponentially more difficult to solve when businesses figure in similar changes happening all over the world. Adopting a system that automates e-invoicing and provides a single source of truth for data in both accounts payable and accounts receivable is essential.
Sovos has been keeping companies in compliance in Italy for more than a decade. Find out how Sovos saves clients from penalties, cancelled shipments and other potentially expensive e-invoicing pitfalls.
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.
Take Action
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.
The Common Reporting Standard (CRS) is fast becoming the global standard for tax information reporting outside the United States. As more countries adopt CRS, and as penalties for late, incorrect or missed CRS filings become more severe, financial institutions need to know what their compliance requirements are. The following are clarification and detail about what insurers need to know about CRS reporting obligations.
Under the CRS, the term “Financial Institution” means a Custodial Institution, a Depository Institution, an Investment Entity, or a Specified Insurance Company. (CRS, Section VIII: Defined Terms, A.3).
A “Specified Insurance Company” is “any Entity that is an insurance company (or the holding company of an insurance company) that issues, or is obligated to make payments with respect to, A Cash Value Insurance Contract or an Annuity Contract.” (Section VIII, A.8). Insurance companies that only provide general insurance or term life insurance will not be specified insurance companies, nor will reinsurance companies that only provide indemnity reinsurance contracts.
Typically, an insurance company meets the criteria of a Specified Insurance Company if:
Insurance companies that provide only general insurance or term life insurance are typically not classified as FIs; likewise, reinsurance companies which provide only indemnity reinsurance contracts and insurance brokers are typically not considered to be FIs.
Of the five types of financial accounts that must be reported under CRS, two relate to insurance companies: annuity contracts and cash value insurance contracts.
Reporting Requirements
Under the CRS, all reporting FIs have the obligation to report the following:
The CRS does note that in reporting account balances or values, that Cash Value Insurance Contracts and Annuity Contracts, FIs should report the Cash Value or surrender value of the contracts. (Section I, A.4).
In order to meet the requirement to report residence of the account owner, insurers who provide Cash Value Insurance Contracts may rely on the current residence address in its records until 1) there is a change of circumstances that causes the FI to know or have reason to know that the residence address is incorrect or unreliable, or 2) that the time of pay-out (whether full or partial) or maturity of the Cash Value Insurance Contract.
Insurance companies do not have to report, review, or identify a pre-existing individual account that is a Cash Value Insurance Contract or an Annuity Contract provided that the FI’s jurisdiction prevents FIs from selling contracts to residents of that jurisdiction.
The CRS establishes an alternative due diligence procedure for Cash Value Insurance Contracts and Annuity Contracts in Paragraph B of the Special Due Diligence Rules. The CRS advises that a reporting FI may presume that an individual beneficiary (other than the owner) of a Cash Value Insurance Contract or Annuity Contract receiving a death benefit is not a reportable person, and that FIs may treat such accounts as other than a reportable account unless the reporting FI has actual knowledge or reason to know that the beneficiary is a reportable person. If the beneficiary is a reportable person, the FI is required to follow the procedures established in paragraph B of Section III.
The Commentary to the CRS notes that an alternative procedure similar to the above may be necessary for certain employer-sponsored group insurance contracts or annuity contracts. In such cases, the Commentary suggests adding a provision to account for group insurance contracts. In cases where such group insurance plans exist, the Commentary advises a provision to state something similar to the following: “A Reporting Financial Institution may treat a Financial Account that is a member’s interest in a Group Cash Value Insurance Contract or Group Annuity Contract as a Financial Account that is not a Reportable Account until the date on which an amount is payable to the employee/certificate holder or beneficiary, if the Financial Account that is a member’s interest in a Group Cash Value Insurance Contract or Group Annuity Contract meets the following requirements:
(Commentary on Section VII, paragraph 13; pg. 153). The last provision is provided if the Financial Institution does not have a direct relationship with the employee/certificate holder at inception of the contract and thus may not be able to obtain documentation regarding their residence.
Insurers who fall under the definition of Financial Institution provided by the CRS are obligated to report on Cash Value Contracts and Annuity Contracts, so long as such contracts are allowed in the jurisdiction the FI is reporting from. These FIs have an obligation to comply with the due diligence requirements that the CRS imposes on them, and can make use of an alternate procedure to comply.
Find out how Sovos enables insurers to navigate CRS compliance.
Get in touch to learn more about the Sovos Compass regulatory update service.
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.