In Poland, the Ministry of Finance proposed several changes to the country’s mandatory JPK_V7M/V7K reports. These will take effect on 1 July 2021. The amendments offer administrative relief to taxpayers in some areas but create potential new hurdles elsewhere.

Poland JPK_V7M and V7K Reports

The JPK_V7M/V7K reports – Poland’s attempt to merge the summary reporting of a VAT Return with the detailed information of a SAF-T – have been in effect since October 2020. Taxpayers must submit these reports (V7M for monthly filers, V7K for quarterly filers) in place of the previously-used VAT Return and JPK_VAT files.

The JPK_V7M/V7K reports require taxpayers to designate within each file the invoices subject to special VAT treatment. For example, invoices representing transfers between related parties or invoices for transactions subject to Poland’s split payment regime.

Split payment designations are particularly complex for taxpayers to manage. Poland’s split payment regime is broadly applicable. In some cases can be exercised at the buyer’s option. This makes it difficult for sellers to predict which of their invoices should be marked.

As a result of these complexities, and in response to taxpayer feedback, the draft amendment for 1 July would abolish the split payment designation. This would significantly reduce the administrative burden on taxpayers.

The draft amendment does, however, give rise to an additional complexity in the reporting of bad debts. Under the amended rules, taxpayers need to indicate the original due date of the payment for an unpaid invoice. For which the taxpayer is seeking a VAT relief. This is intended to help the tax authority verify bad debt relief claims. This could potentially present difficulty for taxpayers who do not maintain such information or cannot easily access it in their accounting systems.

Poland and EU One Stop Shop

Finally, the draft amendment would modify reporting of cross-border business to consumer (B2C) supplies of goods. This is as well as similar supplies of electronic services. These supplies are at the heart of the European Union’s One-Stop Shop regime that takes effect 1 July 2021, and as such, the current invoice designations for these supplies in JPK_V7M/V7K would be consolidated into a single, new invoice designation under the amended rules.

Poland’s JPK_V7M/V7K filings are enormously ambitious in scope. It is clear from these latest proposals that the tax authority is willing to make substantial adjustments to the structure of these filings, at very short notice. In such a dynamic landscape, it is critical that businesses stay on top of regulatory developments in order to remain compliant.

Take Action

Need to ensure compliance with the latest Polish VAT regulations? Get in touch with our tax experts.

For more information see this overview about e-invoicing in Poland, Poland SAF-T or VAT Compliance in Poland.

As detailed within our annual report VAT Trends: Toward Continuous Transaction Controls, there’s an increasing shift toward destination taxability which applies to certain cross-border trades.

In the old world of paper-based trade and commerce, the enforcement of tax borders, between or within countries, was mostly a matter of physical customs controls. To ease trade and optimise resources, many countries have historically applied ‘de minimis’ rules. These set specific limits (e.g. EUR 10-22 applied in the European Union) below which imported goods had an exemption from VAT.

Cross-border services, which couldn’t, or not easily, be checked at the border would often escape VAT collection altogether or be taxed in the country of the service provider. There has been a huge increase in cross-border trade in low-value goods and digital services over the last decade. As a result, tax administrations are taking significant measures to tax these supplies in the country of consumption/destination.

VAT treatment of B2C digital/electronic supplies by foreign suppliers

Since the 2015 publication of the OECD/G20’s Base Erosion and Profit Shifting (BEPS) Project Action 1 Report on Addressing the Tax Challenges of the Digital Economy, most OECD and G20 countries have adopted rules for the VAT treatment of B2C digital/electronic supplies by foreign suppliers. The International VAT/GST Guidelines issued in conjunction with the Project Action 1 Report recommend the following approaches for collecting VAT/GST on B2C sales of electronic services by foreign suppliers:

Many industrialised and emerging countries have since passed laws on this OECD guidance; most apply to B2C transactions only, although some of these jurisdictions have imposed obligations that apply or could apply to both B2B and B2C transactions.

For low value goods, the OECD has made similar recommendations providing for both a vendor and an intermediary-based collection model. The destination-based taxability trend affects many different areas of consumption tax, including the following examples.

EU E-Commerce VAT Package and Digital Services

The EU has been gradually introducing new rules for VAT on services. This is to ensure more accurately accrues to the country of consumption. From 1 January 2015, and as part of this change, where the supply of digital services is taxed changes. It will be taxed in the private end customer’s EU location, has their permanent address or usually resides. These changes sit beside the introduction of the One Stop Shop (OSS) system which aims to facilitate reporting for taxable persons and their representatives or intermediaries. Under the EU e-commerce VAT package scheduled to take effect from 1 July 2021, all services and all goods including e-commerce based imports are subject to intricate regulations that include changes to the way customs in all Member States operate.

With this shift toward destination taxability for certain cross-border transactions it’s key that companies fully understand the impact. That is not only on their business processes but also comply with changing rules and regulations.

Take Action

Get in touch to discuss your VAT obligations for cross-border trade. To find out more about the future of VAT, download our report VAT Trends: Toward Continuous Transaction Controls.

Incoterms® - VAT Implications for Cross-Border Trade

Find out what Incoterms are and how they affect VAT in the EU in our latest infographic.

Cross-border businesses need to ensure VAT compliance to meet the requirements of each country. The complexity of international VAT affects different elements of the supply chain. The potential risks, fines and costs can cause headaches for businesses.

VAT determination for goods requires an understanding of when goods move across a border and also if the supplier or customer is responsible for this movement.

So complications around who is responsible for VAT can arise. The International Chamber of Commerce (ICC) introduced a set of international commercial terms – otherwise known as Incoterms. This set of internationally recognised rules define the responsibilities of buyers and sellers in international transactions.

The 11 Incoterms define who is responsible for each element of the sale of goods. This includes documentation and customs clearance, shipment, and insurance.

In a Post-Brexit environment, businesses with EU and UK trade no longer trade intra-EU and are therefore subject to import and export rules. Contracts for the supply of goods within the EU usually mention Incoterms. Although they don’t determine the correct VAT treatment of a movement of goods, they’re helpful in understanding the intentions and responsibilities of both buyers and sellers.

Failure to understand how VAT relates to Incoterms within international contracts can cause delivery delays, possible penalties and interest for late registration and late payment of VAT as a result.

Our Incoterms infographic provides insight into the VAT implications for cross-border business and covers topics including:

  • What are Incoterms?
  • Which Incoterms affect VAT in the EU
  • In addition to examples of Ex Works (EXW) and Delivered Duty Paid (DDP) scenarios

There are obligations, costs and risk associated with the transport of goods and who is responsible for VAT at each stage. Ex Works and Delivered Duty Paid apply to all modes of transport – road, rail, air and sea.

Compliance peace of mind with a complete, global VAT Managed Service from Sovos

Whatever your VAT implications, Sovos has the expertise to help you navigate Incoterms and the complexities of cross-border tax obligations. Our VAT Managed Services ease your compliance workload while mitigating risk wherever you operate today. In addition, we ensure you’re ready to handle the VAT requirements in the markets you intend to lead tomorrow.

Update: 25 October 2023 by Maria del Carmen

Mexico releases Carta Porte Version 3.0

On 25 September 2023, the Tax Authority in Mexico (SAT) published Version 3.0 of the Carta Porte Supplement on its portal with some adjustments.

The use of Version 2.0 of the Carta Porte became mandatory as of 1 January 2022 in accordance with the Fourth Resolution of modifications to the Miscellaneous Tax Resolution of 2021.

However, the authority established 1 January to 31 December 2023 as a grace period to correctly issue said supplement, without sanctions or fines for non-compliance with any requirement.

Main changes of Carta Porte V3.0

One of the adjustments announced is the introduction of seven catalogues:

There was also the introduction of fields for foreign trade operations, such as:

The Customs Document replaces the Pedimento Section with the addition of fields to identify the type, Tax ID of the Importer and ID custom document.

Through the anticipated version of the 8th RMRMF, the SAT has modified Rule 2.7.1.7 relating to the requirements of the printed representations of the CFDI, indicating that in the case of the CFDI to which the Carta Porte is incorporated, the structure of the supplement allows the printed representation of the CFDI and the Carta Porte to be displayed separately.

Likewise, Rules 2.7.7.1.1. and 2.7.7.1.2 for the CFDI of the income type and the transfer type to which the Carta Porte is incorporated, respectively, will serve to prove the legal stay and/or possession of the goods and merchandise of foreign origin during their transfer in national territory, providing the number of the customs request or custom document in said receipt in terms of the applicable customs provisions.

Transition and mandatory terms for Carta Porte 3.0

  1. Carta Porte Version 3.0, published on 25 September 2023 on the SAT Portal, must be used as of November 25, 2023
  2. Taxpayers obliged to issue CFDIs to which the Bill of Lading complement is incorporated, may continue to issue the complement in Version 2.0, until 31 December 2023.
  3. From 1 January 2024, the only valid version of the Bill of Lading supplement will be 3.0

Printed representation

The printed representation introduces a new two-dimensional barcode that will accompany the printed representation of the Carta Porte.

Technical documentation about the latest changes to Carta Porte is available at:

·       Estándar de Carta Porte (pdf)
·       Esquema de Carta Porte (xsd)
·       Secuencia de cadena original Carta Porte (xslt)
·       Matriz de errores (xls)
·       Esquema de los catálogos (xsd)

It is important to note that the authority has not yet updated Filling Guide of said complement, so we must be attentive to these regulations.

Want to learn about other tax requirements in Mexico? Read our Mexico tax rules.

For historical information on the initiative, read our dedicated Carta Porte 2.0 blog.

 

Key information about the Carta Porte Supplement

Update: 31 July 2023 by Maria del Carmen

Updates to the Scope and Definitions of the Carta Porte Supplement

Mexico’s Carta Porte supplement was introduced in May 2021 to ensure the traceability of products moved within the country. Use of the supplement became mandatory on 1 January 2022 but there have been many changes and additions to its requirements.

Taxpayers in scope of the Carta Porte

Section 2.7.7 of the Miscellaneous Tax Resolution (RMF) 2023 regulates the Carta Porte Supplement which specifies that the following must issue a CFDI of Income to which they must incorporate the Carta Porte supplement:

Owners of goods transporting its own assets via its own transport methods in national territory, including the use of towing cranes and vehicles for the transport of funds and values, can provide proof of transport through the printed or digital representation of the CFDI of Transfer issued by themselves, to which they must incorporate the Carta Porte supplement.

Transport of imported goods

For those within the scope mentioned above, the RMF indicates that the carrier must prove the legal stay and/or possession of foreign goods and merchandise during their transport in national territory. This can be done using the CFDI of Income or Transfer as appropriate, to which the Carta Porte supplement is incorporated if the CFDI contains the import request number.

Types of transport in scope of the Carta Porte

The current RMF includes a specific section for Maritime Transport and Motor Transport, which also establishes the rules for exported goods.

It also establishes specific rules for:

Exceptions to the Carta Porte obligation

The exceptions are applicable to:

These taxpayers must prove transport with the printed or digital representation of either the CFDI of Income or Transfer as appropriate without Carta Porte. The CFDI must include the product and service key according to the CFDI Filling Instructions to which the Carta Porte supplement is incorporated. Transport of medicines is not included in this exception, among others.

There is also an exception for the provision of parcel or courier services and consolidated transport of goods, following the corresponding rules.

Looking for a helping hand with VAT compliance in Mexico? Contact our team of experts.

 

Update: 15 June 2021 by Ramón Frias

Understanding Mexico’s Carta Porte Supplement

On 1 May 2021, the Mexican tax administration (SAT) released one of the most important updates to the electronic invoicing system of the country since 2017.

The update was about the new Bill of Lading Supplement (locally known as Suplemento de Carta Porte) that should be added as an annex to the electronic invoice (CFDI) of Transfer (CFDI de Traslado) or to the CFDI of Revenues (CFDI de Ingresos) that are issued for hauling services.

This supplement is based on the provisions of Articles 29 and 29-A of the Fiscal Code of Mexico, and the rule 2.7.1.9 of the Miscellaneous Fiscal Resolution. The articles of the tax code grant the tax administration the power to define the documents to be used for supporting the legal transportation goods inside that country via specific rules. The mentioned rule describes the specific requirements of the Supplement of Carta Porte.

Why has Mexico introduced the Carta Porte supplement?

Latin American countries have a serious problem with tax evasion, usually made possible by smuggling goods without paying the corresponding taxes. According to the information provided by the SAT, 60% of the goods transported in Mexico have an illegal origin.

Therefore, the purpose of enforcing the use of the Carta Porte supplement, whether as an annex to the CFDI of Transfers or the CFDI of Revenues, is to ensure the traceability of the products moved inside the Mexican territory by requiring the provision of additional information about the origin, location, precise destination and routes of transport of the products transferred by roads, rail, water or air in Mexico.

Once this change comes into effect, transporters of goods by road, rail, water or air must have a copy of the Supplement of Carta Porte in the vehicle that proves lawful compliance with this mandate.

Who is required to issue the Carta Porte supplement?

When will the supplement become mandatory and when should it be issued?

The Carta Porte as a supplement of the CFDI of Transfers or the CFDI of Revenues

As we know, the new regulations require the Carta Porte supplement to be added to the CFDI of Transfers or to the CFDI of Revenues, depending on who is transporting the goods.

The Carta Porte supplement will be added to the CFDI of Transfers when the transport of goods is made by the owner (i.e. internal distributions between warehouses and stores, consignment, etc.) or when the seller assumes the shipment of the products to the purchaser.

The Carta Porte supplement will also be added to CFDI of Transfers when the shipping of the goods is made by an intermediary or by an agent of transport as explained before. In such cases the current regulations provide that the CFDI should have zero as a value of the products and the RFC key to be used is the generic key established for transactions carried out with the public. In the field for description, the object of the transfer should be specified.

When the Carta Porte supplement is issued as part of the CFDI of Revenues (CFDI de Ingresos) as a result of the goods being transported by a haulage company, the haulage company should issue the CFDI of Revenues with the Carta Porte supplement. However, different to the previous case where the CFDI had a value of zero, the value to be included in the CFDI of Revenues will be the price of transportation services charged by the haulage company to the client.

It is important to mention that Carta Porte supplement does not substitute other documents necessary to prove the legitimate origin or ownership of products. Other additional documents will be required for this purpose.

Documents accompanying the Carta Porte supplement

While the Carta Porte supplement provides clear information about the transportation of goods being transferred, that document alone does not prove the lawful status of the goods being hauled. That status should be proven by whoever is providing the transportation, with the corresponding documents proving the origin of those hauled products, such as import documents, CFDI of Pagos, registrations and licenses etc.

In the case of transportation of petroleum products, the lawful status of the product will be proven with the printed representation of the supplement established for that type of products (the Complemento de Hidrocarburos y Petroliferos).

Structure of the Carta Porte supplement

According to the technical documentation released by the SAT, the information provided via the Carta Porte supplement will be conveyed via a number of fields (around 215) that will contain optional and mandatory information about the product being transported, type of packaging used, weight, quantity, insurance, the permit of transportation provided to the hauling company by the Secretary of Public transportation, plate and registration of the motor vehicle used, driver, as well as information about the recipient of the products being transported within Mexico.

The information of those fields will be filled via direct input by the taxpayers or in some cases via the specific choices available in a set of catalogs established by the SAT.

Such catalogs can be grouped as follows:

Other catalogs included in this supplement are those related to the type of transport and trailers used to transfer the products by land, packaging, the types of permits, the municipalities, neighborhoods, and locations, among others.

Penalties and sanctions

Once the use of the Carta Porte supplement becomes mandatory, noncompliance with this requirement will have several immediate consequences for the violators.

Additional clarifications about the scope of the Carta Porte supplement:

When the SAT released the new Miscellaneous Fiscal Resolution for 2021 there were several doubts about the scope of this mandate. This was because for the case of land transportation, the rule established that the use of the supplement would be required only when the goods were transported via federal roads. That original release of the Miscellaneous Fiscal Resolution also established compliance with this mandate would be required to owners of national goods that are part of their assets when they haul those assets in Mexico.

To remove those misunderstandings and limitations, the SAT has recently released a new modification specifying that the mandate will be required for all movement of goods, regardless of the road used. The new resolution also excluded the reference to “national goods that are part of their assets”, so that it is clear now that it applies to any goods being transferred, regardless of its origin.

Take Action

Contact us to discuss your LATAM VAT compliance needs.

Meet the Expert is our series of blogs where we share more about the team behind our innovative software and managed services. As a global organisation with indirect tax experts across all regions, our dedicated team are often the first to know about new regulatory changes, ensuring you stay compliant.

We spoke to Christina Wilcox, Director of Customer Success, EMEA at Sovos to find out more about the role her team has in delivering an excellent service to customers.

What is your role and what does it involve?

I manage the customer success team for the EMEA region. It’s a relatively new team having started in November last year. Before this role I was part of the Insurance Premium Tax (IPT) team. Our Senior Customer Success Manager, Roberta Folta, worked in the VAT side of our business. So together we have key areas of indirect tax covered. We understand both the market and the key priorities and challenges our customers face.

This is key to helping us make sure our customers get the best value from Sovos across the board. From our consultancy and managed services to our VAT and IPT compliance software. We proactively reach out to customers and then apply their feedback. So we’re always aligned and can improving our service offering to meet their changing needs.

Why is the customer success team an important part of Sovos?

Providing a personal approach and excellent customer service has always been important for us as a company; the customers who have been with us for over a decade are testament to that.

Having a dedicated customer success team gives us the opportunity to continue to connect with our customers from the moment they sign their contract, as well as strengthening the relationships we have with existing customers.

As a separate department this enables our software and services teams to focus on delivering the wide range of offerings we’re known for. The Customer Success team acts as the friendly face that’s always here to help.

For example, software customers don’t have the need to interact with us as much as our managed service customers. So we can focus on providing regular check-ins and see if there’s anything they need help with. We can check if there are additional services we can provide such as further training.

The team also helps with onboarding new customers. We make sure they understand all the services and solutions available to them as a Sovos customer. Our focus is on creating long-standing and strong customer relationships; being approachable and proactive to any potential concerns or questions that could arise.

What is the most common feedback you get from customers?

Customers are always impressed with our managed service offering. People are very happy with the service our compliance teams provide to ensure tax returns are filed correctly and on time. They recognise the benefit of having access to our knowledgeable team of in-house tax experts. Being a global company, we’ve got experience of mandates in other parts of the world. So we can really help customers prepare for the shift to real-time reporting. This is prevalent across Latin America and now spreading throughout Europe and other parts of the world where our customers operate.

We also get great reviews on how intuitive and user friendly our software is.

Customers refer to us as their tax gurus. I think reflects our global knowledge and experience which we pass on through our monthly newsletters, blogs, and regular webinars on everything relating to the world of VAT and IPT.

The feedback we receive from customers, good or bad, helps us continue to meet their needs by being incorporated into planning for future developments.

We’re very much looking forward to the future and speaking with more of our customers to help build the best service offering we can.

Take Action

Have a tax problem you need help with? Speak to our experts to see how Sovos can help you solve tax for good.

The General Authority of Zakat and Tax’s (GAZT) previously published draft rules on ‘Controls, Requirements, Technical Specifications and Procedural Rules for Implementing the Provisions of the E-Invoicing Regulation’ aimed to define technical and procedural requirements and controls for the upcoming e-invoicing mandate. GAZT recently finalized and published the draft e-invoicing rules in Saudi Arabia.

Meanwhile, the name of the tax authority has changed due to the merger of the General Authority of Zakat and Tax (GAZT) and the General Authority of Customs to form the Zakat, Tax and Customs Authority (ZATCA).

The finalised rules include a change to the go live date of the second phase from 1 June 2022 to 1 January 2023. They revealed the time limit to report B2C (simplified) invoices to the tax authority´s platform for the second phase.

According to the final rules, the Saudi Arabia e-invoicing system will have two main phases.

Saudi Arabia E-Invoicing System: The First Phase

The first phase begins on 4 December 2021 and requires all resident taxpayers to generate, amend and store e-invoices and electronic notes (credit and debit notes).

The final rules state businesses must generate e-invoices and their associated notes in a structured electronic format. Data in PDF or Word format are therefore not e-invoices. The first phase does not require a specific electronic format. However, such invoices and notes must contain all necessary information. The first phase requires B2C invoices to include a QR code.

There are a number of prohibited functionalities for e-invoicing solutions for the first phase:

Saudi Arabia E-Invoicing System: The Second Phase

The second phase will bring the additional requirement for taxpayers to transmit e-invoices in addition to electronic notes to the ZATCA.

The final rules state the second phase will begin 1 January 2023 and will be rolled-out in different stages. A clearance regime is prescribed for B2B invoices while B2C invoices must be reported to the tax authority platform within 24 hours of issuance.

As a result of the second phase requirements, the Saudi e-invoicing system will be classified as a CTC e-invoicing system from 1 January 2023. All e-invoices must be issued in UBL based XML format. Tax invoices can be distributed in XML or PDF/A-3 (with embedded XML) format. Taxpayers must distribute simplified invoices (i.e. B2C) in paper form.

In the second phase, a compliant e-invoicing solution must have the following features:

The second stage will furthermore bring additional prohibited functionalities for e-invoicing solutions on top of requirements mentioned in the first phase:

What’s next for Saudi Arabia’s e-invoicing system?

After publishing the final rules, the ZATCA is organising workshops to inform relevant stakeholders in the industry.

Some of the details remain unclear at this point, however the Saudi authorities have been very successful in communicating the long-term goals of the implementation of its e-invoicing system, as well as making clear documentation available and providing opportunities for feedback on the documentation published for each phase. We expect provision of the necessary guidance within the near future.

Take Action

Contact us to discuss your Saudi Arabia VAT requirements. In addition, to find out more about what we believe the future holds, download VAT Trends: Toward Continuous Transaction Controls.

It’s been more than a few years since Romania first toyed with the idea of introducing a SAF-T obligation to combat its ever-growing VAT gap. Year after year, businesses wondered what the status of this new tax mandate was, with the ANAF continuously promising to give details soon. Well, the time is now.

What is SAF-T?

The Organization for Economic Co-operation and Development (OECD) introduced the Standard Audit File for Tax (SAF-T) in 2005. The goal of the SAF-T digital VAT return is to provide auditors access to reliable accounting data in an easily readable format. Companies can export information from their accounting systems (invoices, payments, general ledger journals in addition to master files).

As a result, audits should be more efficient and effective based on the standardized format set by the OECD. As countries can require a different format for capturing data, no two country implementations of SAF-T are exactly the same.

How is Romania implementing their SAF-T?

From 1 January 2022, the new Romania SAF-T mandate comes into effect for large taxpayers. The digital VAT return submissions are via XML with over 800 fields.

It appears Romania is looking to follow the format prescribed by the OECD (SAF-T OECD Scheme version 2.0 – OECD standard format). The technical specifications have been released and can be found on the ANAF portal.

The documents which are available include:

Now that the specifications are available, Romania will soon move into the testing phase of implementation; where taxpayers can take advantage of submitting test data to the ANAF. This is in order to become familiar with the process, understand the requirements, and if necessary, adjust their ERP systems. As a result, this should ensure full compliance for January. Details on how to participate in the test phase are forthcoming and will be available on the portal once finalized.

What’s next?

Sources close to the Romania SAF-T implementation project indicated the hope is to eliminate certain declarations. To possibly provide pre-filled returns based on SAF-T information once the project is in full swing. This would align with the pre-population trend that is slowly making its way across the EU; with Italy, Spain, and Hungary paving the way for pre-populated VAT returns.

Take Action

Get in touch to discuss your Romania SAF-T compliance requirements. To find out more about what we believe the future holds, download VAT Trends: Toward Continuous Transaction Controls or see this overview on VAT Compliance in Romania.

The Turkish Revenue Administration (TRA) has published updated guidelines on the cancellation and objection of e-fatura and e-arsiv invoice. Two different guidelines are updated: guidelines on the notification of cancellation and objection of e-fatura and guidelines on the notification of cancellation and objection of e-arsiv.

The updated guidelines inform taxable persons about the new procedures for objection against an issued e-fatura and e-arsiv invoice. And how this must be notified to the TRA. Due to changes in the objection procedure, the e-arsiv schema has also changed. There has not yet been a change in the e-fatura schema, however it could also change in the near future. The updated guidelines state that the TRA platform can be used to notify the TRA about objection requests made against an issued e-fatura and e-arsiv invoice.

Why are the updated guidelines important?

From July 2021, electronically issued documents won’t be mentioned in the so called ‘BA and BS forms’. The BA and BS forms are generated to periodically report issued or received invoices when a total invoice amount is 5.000 TRY or more. All limited liability and joint stock companies are obliged to create and submit the forms to the TRA even if they don’t have any invoices to report.

The TRA recently published a new provision stating that electronically issued documents will not be shown in BA and BS forms and instead will be reported directly to the TRA in the clearance (e-fatura) and reporting(e-arsiv) process. Considering that the TRA receives the invoice data for electronically issued invoices in real-time, relieving taxpayers from reporting invoices through BA and BS forms creates a more efficient system in which the relevant data will be collected only once from taxpayers.

At its current stage, e-documents won’t be mentioned in these forms. However, in order for the TRA to have accurate invoice data about each taxpayer, it needs to be notified which are the final invoices and disregard any objected or cancelled documents when evaluating taxpayer data.

Although the cancellation process is already performed through the TRA platform for basic e-fatura and e-arsiv, objection requests are made externally (through a notary, registered letter or registered e-mail system), meaning the TRA does not have visibility of all objections. There could therefore be a risk that the TRA considers a cancelled document (due to objection) as issued which could result in discrepancies between the taxpayer records and the data that the TRA considers relevant for tax collection.

Therefore, taxpayers must now notify the TRA about objection requests to avoid any discrepancies between their records and BA and BS forms. The final goal of this application is that the BA and BS forms will be completely auto populated by the TRA in future.

How will the new process work?

According to the Turkish Commercial Code, any objections or cancellation requests must be made within eight days. Suppliers and buyers can raise an objection request which must be made externally (through a notary, registered letter or registered e-mail system) and registered in the TRA system.

For e-arsiv application, there are two ways for suppliers to notify the TRA about the objection request. They can either use the e-arsiv schema (automated) or register the request in the TRA portal. Buyers can see this request on the TRA platform and may respond, although they are not obliged to. Because e-self-employment receipts are also reported through e-arsiv application, the same objection rules apply.

For e-fatura, since there is no change in the schema, it is not possible for suppliers or buyers to notify the TRA using e-fatura schema. Currently, they can only notify the TRA about e-fatura objections through the TRA platform. Taxpayers can also respond to objection requests only through the platform.

What’s next?

The TRA has taken a step towards the digitalization of cancellation and objection requests. However, there is still not an automated way to perform these actions. Before the digitized objection process becomes reality in the country, the authorities must take a more sophisticated approach towards automating the process as well as introducing or amending applicable legislation.

Take Action

Get in touch to find out how Sovos tax compliance software can help you meet your e-transformation and e-document requirements in Turkey.

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

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

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

This includes:

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

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

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

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

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

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

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

Take Action

Get in touch to find out how Sovos tax compliance software can help you meet your e-transformation and e-document requirements in Turkey.

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

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

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

Metadata requirements modified

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

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

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

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

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

Common clearance system features

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

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

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

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

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

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

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

Global expansion of CTCs

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

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

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

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

The impact of CTCs on business

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

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Start by downloading the full Trends Report here or contact us

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

What is DAC7?

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

What are the new rules under DAC7?

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

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

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

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

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

When will DAC7 apply?

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

Take Action

Get in touch with our experts to discuss your EU tax requirements. To find out more about what we believe the future holds, download VAT Trends: Toward Continuous Transaction Controls.

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

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

What is the traceability system?

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

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

What type of goods are subject to the traceability requirements?

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

What’s next for Russian regulation of electronic documents?

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

Take Action

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

INFOGRAPHIC, PRODUCT BROCHURE

Blending human expertise and software - VAT Managed Services

Companies around the world face growing VAT compliance obligations. Governments globally continue to look for ways to prevent fraud, increase revenue and ultimately close VAT gaps. It’s a challenge and especially as VAT requirements can be complex and fragmented across different markets. European Union countries alone lost an estimated €140 billion in VAT revenues in 2018. So it’s easy to see why governments are taking steps to reduce this.

Keeping up with VAT rates and reporting changes is daunting. For multinational companies, that complexity only intensifies. If you trade across multiple borders the associated workloads also increase.  For these reasons, companies need to ensure they have a robust compliance continuity plan in place to ensure their VAT compliance obligations are met wherever they operate.

The cost of noncompliance can be high. And errors can be caused by various reasons. These include late filings, using incorrect tax rates, misinterpretation of the regulations or simply due to human error.  Whatever the cause, the repercussions can be costly leading to loss of VAT deductions, invasive and time consuming audits and other financial penalties and reputational damage.

As the challenges and complexities of VAT compliance continue to rise, more companies are realising the benefits of embracing a managed service approach to all or part of their VAT compliance obligations.

Download the Product Brochure.

Technology enabled VAT Managed Services

Ease your compliance workload reducing risk wherever you trade

Sovos VAT Managed Services is a blend of human expertise and software. Our multi-lingual team of VAT experts use our proprietary software which is updated as and when VAT regulations change. Our team is your team. In addition, our global regulatory specialists monitor all regulatory changes, so you don’t have to. Allowing you more time to focus on your business.

Sovos VAT Managed Services takes care of your compliance for both periodic and continuous reporting obligations. This applies across all markets where you operate today and for the markets you intend to dominate tomorrow. A dashboard provides you with full visibility of the status of each of your filings. And, at a later date, if your strategy changes and you want to bring your VAT compliance function back in-house, that’s not a problem. Your partnership with us as a global tax technology provider is flexible. So this means you can readily switch to a fully insourced software solution.

VAT legislation is complex and continues to change. Businesses need the support of both managed services and technology to help them meet their VAT compliance obligations and to allow them to continue to trade with confidence. Appointing Sovos with our blend of human expertise and technology empowers companies to comply with and face the changing VAT landscape head-on.

Keeping up with VAT rates and reporting changes is daunting. For multinational companies, that complexity only intensifies. If you trade across multiple borders the associated workloads also increase.  For these reasons, companies need to ensure they have a robust compliance continuity plan in place to ensure their VAT compliance obligations are met wherever they operate.

The cost of noncompliance can be high. And errors can be caused by various reasons. These include late filings, using incorrect tax rates, misinterpretation of the regulations or simply due to human error.  Whatever the cause, the repercussions can be costly leading to loss of VAT deductions, invasive and time consuming audits and other financial penalties and reputational damage.

As the challenges and complexities of VAT compliance continue to rise, more companies are realising the benefits of embracing a managed service approach to all or part of their VAT compliance obligations.

EU E-Commerce VAT Package: New Rules for 2021

Easing cross-border transactions

From 1 July 2021, the existing Mini One Stop Shop (MOSS) scheme transitions to a new framework. This is the 2021 EU e-commerce VAT package.  This e-book guides you through the EU’s OSS, IOSS and the new VAT rules for e-commerce.

The growth of e-commerce and cross-border trade is having a radical effect on VAT. Companies large and small are caught up by sweeping changes. With more change on the horizon, now is the time to prepare.

The introduction of the new EU VAT e-commerce package, in addition to the UK’s recent changes to the rules regarding overseas goods sold to customers in the UK, means businesses across the world should implement new systems. Now is the time to familiarise themselves with how the new frameworks affect their operations, commercial position and liabilities in both the EU and the UK.

Get the e-book

The goal of the EU VAT e-commerce package is to simplify cross-border B2C trade in the EU, ease the burden on businesses, reduce the administrative costs of VAT compliance and ensure that VAT is correctly charged on such sales. EU businesses will be able to compete on an equal footing with non-EU businesses that charge VAT.

Moving forward there will be:

  • Import One Stop Shop (IOSS) for goods delivered from outside the EU
  • One Stop Shop (OSS) for intra EU B2B deliveries of goods and for services provided B2C by EU established suppliers
  • Non-Union One Stop Shop (non-Union OSS) which replaces and extends the current MOSS 

This e-book answers questions about the upcoming EU e-commerce package helping businesses ensure they prepare for the change and make informed decisions.

  • How will the One Stop Shop work?
  • What are the benefits of the One Stop Shop?
  • When will the One Stop Shop changes come into effect?
  • How do I register for the One Stop Shop?
  • What do I need to do to prepare for the One Stop Shop?
  • Is the One Stop Shop right for my business?
  • I am a business established in the EU, what do I need to consider?
  • I am a business established outside the EU, what do I need to consider?

As well as providing practical advice for EU and non-EU established businesses, the e-book also includes OSS and IOSS examples. We provide an in-depth view of the potential iterations that apply to direct to consumer businesses and those that sell via online marketplaces.

Download the e-book to understand the implications of the 2021 EU e-commerce VAT package and ensure your business is ready by 1 July 2020 for the significant changes ahead.

Get Ready for the 2021 EU e-Commerce VAT Package

Download our infographic to understand the upcoming changes.

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

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

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

OSS has many benefits but it’s not simple.

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

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

·       Union OSS, Non-Union OSS and Import OSS

·       OSS record-keeping requirements

·       Excise goods eligibility

·       Place of supply rules

·       Changes to distance selling thresholds

·       Marketplace liability

·       Low value consignment relief  

·       How to prepare for OSS

·       The consequences of OSS noncompliance

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

The three variations of OSS are:

·       Union OSS

·       Non-Union OSS

·       Import OSS (IOSS)

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

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

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

Sovos can help you prepare for OSS

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

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

Update: 25 August 2023 by Carolina Silva

Croatia to Introduce E-Invoicing and CTC Reporting System

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

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

Upcoming obligations in Croatia

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

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

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

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

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

What is next?

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

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

 

Update: 13 February 2023 by Carolina Silva

Croatia’s Proposed CTC System

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

Fiscalization 2.0

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

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

Croatia’s proposed measures are:

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

What is next?

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

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

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

 

Update: 8 April 2021 by Joanna Hysi

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

Croatia’s online fiscalization system

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

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

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

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

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

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

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

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

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

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

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

1. Invoice and storage requirements

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

2. Periodic reporting requirements

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

3. Audit requirements

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

The trend toward continuous transaction controls (CTCs)

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

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

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

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

Take Action on VAT Digitization

Download VAT Trends: Toward Continuous Transaction Controls to read more about the ever changing VAT landscape, VAT digitization and how global companies can prepare.