Sovos recently hosted an online webinar on VAT recovery where we covered reciprocity agreements between the UK and EU Member States when making 13th Directive VAT refund claims. One of the questions that kept coming up is what are reciprocity agreements and why do they matter?
Reciprocity
When making 13th Directive refund claims, each EU Member State has different rules or conditions to meet before agreeing to a VAT refund. One of the conditions that EU Member States may require is a reciprocity agreement. A reciprocity agreement is a deal to reciprocate VAT refunds between two countries.
Therefore, VAT is only refundable when a similar tax is refundable for local businesses in the applicant’s country. For example, suppose a Spanish business was allowed to obtain a VAT refund in Norway through a similar scheme to the 13 Directive. In that case, Spain would likely have reciprocity with Norway and will allow the Norwegian businesses to make a 13th Directive Refund Claim in Spain.
There are currently around 19 EU Member States that require reciprocity agreements for non-EU businesses to make VAT refund claims. Of those, Greece and Slovenia currently only have reciprocity agreements with two countries (Norway and Switzerland), whilst Italy has three (Norway, Switzerland and Israel). When making EU VAT refund claims, businesses should review reciprocity and not assume they will automatically be approved.
UK businesses
Before Brexit, UK businesses could make VAT refund claims through the EU VAT Refund Directive (also known as the 8th Directive) which was built to allow reciprocity freedom for all EU Member States. However, post-Brexit, this mechanism for VAT refund claims no longer applied, and the UK fell within the 13th Directive Refund Scheme as a non-EU business.
Whilst the UK and EU have a Free Trade and Cooperation Agreement in place, there was no specific mention of reciprocity in VAT refund claims as these should be agreed between those particular EU Member States and the UK. Therefore, it may be more difficult for UK businesses, that make refund claims around the EU, to recover VAT incurred in some countries.
Regarding current reciprocity agreements with the UK, the only official announcements we have seen to date have been from Germany, Spain and Hungary. However, we are aware of ongoing discussions between the UK and other EU Member States.
HMRC states they will only refuse a claim if the reciprocal country has a scheme for refunding taxes but refuses to allow UK traders a refund. Therefore, HMRC is willing to allow VAT recovery in the UK for EU businesses providing UK businesses receive the same treatment as the EU. It would therefore be in the interests of EU Member States to allow VAT recovery for UK businesses for businesses in their own country to benefit from the same treatment.
Why does it matter?
Most EU Member States require reciprocity when making VAT refund claims. Therefore, the law of reciprocity is an integral factor when looking to make a VAT refund claim in any jurisdiction. It’s important to understand these reciprocity laws to prevent wasting time and money on making a VAT refund claim from a country that doesn’t allow it.
Our previous articles covered audit trends we have noticed at Sovos and common triggers of a VAT audit. This article discusses the best practices on how to prepare for a VAT audit.
Each country and jurisdiction may have different laws and requirements related to the VAT audit process. Tax authorities can carry out audits in person or by correspondence, the latter often being the case for non-established businesses in the country in question.
A business may be audited at random or because there are reasons for the tax authority to believe that there is a problem with the company’s VAT return.
Generally speaking, authorities use audits and inspections to verify the accuracy of taxpayers’ declarations, identify possible errors or underpayments, and approve refunds.
As discussed in our previous article, to understand how to best prepare for a VAT audit, it’s essential to identify the reason why the audit was initiated.
What items are needed for a VAT audit?
Although specific checklists are available depending on the country of the audit, there are several actions that a business can carry out to prepare for an VAT audit. The most important of which is to collect documents and answers in advance. Frequently requested items during an audit include:
VAT ledgers containing details of the transactions reported
Related copies of incoming and outgoing invoices and pro-forma for intra-community movement of own goods
Proof of transport of the goods: Two independent items should be provided in particular for intra-community dispatches, proving the right to apply the 0% tax rate (such as signed CMR consignment notes, bill of lading, carrier invoices, insurance policies, warehouse receipts, proof of payment for the transport of the goods, etc.)
Proof of payment of the transactions reported, with particular attention to the payment of purchase invoices and the repayment of credit notes issued to clients and customers
Contracts with suppliers
Description of the business activities and goods flow
It is important that records of the above-listed documents, where applicable, are kept in line with local record keeping requirements. The need to prepare these documents in advance and the ability to produce them quickly becomes essential when a company is, for example, due to request the refund of VAT credits, to submit a de-registration or has, in general, any reason to expect for an audit to be initiated.
Authorities can open a cross check of activities with the company’s customers and suppliers, which will be initiated in parallel to the audit to verify that the information provided from both sides is consistent. Therefore, it is recommended to inform suppliers about any ongoing audit, communicate any questions or clarify outstanding queries. If, for example, a correction of invoices appears to be necessary, these should be finalised already in preparation for the VAT audit.
The tax authorities may impose very short and strict deadlines once an audit is initiated. Although it may be possible to request an extension, it is not necessarily guaranteed to be granted. In certain circumstances, authorities may impose penalties for late responses. Providing a clear and understandable set of documents to the tax office queries is essential to avoid any detrimental effects.
Why it makes sense to plan ahead
The advantages of preparing for a VAT audit can be summarised as follows:
Minimise the resources required to collect the necessary documents once an audit is initiated
Quicker completion of the audit, avoiding the necessity to request deadline extensions and delays in receiving VAT refund, if applicable
Ability to identify, rectify and voluntarily disclose any error that might emerge from preliminary reviews of the documents collected ahead of the audit initiation
Potential penalties reduction
Whether a business decides to handle the audit in-house or request the support of an external advisor, it is essential to consider the consequences of the audit, especially if high amounts of VAT to recover are at stake. In the event of an audit, the main objective should be to resolve it successfully and quickly, limiting as much as possible any detrimental impact to the business.
Indonesia made e-invoicing mandatory for all VAT-registered taxpayers on 1 July 2016, expanding upon its initial e-Faktur rollout in Bali and Java from 1 July 2015.
With its own official e-invoicing system and mandate, Indonesia has plenty for taxpayers to learn and comply with. This page is the ideal starting point for understanding Indonesia e-invoicing.
After experiencing challenges in its tax control system, Indonesia adopted an e‑invoicing system locally known as e‑Faktur Pajak. Leveraging data reported in real-time via continuous transaction controls (CTCs) allows the Indonesian tax authorities to reduce occurrences of fraud whilst helping to close the tax gap.
Introduced in 2014 and effective from 2016, Indonesia’s e‑invoicing system seeks to combat the tax gap. Indonesia’s solution was the implementation of an invoice clearance system, where invoices must be approved by the local tax authority prior to being sent to a customer.
E-invoicing is mandatory for all corporate VAT taxpayers. It’s compulsory for all invoices to be processed and issued electronically through the government’s official system, eFaktur.
Also known as tax invoices, e-invoices in Indonesia are typically issued for:
Delivery of taxable goods (Barang Kena Pajak)
Rendering of taxable services (Jasa Kena Pajak)
Advance payment of taxable goods or services
eFaktur e-invoices should be created by applications approved by Indonesia’s Director of Taxation (DGT). Options include client desktop, web-based and host-to-host applications. Electronic invoices need to be secured using an electronic signature, and taxpayers need electronic certificates to verify their identity—the latter need to be renewed every two years. Validated invoices receive a QR code from the DGT as proof of authenticity.
It’s worth noting that the VAT return submission has been integrated with eFaktur, and VAT returns are typically required to be submitted monthly via the platform.
Timeline of e-invoicing adoption in Indonesia
Indonesia’s e-invoicing journey has plenty of key moments:
1 July 2014: e-Faktur is introduced
1 July 2015: e-Faktur becomes mandatory for VAT-registered taxpayers in Bali and Java
1 July 2016: e-Faktur Pajak became effective for all VAT-registered taxpayers based in the country
1 October 2020: New e-Faktur Pajak version 3.0 released
31 July 2024: The development of a Core Tax System (PSIAP) is announced to automate and digitise tax administration services
Penalties: What happens if I don’t comply with e-invoicing in Indonesia?
Indonesia penalises taxpayers who fail to meet their compliance obligations. For example, if a tax invoice is not issued (or is issued late or invalid), the taxpayer will be fined 1% of the VAT base.
All VAT-registered businesses in Indonesia must send and receive e-invoices via the e-Faktur platform. They must submit invoices for validation before sending to the buyer.
Yes, the e-Faktur system is integrated with VAT reporting. The introduction of e-faktur v3.0 in October 2020 enabled the auto-population of VAT returns for taxpayers in the scope of the local e-invoicing mandate.
Setting up e-invoicing in Indonesia with Sovos
E-invoicing is a global trend, though your requirements differ by country. Indonesia is far into its e-invoicing journey, while some countries have yet to even announce any official plans.
Doing business internationally is tough, especially when you add compliance to the mix. Working with Sovos means choosing a single vendor to handle tax compliance, wherever you operate.
Let us take care of your compliance burden so you can continue to focus on growing your business.
Israel is set to implement a continuous transaction controls (CTC) model that will require businesses to submit invoice data in electronic format for the tax authority to validate.
The mandate, set to come into force in May 2024, will require invoice data to be validated by the country’s tax authority before being sent to the final recipient. Read on for an overview of Israel e-invoicing requirements – we encourage you to bookmark the page to stay updated as the mandate develops.
At a glance: Characteristics of invoicing data submission in Israel
CTC Type CTC Clearance
Format JSON
Allocation Number Assigned by the ITA
E-invoicing Not mandatory
Electronic Signature Not applicable (though needed in case of e-invoicing)
Archiving Not applicable
Electronic invoicing laws in Israel
From 5 May 2024, Israel will make clearance CTC clearance mandatory. Authorised dealers (taxpayers) will have to clear invoices above a threshold of NIS 25,000 (before VAT), obtaining an allocation number acquired by the SHAAM – a computer system provided by the Israeli Tax Authority (ITA).
The invoice value threshold will be gradually reduced annually until 2028, ending at NIS 5,000 pre-VAT. Nevertheless, suppliers may report invoice data to the tax authority for clearance and request an allocation number for any amount.
Besides CTC clearance, e-invoicing rules remain in place and do not change with the new CTC requirements. Electronic invoices are still optional.
Since 2019, public entities in Poland have been mandated to receive and process e-invoices. While currently optional for suppliers of public entities, the transmission of e-invoices will be required for B2G and B2B transactions when the mandate is implemented (this was planned for 1 July 2024 until it was postponed in January 2024).
CTC clearance model
Israel’s model will include a clearance system from 5 May 2024. Businesses that exceed a specific threshold will be required to obtain an allocation number for invoices regarding B2B transactions. They can do so by issuing the invoice to the tax authority before sending it to the final customer.
Without receiving this number and including it on invoices, businesses will not be able to deduct input VAT.
Israel B2B e-invoicing
Israeli CTC clearance covers B2B transactions between authorised dealers.
However, e-invoicing is not mandatory under the new CTC clearance system. In case invoices are issued in electronic format (structured or unstructured format, including PDF), they must be cleared by the ITA and assigned with an allocation number before exchanged with the trading party.
Without receiving this number and including it on invoices, businesses will not be able to deduct input VAT.
Benefits of using e-invoicing in Israel
Although CTC Clearance mandate does not require e-invoicing, there are numerous benefits for businesses that electronically issue and receive invoices, including:
Cost savings through the reduction of paper, postage and manual labour
Saving time by using automated and structured processes
Streamlining operations through interoperable, uniformed initiatives and systems
Fewer issues and risks through the validation and authentication of data
Timeline of e-invoicing clearance in Israel
While combating fraudulent invoices has been discussed in Israel for a long time, the implementation of the upcoming CTC model is a relatively recent development.
February 2023: The 2023-2024 state budget and economic plan are approved, outlining a clearance CTC model
June 2023: The ITA announces plan for CTC implementation
July 2023: The ITA publishes technical specifications for the upcoming CTC model
October 2023: Clearance model is postponed from 1 January 2024
1 January 2024: The original date that the clearance e-invoicing model would be implemented
1 January 2024: The ITA platform becomes operational
5 May 2024: CTC clearance comes into effect
January 2025: Invoice threshold lowers to NIS 20,000 pre-VAT
January 2026: Invoice threshold lowers to NIS 15,000 pre-VAT
January 2027: Invoice threshold lowers to NIS 10,000 pre-VAT
January 2028: Invoice threshold lowers to NIS 5,000 pre-VAT
What is the future of e-invoicing in Israel?
While electronic invoice data will be required as part of the CTC initiative, Israel does not yet have a specific electronic invoicing mandate requiring dealers to issue invoices electronically.
Currently, Israel’s e-invoicing rules – which are classified as post-audit – include e-signing, content remarks and prior notification to the tax authority.
Israel has the potential to go the way of countries like Romania and Spain, mandating the use of e-invoices across transactions with governments and businesses. There is no official word on Israel’s future e-invoicing plans beyond the current CTC mandate.
What happens if I don’t comply?
If an allocation number is not requested for the invoice by the supplier, the buyer cannot deduct its VAT based on that invoice.
Setting up e-invoicing in Israel with Sovos
Sovos’ continuous transaction controls (CTC) software was purpose-built to help customers stay on top of their obligations wherever they do business, even as the rules change.
Currently, e-invoicing is permitted in Israel, provided it is prominently stated on the invoice that it is a ‘computerized document’ and prior notification is made to the ITA. A digital signature compliant with the local law is required to ensure the integrity and authenticity of the electronic invoice.
Storage of e-invoices must be within Israel – unless derogation has been granted. Both issuance and storage of e-invoices can be outsourced to third parties like Sovos.
Taxpayers opting to use e-invoices must comply with the abovementioned rules, as well as the CTC clearance requirements rolling out in 2024.
As CTCs and e-invoicing continue to grow in global adoption, it is vital to partner with a provider that closely monitors the decisions of tax administrations and understands the regulations you face. Sovos can help to stay compliant wherever you do business.
No, e-invoicing is not mandatory in Israel. Israel’s continuous transaction controls (CTC) mandate involves the electronic submission of invoice data and is set to come into effect on 5 May 2024.
Electronic invoice data must include specific information when submitted to the tax authority, including invoice ID, VAT number, invoice date, invoice amount and accounting software number. They also need to be given an allocation number by the ITA for the buyer to use this invoice for a tax deduction, as per the CTC clearance mandate.
Within the CTC mandate, the use of emergency allocation numbers is instituted as a contingency measure to address potential failures in its computer systems. In anticipation of such events, taxpayers must acquire and store these emergency numbers.
Israel’s mandated CTC clearance platform requires electronic invoice data to be submitted to and approved by the Israeli Tax Authority in real time. The authority will assign an allocation number and verify or reject the invoice data. Once validated, the allocation number will be returned to the seller so it can be issued to the buyer (in electronic or paper format).
It’s no surprise that inflation is on the forefront of everyone’s mind, with prices continuing to sky-rocket month by month. Data from the United Kingdom shows that the Consumer Prices Index (CPI) inflation jumped to a 40-year high of 9% in the past 12 months. Governments around the world are looking for ways to reduce the burden for consumers to keep global economies afloat. One method – implementing VAT rate cuts to certain goods and services – looks to be coming out on top as multiple countries around the world announced emergency budget sessions or introduced proposals to temporarily cut VAT rates.
Temporary VAT rate cuts are generally quick and easy to implement, which is why they are favored by governments globally. These cuts essentially allow for a boost to the economy by providing consumers with an overall higher amount to spend, incentivizing consumers to spend now while rates are lower.
Country proposals for VAT rate cuts
As expected, many countries have already announced VAT rate cuts or measures to stimulate their economies:
United Kingdom: Reports indicate that the Labour Party is pushing for an emergency budget session to demand VAT rate cuts for the hospitality industry. Previously, due to Covid-19, the UK implemented a temporary reduced rate of 13.5% on hospitality services which ended last month. Leaders suggest that the temporary rate reversal has cost the industry and should be re-implemented.
Slovenia: The Slovenian Parliament is currently reviewing a proposal to reduce energy and digital newspapers and journals from the standard VAT rate to 5%. This comes as inflation in Slovenia hits 6.9%.
Germany: German consumer groups are calling for VAT rate cuts on food, which had been previously ruled out due to restrictions in the EU VAT Directive.
Bulgaria: The Bulgarian government has proposed temporarily reducing VAT rates on domestic heating and bread for one-year, effective 1 July 2022.
Poland: Earlier this year Poland enacted VAT rate cuts for energy and certain basic food products. However, these rate cuts are only in place until 31 July 2022. The Polish government has indicated that these measures may be extended to continue to combat inflation.
Bahrain: A group of ten MPs are advocating for a suspension of the 10% VAT rate in Bahrain to help ease inflation rises, which was presented to the Bahrani government earlier this week.
Ireland: The Irish government has agreed to an extension for the reduced 9% VAT rate for the hospitality sector, now ending on 1 March 2023.
Additional countries such as Estonia, Netherlands, Latvia, Greece, and Turkey are also taking measures to implement VAT rate cuts to fight the ever-rising costs for consumers.
These VAT rate cuts coincide with new measures passed recently by the European Commission allowing Member States to apply reduced rates to more items, including food. Though many Member States seem to be moving towards taking advantage of this new flexibility on VAT rate reductions, it’s expected that as costs continue to rise more Member States and countries around the world will introduce VAT rate cuts to ensure consumer spending doesn’t continue to trend downward.
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Since many audits seem to occur at random, it’s not always possible to identify the reason why a tax office would decide to initiate one.
There are specific “trigger” events among the most common reasons that could cause further queries from the tax office. Generally speaking, these are changes in the company’s status such as a new registration, a de-registration, or structural changes within the company.
VAT refund requests also fall into this category. In some countries (Italy and Spain, for example) a refund request is almost certainly a reason for an audit to be initiated since the local tax office cannot release the funds before checks are completed. In this case, the likelihood of an audit increases when a refund is particularly substantial and the business requesting it is newly VAT registered. However, it doesn’t mean that the tax authority will not initiate an audit if the amount requested in a refund is relatively small.
Business model
Certain types of businesses are naturally more subject to audits due to their structure and business model. Groups commonly selected for scrutiny include, for example, large companies, exporters, retailers and dealers in high-volume goods. Therefore, elements such as a high number of transactions, high amounts involved and complexity of the business structure could be another common reason for an investigation to be initiated by the local tax authorities.
Taxpayer metrics
Tax authorities often identify individual taxpayers based on past compliance and how their information compares with specific risk parameters. This would include comparing previous data and trading patterns with other businesses in the same sector. Therefore, unusual patterns of trading, discrepancies between input and output VAT reported, and many refund requests may appear unusual from the tax office perspective and give rise to questions.
Cross checks
Another common reason for the tax authorities to request further information from taxpayers is the so-called “cross check of activities”. In this case, either a business supplier or client is likely to be subjected to an audit. The tax office will contact their counterparts to verify that the information provided is consistent on both sides. For example, if a business is being audited following its refund request, the tax office will likely contact the suppliers to verify the audited company didn’t cancel the purchase invoices and that they have been paid.
This category also includes cross checking activities on Intra-Community transactions reported by a business. In this scenario, the cross check would be based on information exchanges between local tax authorities through the VAT information exchange system (VIES). The tax authorities can check Intra-Community transactions reported to and from specific VAT numbers in each EU Member State and then cross check this information with what has been reported by a business on their respective VAT return. If any discrepancy arises, the tax office will likely contact the business to ask why they have (or haven’t) reported the transactions declared by their counterparts.
Regardless of whether it’s possible to identify the actual reason the tax authority initiated an audit, a business can undertake several actions in preparation for a check of activities, which will be covered in the next article of this series.
Changes are coming to VAT on virtual events. To ensure taxation in the Member State of consumption, all services supplied to a customer electronically will be taxable where the customer is established, has his permanent address or usually resides.
Member States must adopt and publish the required laws, regulations and administrative provisions by 31 December 2024 and must apply these from 1 January 2025. This blog will consider some of the issues that may arise from the impending changes.
Current VAT position regarding events with physical attendance
Where there is physical attendance at an event then the place of supply is the place where the event takes place for all delegates.
Current VAT position regarding events with virtual attendance
For B2B delegates the current rules mean that virtual admission will be classified as a general rule service so VAT is due where the customer is established.
For B2C delegates the current rules depend on whether the virtual attendance can be considered an electronically delivered service or a general rule service. For electronically delivered services supplied, the place of supply is where the customer normally resides and for other services the place of supply is where the supplier is established.
Future tax position for events with virtual attendance
The changes apply to “services that can be supplied by electronic means” but this is not defined. It would appear, from the following to be wider than “electronically delivered”.
To achieve this the current law governing attendance by B2B delegates which results in VAT being due where the event is held will specifically exclude admission where the attendance is virtual.
This suggests that “supplied to a customer by electronic means” occurs when attendance is virtual. This has the effect of removing the distinction of “human intervention” in respect of electronically delivered services.
The law governing B2C sales will state that where activities are “streamed or otherwise made virtually available”, the place of supply is where the customer is established.
These changes suggest that “supplied to a customer by electronic means” occurs when the service is streamed or available virtually. The possibility of streaming (which can be live or recorded) does not appear in the amendment to the B2B rule.
An update to the law governing use and enjoyment reflects these additions.
Exemption from VAT
Many hosts currently use the available educational or fundraising exemptions, especially where the delegates are private individuals without the right of deduction, e.g., doctors. For events with physical attendance the host must consider the rules of the Member State where the event is held since that is where the VAT is due.
Under the new rules, a VAT exemption will be less relevant for B2B virtual events where the reverse charge applies as the attendee assesses the charge to tax themselves. However, it will remain relevant where delegates are unable to apply the reverse charge and unable to deduct the VAT charged – e.g. doctors. In such circumstances, VAT is due where the doctor normally resides and that is where the exemption must be considered.
These new rules may require the host to assess the availability of the exemption in several Member States and may also require multiple ruling request submissions. This is likely to increase operating costs substantially, and the (unintended) consequence could be that exemptions are not considered to the detriment of delegates.
Hybrid events
Many future events are likely to include virtual attendees since it increases overall attendance at an event, requiring the host to manage two invoicing regimes.
There could be issues where one taxpayer has both physical and virtual attendees. In this case, the host will need to issue two invoices – one with local VAT for the physical attendance (and where the exemption may apply) and one where VAT is due in the customer’s Member State and the general reverse charge may apply. The attendance of B2C delegates will further increase this complexity for the host.
What happens if a delegate is invoiced for physical attendance, but changes to virtual attendance at the last minute?
When the host provides the login details for virtual attendance, this may change the place of supply. If the place of supply changes, the host must cancel the original invoice and issue a new invoice with the amended VAT treatment.
Non-EU hosts with B2C events
Where a host currently holds an event with virtual admission for non-taxable EU delegates (e.g. doctors) then the place of supply is where the supplier is established. For a host established outside the EU, no EU VAT is due (ignoring the possibility of use and enjoyment), and it is also likely that no local VAT is due in the host’s own country.
Implementation of the new rules will mean that the host must charge VAT in the Member State where the doctor normally resides. This will not only result in unrecoverable VAT for the doctor but will also increase the compliance costs of the host. Virtually attending such an event in 2025 may become significantly more expensive than in previous years.
Transposition
The article governing the transposition of these changes requires Member States to “adopt and publish” the necessary laws, regulations etc., by 31 December 2024. The changes will then apply from 1 January 2025.
Member States must not break rank and apply these rules before this date. A situation where some Member States adopt and apply the rules early could lead to double taxation, particularly in B2C transactions.
Once the rules are in force on 1 January 2025, several issues could arise. What happens for an event in January 2025 where delegates must pay for admission ahead of time in 2024? Where is VAT accounted for, and under which rules?
For B2B, there should be no issue since the service remains a general rule, but there is a real issue for non-taxable delegates, e.g. doctors.
For example, a US host holds an event where a German doctor will attend virtually. The event is in January 2025, but the delegate must pay the admission fee by 30 November 2024 to secure a place. Under current rules, applicable in 2024, the place of supply is where the supplier is established, so no VAT is due on the invoice. But when the event happens in January 2025, the new rules say that German VAT is due.
The time of supply rules are not affected by these changes but could a tax authority seek to change these to increase its tax revenue? For example, Greek VAT law says that the tax point is when the event takes place – not when the invoice is issued/payment received. So, in the above example, Greek VAT would be due for a Greek B2C delegate.
Reduced rates for VAT on virtual events
When considering the taxation of virtual events, the new rules state it should be possible for Member States to provide the same treatment of live-streamed activities, including events, as those which are eligible for reduced rates when attended in person.
To enable this, amendments to the annex detailing which services can benefit from a reduced rate will include admission to:
Shows
Theatres
Circuses
Fairs
Amusement parks
Concerts
Museums
Zoos
Cinemas
Exhibitions
Cultural events or facilities
Live streaming of any of these events/visits
This change means that events that are live streamed can benefit from a reduced VAT rate. Though the changes to the place of supply rules refer to “virtual attendance” for B2B and “streamed or made virtually available” for B2C.
Are we to assume that “virtual attendance” = “live streamed”? But “streaming” can be live or recorded. Do these changes also cause an issue for VAT rate determination?
If a delegate watches an event live, then a reduced rate is possible. If the same event is watched via downloading a recording later, then the reduced rate is not possible. If one fee gives a delegate the right to attend the event virtually and download the event for future reference, then the concept of a mixed supply may be relevant.
Summary of future VAT on virtual events rules
For events attended virtually, the place of supply for both B2B and B2C will be where the customer is established – although this can be amended by application of the use and enjoyment rules.
For B2B attendees, the host will not charge local VAT as the reverse charge will apply unless the host and attendee are established in the same Member State.
For B2C attendees the host will charge local VAT according to the location of the attendee. The Union and non-Union One-Stop Shop (OSS) will be available to assist reporting where the attendee is in the EU.
A recent report released by the European Commission has stressed the need for Member States to increase the number of audits they undertake, particularly in e-commerce businesses. The European Commission specifically highlighted the need for Malta, Austria and France to make additional efforts to improve their value-added tax audit practices. They highlighted the seriousness of the issue and that the consequences of inaccurate VAT reporting can be severe. VAT audits, therefore, promote accurate reporting and mitigate fraud, and as such, they are being encouraged by the Commission.
A strategic approach to VAT Audits
The European Commission specifically stated that tax authorities should have a strategic approach which must observe multiple elements, including:
The VAT audit activity must be based on an integrated annual plan that is reviewed by senior management;
Specific procedures and, preferably, an audit manual should exist and be used;
Specific instructions adapted to the specificities of different industries/sectors (e.g. tourism, construction, telecommunications) must be in place;
The VAT audit process should be documented and monitored for quality;
The audit activity should make use of specific software adapted for VAT audit purposes;
The audit process should use technology that allows cross-checking of the amounts reported in tax declarations against information obtained from third parties on a large scale;
The audit must sometimes be carried out in co-operation with other administrative agencies and governmental bodies.
The report notes some of the positive actions taken by Member States. Generally, they pay close attention to the audit process, with Finland and Sweden highlighted as particularly good. Furthermore, the report notes that some Member States have established special “VAT task forces” to deal with audits.
Following this report, the European Commission also announced that Norway should be authorised to participate in joint audits with their counterparts in the EU as a further measure to crack down on fraud.
Approach and scope of audits to be extended
E-commerce is a good example of an area that continues to grow, with the VAT stake ever increasing. With tax authorities globally struggling to keep pace with new technology and consumer offerings, local tax authorities are implementing further measures to ensure that fraud is combatted at an EU-wide level. Whether further changes occur through a difference in how VAT is reported or new forms of reporting such as continuous transaction controls (CTCs) that are in place in some Member States already, VAT audits are at the heart of this strategic plan. In this report, the European Commission has clarified that the approach and scope of audits should be extended.
With increased Member States co-operation and new measures adopted by the European Commission, such as the implementing regulation that provides details on how payment providers should start providing harmonised data to tax authorities from 2024, businesses should ensure that they have adequate controls in place to be able to handle any audit request. Future blogs in this series will focus on the audit trends we’ve noticed at Sovos and how businesses should prepare for an audit.
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For more information about how Sovos’ VAT Managed Services can help ease your business’s VAT compliance burden, contact our team today.
Eastern European countries are taking new steps concerning the implementation of continuous transaction controls (CTC) systems to reduce the VAT gap and combat tax fraud. This blog provides you with information on the latest developments in several Eastern European countries that may further shape the establishment of CTC systems in other European countries and beyond.
Poland
Previously announced on 1 January 2022, taxpayers have been able to issue structured invoices (e-invoices) using Poland’s National e-Invoicing System (KSeF) voluntarily, meaning electronic and paper forms are still acceptable in parallel. On 30 March 2022, the European Commission announced the derogatory decision from Article 218 and Article 232 of Directive 2006/112/EC. The decision will apply from 1 April 2023 until 31 March 2026, after receiving the last approval from the EU Council. Moreover, on 7 April 2022, the Ministry of Finance published the test version of the KSeF taxpayer application that enabled the management of authorisations issuing and receiving invoices from KSeF. The mandatory phase of the mandate is expected to begin the second quarter of 2023, 1 April 2023.
The Romanian CTC system is one of the fastest developing in Eastern Europe, with the E-Factura system being available for B2G transactions since November 2021. Based on the Government Emergency Ordinance no. 41, published in the official gazette on 11 April 2022, the use of the system will become mandatory for transporting high fiscal risk goods domestically as of July 2022.
Moreover, Draft Law on the approval of the Government Emergency Ordinance no. 120/2021 on the administration, operation, and implementation of the national e-invoicing system (Draft Law) on 20 April 2022 was published by The Romanian Chamber of Deputies. According to the Draft Law, the National Agency for Fiscal Administration (ANAF) will issue an order in 30 days following the derogation decision from EU VAT Directive and establish the scope and the timeline of the B2B e-invoicing mandate. As derived from the proposed amendments, B2G e-invoicing will become mandatory as of 1 July 2022, and mandatory e-invoicing for all B2B transactions is in the pipeline.
Serbia has introduced a CTC platform called Sistem E-Faktura (SEF) and an additional system to help taxpayers with the processing and storage of invoices called the Sistem za Upravljanje Fakturama (SUF).
To start using the CTC system Sistem E-Faktura (SEF) provided by the Serbian Ministry of Finance, a taxpayer must register through the dedicated portal: eID.gov.rs. SEF is a clearance portal for sending, receiving, capturing, processing and storing structured electronic invoices. The recipient must accept or reject an invoice within fifteen days from the day of receipt of the electronic invoice.
The CTC system became mandatory on 1 May 2022 for the B2G sector, where all suppliers in the public sector must send invoices electronically. The Serbian government must be able to receive and store them from 1 July 2022. Additionally, all taxpayers will be obliged to receive and store e-invoices, and from 1 January 2023, all taxpayers must issue B2B e-invoices.
The CTC e-invoicing covers B2G, B2B and B2C transactions and will be conducted via the electronic invoicing information system (IS EFA).
The official legislation regulating the e-invoicing system has not been published yet although it is expected to be published soon. However, the Ministry of Finance has recently posted new dates concerning the implementation of the electronic solution:
June 2022– public testing will start to check the prototype platform IS EFA and OpenAPI.
January 2023 – the first phase of electronic invoicing which will include B2G, G2G, and G2B transactions.
The second phase will follow for B2B and B2C transactions.
Slovenia
Slovenia has not progressed in introducing its CTC system. Due to the national elections in April 2022, the CTC reform was not expected to gain much traction until at least the summer of 2022. Nevertheless, there are still ongoing discussions around the CTC reform, which intensified soon after the Slovenian parliamentary elections.
The fast pace of the developments happening within Eastern European countries brings challenges. The lack of clarity and last-minute changes makes it even harder for taxpayers to stay compliant in these jurisdictions.
Take Action
Staying compliant with CTC changes throughout Eastern Europe is easier with help from Sovos’ team of VAT experts. Get in touch or download the 13th Annual Trends report to keep up with the changing regulatory landscape.
Events and conferences typically take a long time to organise and in the early part of 2020 several events that were scheduled to take place were impossible because of the various Covid-19 restrictions. Looking at a loss of revenue, and not knowing how long restrictions would last, many hosts went online and hosted virtual events. This changed both the nature and the place of the supply.
Current VAT position regarding events with physical attendance
Where there is physical attendance at an event then the place of supply is the place where the event takes place for all delegates.
Current VAT position regarding events with virtual attendance
For B2B delegates the current rules mean that virtual admission will be classified as a general rule service so VAT is due where the customer is established.
For B2C delegates the current rules depend on whether the virtual attendance can be considered an electronically delivered service or a general rule service. For electronically delivered services supplied the place of supply is where the customer normally resides and for other services the place of supply is where the supplier is established.
An electronically delivered service is one which can be delivered without any human intervention such as downloading and watching a pre-recorded presentation. Where a service requires human intervention, this is not considered to be electronically delivered.
Online conferences and events typically have a host or compere and will normally also allow delegates to ask questions in real-time via live chat or similar. The human dimension excludes the possibility of this being classified as an electronically delivered service which means that for B2B the place of supply is where the customer is established and for B2C the place of supply is where the host is established.
Future tax position regarding events with virtual attendance
The changes are being introduced to ensure taxation in the Member State of consumption. To achieve this, it is necessary for all services that can be supplied to a customer by electronic means to be taxable at the place where the customer is established, has his permanent address or usually resides. This means that it is necessary to modify the rules governing the place of supply of services relating to such activities.
The changes apply to “services that can be supplied by electronic means” but this is not defined. It would appear, from the following to be wider than “electronically delivered”.
To achieve this the current law governing attendance by B2B delegates which results in VAT being due where the event is held will specifically exclude admission where the attendance is virtual.
This suggests that “supplied to a customer by electronic means” occurs when attendance is virtual and has the effect of removing the distinction of “human intervention” in respect of electronically delivered services.
The law governing B2C sales will state that where activities are “streamed or otherwise made virtually available”, the place of supply is where the customer is established.
These changes suggest that “supplied to a customer by electronic means” occurs when the service is streamed or made virtually available. The possibility of streaming (which can be live or recorded) does not appear in the amendment to the B2B rule.
The law governing Use and Enjoyment has also been updated to reflect these additions.
Summary of virtual attendance of events – implications for VAT compliance
For events that are attended virtually the place of supply for both B2B and B2C will be where the customer is established, although this can be amended by application of the Use and Enjoyment rules.
For B2B attendees, the host will not charge local VAT as the reverse charge will apply unless the host and attendee are established in the same Member State.
For B2C attendees the host will charge local VAT according to the location of the attendee. The Union and non-Union OSS will be available to assist reporting where the attendee is in the EU.
Transposition
Member States are required to adopt and publish the required laws, regulations and administrative provisions by 31 December 2024 and must apply these from 1 January 2025.
In our next blog we will consider some practical issues that may arise from these changes and how they impact VAT compliance.
Over the past decade, the Middle East region has undergone impactful financial and fiscal changes. VAT was introduced as one of the solutions to prevent the impact of decreasing oil prices on the economy after the region’s economic performance started to slow down.
After realising the benefits of VAT to the economy, the next step for most governments is to increase the effectiveness of VAT controls. Currently, most Middle Eastern countries have VAT regimes in place. Like many countries, Middle Eastern countries are paving the way to introduce continuous transaction controls (CTC) regimes to achieve an efficient VAT control mechanism.
E-invoicing in the Middle East
Saudi Arabia is leading the way, introducing its e-invoicing system in 2021. This e-invoicing framework, in its current form, doesn’t require taxpayers to submit VAT relevant data to the tax authority in real-time. However, that is about to change, as the Saudi tax authority will enforce CTC e-invoicing requirements from 1 January 2023. This means that taxpayers will be required to transmit their invoices to the tax authority platform in real-time. More details on the upcoming CTC regime are expected to be published by the ZATCA.
The introduction of the CTC concept in Saudi Arabia is expected to create a domino effect in the region; some signs already indicate this. Recently, the Omani tax authority issued a request for information that revealed their plans to introduce an e-invoicing system. The tax authority’s invitation to interested parties stated that the timelines for implementing the system have not been set yet and could involve a gradual rollout. The objective is to roll out the e-invoicing system in a phased manner. The e-invoicing system is expected to go live in 2023 on a voluntary basis and later on a compulsory basis.
The Bahrainian National Bureau for Revenue (NBR) has made similar efforts. The NBR requested taxpayers to take part in a survey asking the number of invoices generated annually and whether taxpayers currently generate invoices electronically. This development signals upcoming e-invoicing plans – or at least a first step in that direction.
In Jordan, the Ministry of Digital Economy and Entrepreneurship (MODEE) published a “Prequalification Document for Selection of System Provider for E-Invoicing & Integrated Tax Administration Solution” that was, in fact, a request for information. The tax authority in Jordan previously communicated its goal to introduce e-invoicing. As the recent developments suggest, Jordan is moving closer to having an up and running platform for e-invoicing which will likely be followed by legal changes in the current legislation concerning invoicing rules.
The global future of CTCs
The overall global trend is clearly toward various forms of CTCs. In recent years, VAT controls and their importance and the advantages presented by technology have changed the tax authorities’ approach to the digitization of VAT control mechanisms. As governments in the Middle East countries are also noticing the benefits that the adoption of CTCs could unlock, it’s reasonable to expect a challenging VAT landscape in the region.
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To find out more about what we believe the future holds, download Trends 13th Edition. Follow us on LinkedIn and Twitter to keep up-to-date with regulatory news and updates.
Lithuania’s VAT Requirements
Lithuania’s SAF-T Mandates Framework
Seeking to modernise and digitize its tax systems, the Lithuanian Customs Office of the State Tax Inspectorate announced sweeping changes to its tax system in 2016 with the introduction of the Standard Audit File for Tax (SAF‑T) and the launch of its online portal, eSaskaita.
Have questions? Get in touch with a Sovos Lithuania SAF-T mandates expert.
SAF-T mandates
Implemented with a phased approach, Lithuania’s SAF‑T mandate became mandatory for all taxpayers in 2020. Whilst there is no periodic SAF‑T reporting, businesses must maintain records for the tax authorities in the event they are requested.
Quick facts on SAF-T mandates
E-invoices must be accepted provided its integrity and authenticity can be guaranteed from the point of issuance until the end of the storage period.
If an invoice is in electronic form, data ensuring its integrity and authenticity must be stored by electronic means.
Suppliers may submit documentation by:
Using any certified PEPPOL Access Point with an AS4 Profile
Manually keying in the invoice information via an online portal
Uploading files in XML format (this requires the economic operator’s accounting system to be suitable for storing e-invoices in this format).
Service providers to Lithuanian taxable persons not established in an EU Member State must comply with certain additional requirements regarding the outsourcing of e-invoice issuance.
The i.MAS, Lithuania’s “Intelligent Tax Administration System,” comprises three main parts:
i.SAF reporting of sales and purchase invoices on a monthly basis
i.VAZ reporting of transport/consignment documents
i.SAF-T accounting transaction report, which is only required when requested by the tax authority.
Full SAF-T files are only submitted upon request of the Lithuanian tax authority.
SAF-T mandates rollout dates
1 Oct 2016 – Requirement to submit data on issued and received VAT invoices began
2016 -2019 – Phased rollout of SAF‑T requirements to Lithuanian businesses dependant on revenue
Jan 2020 – All businesses required to comply with SAF‑T mandate
2021 – Management and archiving of documents, including invoices, became a licensed activity and must meet certain requirements for integrity, authenticity, security and management to be certified by the Lithuanian Chief Archivist
Infographic
Lithuania’s SAF-T Requirements
Understand more about Lithuania SAF-T including when to comply, submission deadlines, filing requirements and how Sovos can help.
Insurance Premium Tax (IPT) can be complex with fragmented rules and requirements levied by the many different tax authorities in the jurisdictions where this tax applies. This only adds to the challenges faced by finance teams when calculating and settling IPT accurately and on time.
Failure to do so can result in penalties, fines and unwelcome audits – all of which will have an adverse effect on profitability.
Unlike other IPT compliance service providers, at Sovos we provide a complete end-to-end service for our customers providing complete peace of mind and allowing them to focus on what they do best while leaving the IPT compliance to us.
We not only produce and file IPT and parafiscal reports for our customers, but we also make the necessary payments and settle liabilities to the relevant tax authorities using cleared funds held in segregated client bank accounts.
We recognise that IPT is niche and not always a core function for finance teams which is why we offer a client money service for our IPT customers. The funds are held in a segregated bank account for our customers with reconciled statements being provided on a monthly basis.
A STREAMLINED PROCESS TO SETTLE IPT LIABILITIES
Based on data uploaded we let our customers know in advance the exact amount needed to settle each of their local IPT liabilities as they become due so there’s plenty of time to ensure the funds are available ahead of tax authority deadlines.
Once the funds have been received, we can then ensure the correct payments are made directly to the tax authorities in line with local legislation.
All receipts and payments with the segregated client bank accounts are reconciled with the submitted returns and monthly reports are provided.
COMPLIANCE PEACE OF MIND FOR IPT
No need to tackle IPT alone, lean on our expertise
Advance notice of IPT liabilities due
Flexible currency options in line with the reporting currency of each territory
Payments made in line with local legislation – The right amount – To the right account – In the right currency – And, always on time
E-businesses have recently been dealing with the change of rules within the EU with the introduction of the E-Commerce VAT Package but it’s also important to ensure compliance requirements are being met globally. In this blog we look at some of the low value goods regimes that have been introduced over the last few years together with those on the horizon.
Switzerland
Switzerland was one of the first countries outside the EU to introduce a low value goods regime when it revised the Swiss VAT law with effect from 1 January 2018. Previously, import of goods below CHF 62.50 were exempt from Swiss customs duty and import VAT. However, from 1 January 2018 any overseas sellers importing low value goods below CHF62.50 (standard-rated goods) or CHF 200 (reduced rated goods) that breach the CHF 100,000 threshold are required to register for and charge Swiss VAT on the sales of those goods.
Norway
On 1 April 2020, Norway introduced the VAT on E-Commerce (VOEC) scheme for foreign sellers and online marketplaces selling low value goods. These low value goods include those with a value below NOK 3,000 exclusive of shipping and insurance costs. The threshold applies per item and not per invoice, although doesn’t include sales of foodstuffs, alcohol and tobacco as these goods continue to be subject to border collection of VAT, excise duties and customs duties. Any foreign seller that exceeds the threshold of NOK 50,000 has an obligation to register for Norwegian VAT and apply this at the point of sale if they’re registered under the VOEC scheme.
Australia and New Zealand
Australia and New Zealand introduced very similar schemes to collect GST on low value goods being sold by overseas sellers. Australia introduced its scheme on 1 July 2018 for all goods with a customs value of less than AUD 1,000 and a turnover threshold of AUD 75,000 which once breached means the overseas seller must register for Australian GST and charge this at the point of sale.
New Zealand introduced a low value goods scheme on 1 October 2019 and applied this to low value goods valued at less than NZD 1,000. The turnover threshold in New Zealand is NZD 60,000 which once breached requires the overseas seller to register and charge New Zealand GST.
United Kingdom
Following Brexit, the UK abolished the low value goods consignment relief of GBP 15 and introduced a new regime on 1 January 2021 covering imports of goods from outside the UK in consignments not exceeding GBP 135 in value (which aligns with the threshold for customs duty liability). Under these new rules, the point at which VAT is collected moves from the point of importation to the point of sale. This has meant that UK supply VAT, rather than import VAT, will be due on these consignments. Making these supplies requires registration for VAT in the UK from the first sale.
Singapore
Singapore is the latest country to announce it will introduce new rules for low value goods. Effective 1 January 2023, private consumers in Singapore will be required to pay 7% GST on goods valued at SGD 400 or below that are imported into Singapore via air or post (the GST rate will rise to 9% sometime between 2022 to 2025).
The Inland Revenue of Singapore released some guidance on the new rules which defined low value goods as follows:
Not dutiable goods, or are dutiable goods but payment of customs duty or excise duty on the goods is waived under section 11 of the Customs Act
Not exempt from GST
Located outside Singapore and are to be delivered to Singapore via air or post
Have a value not exceeding the import relief threshold of SGD 400.
An overseas vendor (i.e., supplier, electronic marketplace operator or re-deliverer) will be liable for GST registration where their global turnover and value of B2C supplies of low value goods made to non-GST-registered customers in Singapore exceeds SGD 1 million at the end of any calendar year. It may also be possible to register voluntarily if required.
Take Action
Want to ensure compliance with the latest e-commerce VAT requirements across the globe? Get in touch with Sovos’ team of experts today or download Trends Edition 13 to learn about global VAT trends.
ebook
SAF-T: An Introduction to the International Standard
Understanding the flexible SAF-T international standards adopted by Austria, France, Lithuania, Luxembourg, Norway, Portugal and Romania
SAF-T (Standard Audit File for Tax) is an international standard for the electronic reporting of accounting data from organisations to a national tax authority or external auditors used by tax administrations to gather granular data from businesses either on demand or periodically.
The SAF-T standard has been adopted in mostly European countries, alleviating the need for tax authorities to physically visit companies to extract and review wide-ranging corporate data.
This e-book includes:
What is SAF-T? – an exploration of the standard and its origins
A deeper dive of the SAF-T format – the current datasets and data requirements
The challenges of SAF-T for businesses – the flexibility and wider use of the standard
The future of SAF-T – what’s next?
How Sovos can help
Get the SAF-T International Standards e-book
Countries that have introduced legislation to enforce SAF-T requirements include Austria, France, Lithuania, Luxembourg, Norway, Poland, Portugal and Romania. SAF-T requirements are continuing to be adopted in a number of EU Member States and countries in other regions are actively considering introducing it.
The latest SAF-T standard includes accounting, accounts receivable, accounts payable, fixed assets and inventory datasets. In most cases authorities request a text file on an XML structure.
The SAF-T guideline is flexible, enabling governments to freely adapt SAF-T to suit their tax filing and audit systems, to perform audits, or as a basis for prefiling periodic tax declarations such as VAT returns or inventory statements.
This e-book discusses the introduction of SAF-T back in 2005 and how the standard has evolved since then, as well as the challenges of SAF-T for both businesses and governments.
How Sovos can help with SAF-T compliance
Sovos helps customers manage their SAF-T requirements across multiple jurisdictions through software solutions that automate the processes to seamlessly extract required data, map data accurately to SAF-T structures in the latest legal formats and perform deep analysis on the SAF-T output generated.
Sovos provides certainty with a future-proof strategy for tackling compliance obligations across all markets as VAT regulations evolve toward continuous e-reporting and other continuous transaction controls requiring increasingly granular data. Sovos’ solution for SAF-T combines extraction, analysis and generation providing our customers with the certainty they need.
Experience end-to-end handling with compliance peace of mind with Sovos.
New regulations for Thailand's e-tax invoicing solutions and receipts expected soon
Thailand’s current e-invoicing legal framework has been in effect since 2012 and follows a post-audit approach.
The Thai Revenue Department and Electronic Transactions Development Agency (ETDA) are working together to improve and further develop the e-tax invoicing system. As a result, new regulations on e-tax invoicing and receipts are expected in the future.
Get in touch with a Sovos Thailand electronic invoicing expert.
Thailand's E-tax invoicing solutions
From 2017, the Thai Revenue Department issued regulations on electronic tax invoices and receipts. Subject to approval, taxpayers can prepare, deliver and keep their e-tax invoices and receipts in electronic format. Read more about e-tax in Thailand here.
Thailand electronic invoicing: facts
E-invoices must be digitally signed using a certificate issued by a certification authority and approved by the Thai Revenue Department.
E-invoices must be submitted in XML format to the Revenue Department monthly.
Outsourcing of e-invoice issuance is allowed provided the third-party service provider is certified by the Thai Revenue Department.
E-tax invoicing rollout dates
2012 – E-invoicing permitted
2017 – New regulations issued on electronic e-tax and receipts.
2020 – EDTA began a certification process for service providers to assess whether applicants’ solutions are secure and compliant.
How can Sovos help with invoicing solutions?
Need help to ensure your business stays compliant with emerging e-invoicing obligations?
Our experts continually monitor, interpret and codify legal changes and requirements into our software solutions, taking care of your indirect tax compliance so you can focus on your core business.
Learn how Sovos’ solutions for continuous transaction controls and VAT compliance obligations can help companies stay compliant.
On 5 April 2022, the EU Council formally adopted changes to the current rules governing reduced VAT rates for goods and services. These amendments to the VAT Directive were published in the Official Journal of the EU on 6 April 2022 through Council (EU) Directive 2022/542 of 5 April 2022 and are effective immediately.
The EU Council approval follows the EU Parliament’s official review of the amendments in March 2022.
New reduced rates
The Council Directive grants Member States more rate options they can apply and ensures equal treatment between Member States. Article 98 of the VAT Directive is amended to provide the application of a maximum of two reduced rates of at least 5% that may be applied to up to 24 supplies listed in the revised Annex III.
Member States may apply a reduced rate of less than 5% and an exemption with the right to deduct VAT (zero-rate) to a maximum of seven supplies from Annex III. The reduced and zero-rates application is limited to goods and services considered to cover basic needs, such as water, foodstuffs, medicines, pharmaceutical products, health and hygiene products, transport of persons and cultural items like books, newspapers and periodicals. It’s the first time Member States can exempt such necessities.
All Member States now have equal access to existing derogations to apply reduced rates for specific products previously granted on a country-specific basis. Taxpayers must exercise the option to apply the derogations by 6 October 2023.
Annex III contains notable new supplies and revisions to support green and digital transitions: supply and installation of solar panels, supply of electricity and district heating and cooling, bicycles and electric bicycles, admission to live-streaming events (from 1 January 2025), live plants and floricultural products, and others. Environmentally harmful goods such as fossil fuels and chemical fertilizers/pesticides have also been added but will be excluded from 1 January 2030 and 2032.
Member States must adopt and publish, by 31 December 2024, the requisite laws and compliance measures to comply with the new rules scheduled to apply from 1 January 2025.
Legislative activity
Member States have begun enacting legislation in response to the new reduced rate Directive since its approval in December 2021. Poland and Croatia reduced the VAT rate on basic foodstuffs to the zero-rate and Bulgaria and Romania are considering the same. Belgium, Croatia, Cyprus, Ireland, Italy, Netherlands, Poland, Romania and Spain have announced VAT reductions on energy supplies (e.g., electricity, heating/cooling, natural gas) and Greece is considering the reduction.
These rate changes have already been proposed or enacted before the 6 April 2022 effective date of the Council Directive. While world events and energy price spikes also contribute to these changes, the long-anticipated reduced rate amendments now allow Member States to do so within the bounds of the VAT Directive.
It‘s expected that more Member States will review their VAT rate structure in response to these new reduced rate opportunities.
For more on these amendments, please refer to our previous blog.
Norway extends VAT obligation to Cross-Border Non-Digital Services
Norway’s Ministry of Finance has updated legislation involving remotely deliverable services by foreign suppliers. This is effective from 1 January 2023.
In 2022, the Ministry proposed to amend the Norwegian VAT Act regarding cross-border business-to-consumer (B2C) sales of non-digital services.
Norwegian VAT ActProposal
The proposal concerns purchases of remotely deliverable services from non-resident suppliers to Norwegian consumers.
Foreign providers of traditional services would need to register for VAT in Norway and account for Norwegian VAT for the following services for resident consumers:
Consulting services
Accounting services
Other cross-border services
VAT would still be charged and collected when the customer is a business or a public authority or when the transaction is considered a B2B sale. The customer would do this in Norway via the reverse charge mechanism. Suppliers not established in Norway could still use the existing VAT On E-Commerce (VOEC) scheme.
The motivation behind the proposal was to eliminate a competitive advantage for non-resident suppliers.
In fact, until the recent change, no VAT was charged when a business provided such services to Norwegian consumers.
What’s changed after 1 January 2023?
Effective 1 January 2023, non-resident suppliers of remote non-digital services who make supplies to consumers in Norway are required to collect and remit Norwegian VAT.
In light of this, the VOEC scheme – the simplified scheme for online sales of goods and services to Norwegian consumers – has been expanded. Previously it only applied to low value goods and electronic services, but now it also includes all services capable of delivery from a remote location.
Subsequently, all foreign companies that sell such services to Norwegian consumers must register through the VOEC scheme – or register ordinarily for Norwegian VAT when they reach the NOK 50,000 threshold in sales over 12 months.
The VAT treatment for providing such services to a business in Norway remains unchanged, with the local company collecting and remitting the VAT under the reverse charge mechanism.
The Norwegian Ministry of Finance has proposed to amend the Norwegian Value Added Tax (VAT) Act regarding cross-border business to consumer sales of non-digital services. The proposal would require purchases of remotely deliverable services from suppliers established outside of Norway to consumers located in Norway to be subject to VAT.
Current requirements in Norway
Since 2011, Norway has operated a simplified VAT compliance regime for foreign suppliers of digital services to consumers. Non-resident suppliers who sell e-books, streaming media, software, or other digital services to Norwegian consumers and meet the NOK 50,000 VAT registration threshold must register and collect VAT on these sales, the same as resident businesses.
Non-resident suppliers not established in Norway may use the simplified VAT On E-Commerce (VOEC) scheme for registration and reporting. Additionally, suppliers in Norway must pay VAT on all purchases of remotely deliverable services from businesses located abroad. Currently, however, foreign suppliers of remotely deliverable services, which are not digital, are not required to register and pay VAT on their sales of such services.
Proposal
The Norwegian tax authority is concerned about the competitive advantage of non-resident suppliers over resident suppliers when providing deliverable services to Norwegian consumers. The Norwegian Ministry of Finance has presented a proposal to amend the Norwegian VAT Act to require non-resident suppliers to collect and report VAT on remotely deliverable services to consumers.
Under the proposal, foreign providers of traditional services would have to charge VAT for consulting services, accounting services, and other cross-border services provided to consumers located in Norway. When the customer is a business or a public authority, or when the transaction is considered a B2B sale, the VAT would still be charged and collected by the customer via the reverse charge mechanism. Suppliers that are not established in Norway would be able to use the existing VOEC scheme.
Status and timeline
The Norwegian Ministry of Finance has submitted the proposal for amendments to the Norwegian VAT Act regarding selling remotely deliverable services from abroad to recipients in Norway for consultation. The deadline for submitting comments on the proposal is 8 July 2022. Please stay tuned for updates on if the proposed amendments are adopted in Norway and when the amendments will take effect should they be adopted.
