With a VAT gap across EU countries estimated at €140 billion in 2018, tax authorities are continuing to take steps to boost revenues, increase efficiency and reduce fraud. As a result, VAT compliance obligations are becoming more demanding. Failure to comply can not only result in significant fines but also reputational damage.
Many multinational companies find successfully navigating VAT compliance a challenge. Even more so when trading cross-border where VAT registration and reporting requirements differ significantly between territories. As demands increase, more companies are realising the benefits from embracing a managed service approach. This is to all or part of their VAT obligations.
From conversations with our customers, we identified three reasons for appointing a managed service provider (MSP) for VAT compliance. They are varied and apart from cost, fall broadly into three categories.
People
Staffing, training and retaining a team of indirect tax specialists can be expensive and time consuming. Accessing external expertise allows you to benefit from wider and more detailed knowledge and experience in complying with local tax authority regulations. Understanding local rules requires fluency in both the local language and in understanding tax law plus its implications to interpret the rules accurately. This can be a huge benefit in helping to simplify the complexities of domestic obligations. It can apply to initial VAT registrations, ongoing filings, as well as correspondence with revenue authorities whenever reviews and/or audits occur. Why struggle with the headache of resourcing and keeping up with the changing compliance landscape when there are specialist providers to ease this pain?
Technology
While the future of VAT reporting is increasingly tech-enabled, building and maintaining your own in-house software is onerous and for many companies is the key driver to getting external help with their VAT compliance obligations. By using a technology enabled MSP, you’ll have access to their VAT compliance software. It will help you stay ahead of changing VAT rates and requirements as they happen wherever you do business. Using a MSP that is technology enabled allows them to take care of any real-time/continuous reporting requirements. This includes Spain’s SII. This should also be far more cost effective than doing this in-house. Automating at a regular cadence prevents being caught out by missed filings that need to happen all too frequently to be done cost effectively by a person.
The future
Keeping up with the ever changing requirements of VAT rates, new mandates and reporting requirements can be daunting. The VAT compliance landscape will continue to shift as more tax authorities move to enforce continuous transaction controls. The aim is to boost economic efficiency and close VAT gaps. The right VAT compliance MSP will ensure your business is able to meet your current VAT compliance requirements. They should also have experience in markets you may want to enter in the future. They’ll be able to guide you through VAT registrations and filing requirements as well as interpreting local complexities where needed. A valued VAT compliance MSP will also ease the burden of audits. They’ll help you whenever an audit occurs but ultimately with robust processes in place, they should also be able to prevent disputes occurring.
VAT legislation is complex and constantly changing. Businesses need the support of both managed services and technology to meet their VAT compliance obligations. In addition to continue trading with confidence. Appointing an experienced global MSP blends human expertise and technology. This can provide the perfect balance to face the changing VAT landscape head on.
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To learn more about the benefits a managed service provider can offer to ease your VAT compliance burden, watch our recent webinar on demand VAT Reporting: Managing Change.
Since 31 January 2020, the UK is officially no longer part of the EU but is considered a third country to the union although EU legislation will still apply to the country until the end of 2020. Although Northern Ireland is part of the UK, the region will remain under EU VAT legislation when it comes to the supply of goods also after 1 January 2021. The EU Commission has proposed an amendment to the VAT Directive creating a new country code for Northern Ireland to be used in tax identification numbers of Northern Irish companies.
An overall obligation for EU taxpayers to use and perform supplies under an EU-approved tax ID number exists. Thus, applying EU law to supplies performed to/from Northern Ireland demands an EU-compatible VAT identification number. Currently, EU Member States use a prefix country code following the ISO 3166-1 standard that assigns the country code “GB” to the UK and Northern Ireland.
The new prefix for Northern Irish tax ID numbers
From 1 January 2021, the indiscriminate use of the “GB” prefix in VAT numbers may pose a problem for supplies of goods to/from Northern Ireland. From that date, intra-community supplies and acquisitions of goods to/from Northern Ireland will remain in the scope of the EU VAT law. Consequently, Northern Irish taxpayers must hold a specific EU VAT number to be identified as such under the European rules. Provided that the country code “GB” will be used by the UK and assigned according to British legislation, the EU Commission has proposed a new country code “XI” to be attributed as a prefix of Northern Irish tax ID numbers.
A valid EU tax identification performs many roles, such as ensuring (or facilitating) the correct tax and customs treatment for intra-community supplies. The VIES platform, that runs the EU VAT Information Exchange System, is an example of the importance the EU gives to valid tax ID numbers. To ensure parties to a transaction can check each other’s tax ID numbers and are eligible to exemptions on intra-community supplies, the EU has established the VIES system, which will likely be the first EU mechanism directly affected by the creation of the new Northern Irish country code.
Such a proposal from the EU Commission may impact Member States’ systems. Upon adoption, the new Directive will require Member States to quickly adjust their apparatus to process “XI” invoices from January 2021. Countries operating some degree of continuous transaction controls, such as Italy, Hungary, and Spain, may be expected to update their platforms to comply with the amendment.
Impact on accounting and ERP systems
If passed, the proposal will impact taxpayers’ accounting and ERP systems which will need to process and recognize the “XI” country code in issued and received invoices as a Northern Irish indicator. Moreover, many systems allow the use of user-assigned country codes in customized transaction flows. User-assigned country codes are ISO codes that are freely assigned by users and used at their discretion, for example flows between supported and non-supported countries within an ERP system. So far, “XI” has been a user-assigned country code. Consequently, the proposal may force many IT departments to change internal policies regulating the use of user-assigned country codes.
Tax departments must also be aware of the tax treatment of “XI” invoices, given that EU VAT law won’t apply to supplies of services performed to/from Northern Ireland, but only to supplies of goods. Consequently, companies must create internal flows to deter the use or validation of the “XI” country code in supplies of services if unaccompanied by a valid “GB” country code.
The Council of the European Union is expected to deliberate about the proposal next on 9 September.
As anticipated, further information has been published by the Portuguese tax authorities about the regulation of invoices. Last weeks’ news about the postponement of requirements established during the country’s mini e-invoice reform, and the withdrawal of a company’s obligation to communicate a set of information to the tax authority, culminated in the long-waited regulation about the unique identification number and QR codes.
Back in 2019, the Law-Decree 28/2019 introduced the unique identification number and QR code as mandatory invoice content. Previously expected to be enforced on 1 January 2020, the details about what constitutes such a unique identification number and the content of the QR codes were missing. However, the Portuguese government has now published an Ordinance further regulating both requirements.
A new validation code
According to the Ordinance 195/2020, as of 1 January 2021, companies issuing invoices under Portuguese law must communicate the series used in invoices to the Portuguese tax authorities, prior to it being applied. Once the series has been communicated, the tax authority issues a validation code for each reported number series.
This validation code is later used as part of the unique identification number that has been named ATCUD. The ATCUD comprises the validation code of the series and a sequential number within the series in the format “ATCUD:Validation Code-Sequential number”. The ATCUD must be included in all invoices immediately before the QR code and be readable on every page of the invoice.
To obtain a validation code, taxpayers must communicate the following data to the Portuguese tax authority:
The identification of the document series;
The type of document, following the document types established in the SAF-T (PT) data structure;
The starting number of the sequential number used within the series;
The date when the taxpayer is expected to start using the series to which a validation code is required;
Once approved, the tax authority creates a validation code with a minimum size of eight characters.
According to the Ordinance, the sequential number that is also part of the ATCUD is a reference obtained from a specific field of the Portuguese version of the SAF-T file.
Although the Ordinance meant to introduce QR code details, it states that technical specifications will be published on the tax authority’s website. The Ordinance nevertheless says that a QR code should be included in all invoices and documents issued by certified software. It also states that the QR code should be included in the body of the invoice (on the first or last page) and be readable. Technical specifications for the QR code are available from the tax authority’s website.
Last week’s Ordinance doesn’t change the scope of companies that need to use certified software to issue invoices, nor does it change the certification requirements. However, Portuguese taxpayers must, once again, adapt their current business and compliance processes and are under pressure to change their systems before the 1 January 2021 deadline.
The United Kingdom’s HMRC has issued new guidance on the VAT treatment of cross-border sales of goods and online marketplaces beginning 1 January 2021, following the end of the transition period.
Cross-Border Sales under £135
New rules will apply when a business sells goods for £135 or less to a UK customer and the goods are located outside the UK at the time of the sale. For business to consumer supplies, the seller must collect supply (output) VAT. This means that overseas vendors will be required to register for VAT and will also be required to issue VAT invoices on such supplies. No import VAT will be owed on the sale, but customs declarations will still be required. Please note that for sales from the EU, the HMRC has indicated that it plans to continue to require submission of Intrastat declarations.
The £135 threshold is determined per consignment, and not on individual goods within a consignment. A consignment’s value is based on the VAT exclusive price of the goods in the consignment and does not include separately stated freight charges. The threshold is intended to align with the threshold for customs duty liability.
The £135 threshold rules also apply to business to business supplies. In the case of a supply to a UK business, however, the UK business is liable for the output VAT under the reverse charge mechanism. Import VAT will still be avoided by both parties. For the reverse charge to apply the purchasing business must provide the seller with a UK VAT registration number.
Online Marketplaces
Online marketplaces will also have additional VAT obligations come January 1. For sales of goods, under the £135 threshold, from outside the UK to UK customers, the online marketplace will be required to collect supply (output) VAT in place of the seller, regardless of whether the seller is registered or established in the UK. This means that marketplace sellers are relieved of many of the new obligations described above. Please note that for business to business supplies the reverse charge measure still applies so long as the purchaser provides the marketplace with its VAT registration number.
Online marketplaces will also be liable to collect VAT on a second class of supplies: specifically, the sale of goods, which are located in the UK at the time of sale but which are owned by a seller based outside the UK, through an online marketplace to UK customers.
Other Changes
In addition to the above changes, HMRC has also announced that:
– Importers will be able to utilize postponed VAT accounting for imports over the threshold, to account for import VAT on their VAT returns instead of paying import VAT to Customs at the time of import.
– Low Value Consignment Relief, which exempted imports of £15 or less from import VAT, has been eliminated.
With less than six months until the new rules come into effect it’s important for businesses to continue to prepare for a post-Transition world.
A touch of CLASS: simplifying access to customs tariff data
CLASS – short for Classification Information System – is the new single point access search facility from the European Commission. It provides access to tariff classification data of goods entering or leaving the EU and is the latest step in developing an integrated approach to managing customs information and procedures. When goods are declared at an EU entry point, they must be classified and declared on customs transit documents either according to the Combined Nomenclature (“CN”), or a Member State’s domestic classification. CLASS provides easy access to the correct rate of customs duty and details of any non-tariff measures that apply. It also provides:
Conclusions of the Customs Code Committees
Classification regulations
Rulings of the European Court of Justice
The CN and accompanying explanatory notes
TARIC information (TARif Intégré Communautaire” – Integrated Tariff of the European Communities)
Using CLASS should save businesses significant time in obtaining the required customs information without having to rely on multiple resources across different locations, formats, and languages. Time saving means reduced administration and cost as well as swifter supply chain decision making and ultimately a more efficient goods shipping process.
A new UK global tariff
By coincidence, the UK government almost simultaneously to the launch of CLASS announced the blueprint for the UK Global Tariff (“UKGT”). UKGT is the UK’s replacement for the EU’s Common External Tariff once the Brexit transition period has ended (currently expected to be 31 December 2020). UKGT, which applies duty values in UK pounds instead of Euros, should make it simpler and cheaper for businesses to import goods into the UK from overseas. It features a reduction and simplification of over 6,000 tariff categories and rates (e.g. rounding rates to whole percentages), and a lower tariff regime than the EU’s Common External Tariff, including total elimination of tariffs on a wide range of goods. The goal is to ease customs administration for business, expand consumer choice, and enhance competitiveness for UK businesses trading globally. A controversial measure is the abandonment of the EU Measuring table, which removes over 13,000 tariff variations on food products that the government views as unnecessary. Remaining tariffs will be targeted to support specific strategic industries such as agriculture, automotive and fishing, where the UK is considered competitive, and are also intended to enhance competitiveness and the uptake of “green” energies and associated products.
The simplifications heralded by UKGT may offset the anticipated increase in customs administration costs to UK businesses post-Brexit. What is less clear is whether the strategic amendments undertaken to import tariffs will harm UK businesses as their products may not be subject to commensurate low rates on entry to EU countries, especially if there is a “No Deal” outcome to ongoing UK-EU trade negotiations. What is clear, however, is that all these changes should prompt any businesses seeking to import/export goods to/from the UK from next year to review their supply chains and re-examine the impact on their sales prices and profit margins. Since import VAT is calculated on duty-inclusive prices, there may also be consequences in import VAT accounting and cash flow.
E-invoicing systems in the Middle East and North Africa are undergoing significant transformations, aiming to modernise the financial landscape and improve fiscal transparency. Recent updates have seen numerous countries implementing electronic invoicing solutions designed to streamline tax collection and reduce VAT fraud.
E-invoicing Trends in the Middle East
Saudi Arabia has made significant strides in e-invoicing, leading the way in the Middle East. The country has advanced to the second phase of its e-invoicing mandate where B2B invoices require clearance from the tax authority. As of November 2023, the Zakat, Tax and Customs Authority has announced eight waves of its Phase 2 integration – targeting taxpayers with varying annual turnover thresholds.
While Israel is not adopting a mandatory e-invoicing regime, the country is moving towards requiring taxpayers to submit their invoice data electronically. This move aims to tackle the issue of fictitious invoices. The Israeli invoicing model, a continuous transaction control (CTC) clearance system, is slated for a phased implementation starting in 2024.
The United Arab Emirates has also joined the movement, announcing its ‘e-billing system’ to implement mandatory e-invoicing for B2B transactions in phases.
In other jurisdictions in the region, Oman is poised to implement mandatory e-invoicing in 2024 and Bahrain has invited technology vendors to construct its central platform for an upcoming e-invoicing system. Lastly, Jordan is reported to be exploring the adoption of a mandatory e-invoicing regime.
E-invoicing Trends in North Africa
Egypt introduced a mandatory e-invoicing system for B2B transactions in 2020 with a phased roll-out schedule but, as of April 2023, all companies in Egypt are covered by this mandate. In addition to e-invoicing, there is an e-receipt system in Egypt for B2C transactions.
Tunisia’s mandatory e-invoicing system, which rolled out in 2016, covers B2G and some B2B transactions. Also, Morocco is expected to join the ranks of countries where mandatory e-invoicing applies.
With the VAT landscape in the Middle East and North Africa rapidly evolving, tax digitization regulations necessitate close and continuous monitoring.
Read our E-invoicing Guide for more in-depth information about electronic invoicing’s development and adoption, globally.
Update: 24 June 2020 by Selin Adler Ring
The concept of e-invoicing as a vehicle for increased tax control and cost reduction, continues to spread into new areas of the world. The number of countries adopting e-invoicing regimes are rising in the Middle East and North Africa as both governments and businesses by now are well-aware of the benefits. While some countries in these regions have already embraced e-invoicing, others are on their way to adopt Continuous Transaction Controls (CTC) systems. Even though the countries in these regions follow different approaches, the initial goal is the same: digital transformation of tax controls.
E-invoicing Trends in the Middle East
In the Middle East there are many moving pieces. The United Arab Emirates, Saudi Arabia, Oman and Qatar have already permitted e-invoicing. Following the introduction of VAT in January 2018, Saudi Arabia also started promoting a national electronic invoicing platform called ESAL. Oman and Qatar have yet to implement VAT but once they have, e-invoicing will be even more significant for these countries and they’ll take inspiration from other countries in the region that are moving towards CTC regimes.
In Jordan, the tax authority is conducting research to analyze CTC regimes in different countries, which is a strong signal that they too may very soon announce their intention to introduce a new CTC e-invoicing system.
Israel has recently revealed its new CTC regime plans and advised accounting software vendors to prepare for the upcoming CTC regime. After Israel’s adoption of a CTC regime, developments in the region will accelerate in a domino effect.
E-invoicing Trends in North Africa
Tunisia is a pioneer for e-invoicing. Since 2016, electronic issuing of invoices has been regulated in the Finance Law and e-invoicing is mandatory for larger taxpayers. The Tunisian e-invoicing regime requires e-invoices to be registered by a government appointed authority and therefore falls within the CTC framework.
Another country quickly moving towards a CTC framework is Egypt. The Egyptian Government has for some time been assessing best practices for CTC regimes. Finally, in April 2020, a decree mandating e-invoicing for all registered businesses was published in the country. However, the details of the e-invoicing system are yet to be disclosed. The technical controls and conditions to be adhered to and the stages of implementing the e-invoice system will be defined by the Egyptian Tax Authority.
Morocco has also been watching different e-invoicing systems. After Egypt’s e-invoicing initiatives, the Moroccan Government is a likely candidate to make a similar move towards mandating e-invoicing for taxpayers registered in the country.
It’s clear that e-invoicing, in all its shapes and versions, is a trend that is becoming increasingly popular across the Middle East and North Africa where the introduction of CTC regimes is expected in the coming years. Although there are likely to be similarities in the measures taken, each country has its own unique characteristics when it comes to taxation, tax control challenges and legal culture, and as a result diversity in each regime should be expected.
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IPT services from rate determination to regulatory updates, preparing returns through to submission and payment.
End-to-end, technology enabled IPT Managed Services ease both compliance workloads and risk, wherever you operate today, and handles the insurance premium tax requirements in the markets you intend to dominate tomorrow.
Sovos IPT Managed Services provide support from our team of local language experts using software which is dynamically updated in real-time. Our team of regulatory specialists monitor and interpret regulations around the world, so you don’t have to.
This combined approach of people, skills and software allows you to stay ahead of constantly changing filing requirements. So, whether it’s meeting the demands of specific country insurance premium tax declarations or providing dedicated fiscal representation and payment solutions you can count on Sovos. Easing your IPT compliance burden is our business.
Sovos IPT Management
Benefit from a complete end-to-end offering, differentiated by our comprehensive and detailed software, that helps you keep up to date and supports the work our team carry out on your behalf – so you really do have peace of mind.
Act as your local fiscal representative/agent
Calculate IPT in line with various tax jurisdictions
File and submit your IPT returns and associated declarations
Maintain a full audit trail of accounts
Provide dedicated client bank accounts
Manage any local registration process
Provide help with tax filings
Assist with revenue authority audits, health checks and other associated consulting queries
Ease your compliance workload and mitigate risk wherever you trade today
Sovos VAT Managed Services is a blend of human expertise and software. Our multi-lingual team of VAT experts use our proprietary global tax compliance software which is updated whenever and wherever VAT regulations change. Our global regulatory specialists have their finger on the pulse of regulatory change freeing you to focus on your business.
Being global, we’re already able to cover the markets you intend to expand into tomorrow.
This synergy of people, skills and technology means you’re always prepared and ready for when filing requirements change. So, whether it’s meeting the demands of international VAT compliance in Europe or globally: easing your VAT compliance burden is our business.
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A global service, powered by our comprehensive software, helps you stay ahead of ever-changing VAT regulations around the world whilst easing the burden on your team – complete compliance peace of mind.
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For companies operating in Turkey, 2019 was an eventful year for tax regulatory change and in particular, e-invoicing reform. Since it was first introduced in 2012, the e-invoicing mandate has grown, and companies are having to adapt in order to comply with requirements in 2020 and beyond. Turkey’s digital transformation and e-invoicing landscape continues to evolve.
According to the General Communique on the Tax Procedure Law (General Communique), more taxpayers now need to comply with the mandatory e-invoicing framework. The General Communique published on 19 October 2019 covers other e-documents such as e-arşiv, e-delivery note, e-self-employment receipts, e-producer receipts, e-tickets, e-note of expenses, e-Insurance Commission Expense Documents, e-Insurance Policies, eDocument of Currency Exchange, and e-Bank Receipts.
The scope of e-invoicing
From 1 July 2020, taxpayers with a gross sales revenue of TL 5 million or above in fiscal years 2018 or 2019 must switch to the e-invoice system. Taxpayers who meet these requirements in 2020 or later, should switch to the e-invoice system at the beginning of the seventh month of the following accounting year.
Mandatory e-invoicing is not only based on the threshold
Turkey’s tax authority has set some sector-based parameters for businesses operating in Turkey. Companies licensed by the Turkish Energy Market Regulatory Authority, middlemen or fruits or vegetable traders, online service providers facilitating online trade, importers and dealers are some of the taxpayers also required to switch to e-invoices, irrespective of their turnover.
The scope of E-Arşiv invoice
E-arsiv fatura documents B2C transactions. But also in case the transacting counterparty is not registered with the TRA for e-invoicing. Similar to e-invoice, the e-arşiv invoice, became mandatory for intermediary service providers; online advertisers; and intermediary online advertisers who switched to the system from 1 January 2020.
Taxpayers not in scope for e-invoice and e-arşiv must issue e-arşiv invoices through the Turkish Revenue Administration´s portal. That is if the total amount of an invoice issued, including taxes, exceeds:
TL 5.000 for B2B
TL 30.000 for B2C transactions.
Turkey’s Government continues to tackle its VAT gap through digital transformation. By taking greater control of reporting and requiring more granular tax detail. So, businesses operating in Turkey need powerful e-invoicing strategies to comply with the growing demands for digital tax transformation.
Anyone predicting Italy’s clearance model e-invoicing system, FatturaPA, would undergo further reform would be right. Agenzia delle Entrate – AdE, the Italian tax authority, has issued new technical specifications and schemas for Italian B2B and B2G e-invoices. But – what do these changes really mean? And what impact do they have on business processes?
Technical and content updates
Over recent weeks, three updates have been introduced:
A new version 1.6 of the FatturaPA B2B XML format
A new version 1.3 of the FatturaPA B2G XML format; and
A new version 1.8 of the technical specifications for the SDI platform.
The inclusion of withholding taxes (especially social contributions) is one of the new content requirements for the B2B and B2G XML formats. There are also 12 new document types (including self-billed invoices and integration documents) and a further 17 new nature of transactions options (such as reasons for exemptions and reverse charges).
These content updates now require Italian companies to have a deeper understanding of the Italian tax system. The changes impact the moment taxpayers classify their supplies: under the current model, Italian companies don’t have to worry about this until the submission of their VAT returns but under the new schema this classification will be performed in real-time. These updates are likely to impact business processes. They are a necessary next step in paving the way ahead of the upcoming introduction of pre-completed VAT returns, an initiative largely considered to eliminate administrative burden and make life easier for most Italian businesses.
In parallel, further changes resulting from the new versions of the FatturaPA formats have a technical impact on businesses, demanding IT implementation readiness. Among the technical updates are the inclusion of additional fields, length of content, permitted characters, shifting from optional to mandatory field fulfillment and vice-versa, and how often a field can be repeated.
The new technical specifications also introduced new validations that will be performed by the Sistema di Interscambio – SDI, the Italian government-platform responsible for clearance of e-invoices. Most of the new validations check the content of the e-invoice against document types and the indicated nature of the transactions and require taxpayers to eventually be able to understand, process and react accordingly to new errors.
Implementation deadlines
The SDI platform will start processing B2B invoices in the new FatturaPA format from 4 May 2020, but the AdE will enforce use of the new schema on 1 October 2020, triggering new validations and errors only after this date as per the Provvedimento from 28 February 2020. Different deadlines apply to B2G invoices, unless of course the AdE publishes new transition rules for these invoices before that date. The enforcement of the new schema for B2G invoices is set to begin on 1 May 2020.
In practice, the effect of these deadlines mean that while the schemas for B2B and B2G invoices are indeed the same from a technical perspective, taxpayers will must be ready for different deadlines and be prepared to work with two different invoice schemas from 1 May until 4 May.
Important update
On 12 March (after this blog was posted), AdE has republished version 1.3 of the FatturaPA B2G technical specifications. Although the version number remains the same, the republished version states a new effective date for the new B2G schema: 4 May. With enforcement of the B2G schema on 4 May, the SDI platform will be able to process both B2G and B2B schemas simultaneously, and not on different dates, as informed previously.
Is India postponing the mandatory implementation deadline for e-invoicing? For more than a year, India has been on the path to digitizing tax controls, with the first mandatory go-live for transmission of invoice data to a governmental portal scheduled for 1 April 2020. The very high pace of the roll-out of this reform made many taxpayers concerned that they might not realistically be able to meet the implementation deadline. As a result, leading many to hope that the Indian authorities might instead chose to postpone the go live date.
The latest news from India is that it looks as if these authorities may indeed consider a delay. Or at least discuss the possibility of – a delay to the go-live date. According to The Economic Times, the Indian government is going to discuss whether there is a need to defer the implementation deadline in the next meeting of GST Council, which is scheduled for the 14th of March. So far, a 3-month deferral is an option. This means that should the GST Council grant a delay, the first go-live would take place in July 2020.
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Get in touch to find out how Sovos can help your business meet the e-invoicing deadline in India.
A keystone of HMRC’s Making Tax Digital for VAT (MTD) regime is that the transfer and exchange of data between what HMRC define as “functional compatible software” must be digital whenever that data remains a component of the business’s digital records. This is to maintain a wholly digitally linked audit trail between systems.
Soft landing
When the MTD legislation was introduced, HMRC offered businesses a soft landing period of up to one year to incorporate digital links from the date they became obliged to adopt MTD. During this period, businesses wouldn’t be liable for non-compliance penalties. In practice, this meant:
Businesses required to apply MTD for VAT periods from 1 April 2019 must have digital links in place for the first VAT period starting on or after 1 April 2020 (i.e. soft landing ends 31 March 2020);
Businesses required to apply MTD for VAT periods from 1 October 2019 must have digital links set up for the first VAT period starting on or after 1 October 2020 (i.e. soft landing ends 30 September 2020).
A further lifeline
Due to feedback on the difficulty in applying the new rules, HMRC recently announced it would consider written requests for an extension on a discretionary case-by-case basis where there are genuine reasons for non-compliance (for example, those operating large corporate groups with disparate legacy systems). However, it’s clear an extension will only be granted in exceptional circumstances and businesses will need to have:
Approached HMRC as soon as they realised they wouldn’t meet the digital links requirement, and requested an application before expiry of their soft landing deadline
Provided a detailed explanation why the requirement can’t be met by that deadline
Provided details of software that can’t be digitally linked, along with a blueprint/process map showing how all systems are currently linked
Offer a calculated timeframe by which the digital link requirement should be met (which must be no later than 12 months beyond expiry of their soft landing period) and
Explained what actions, processes and controls will be set up to ensure data handled manually in the meantime will be transmitted accurately.
After review, HMRC will either reject the request or grant a written Direction extending that “soft landing” period by up to 12 months.
What might constitute a genuine reason:
A component part of one piece of software can’t import/export data from other software and it can’t be updated or replaced by the soft landing deadline
The business is in the course of updating or replacing its ERP and the expected implementation date is after the deadline.
What wouldn’t be considered a genuine reason:
Business leadership hasn’t signed-off system changes (unless this is for reasons such as those given above)
The cost of replacing/updating systems or components is deemed too expensive.
Key action points
Know when the soft landing period for digital links comes to an end. It could be as early as 1 April 2020
If digital links haven’t yet been set up to HMRC’s requirements, businesses should re-evaluate program requirements and timelines. Digital links do not include programs or processes that involve ‘cutting and pasting’ of data
If you don’t think the “soft landing” deadline will be met, then gather evidence to support an extension. Contact HMRC before the deadline. (HMRC recommend they contact their Customer Contact Manager initially if one has been assigned, or the MTD Specific Directions Team).
There’s no penalty for requesting an extension. The request can be withdrawn at any time. It’s important to continue working towards the digital link requirements in the meantime
Finally, ensure any commercial solutions that might be able to resolve system gaps have been explored.
Certification of e-invoice service providers is an important first step and milestone ahead of the implementation of e-invoicing in Greece. The Greek Government has now defined the regulatory framework for e-invoice service providers, their obligations, and a set of requirements needed to certify their invoicing software. Find out what you need to know about the accreditation scheme for e-invoicing service providers in Greece.
Key details and parameters
Scope
E-invoice service providers are entities the taxpayer authorises to issue invoices on their behalf electronically for B2B in addition to B2C transactions. They’re responsible for issuing, the authenticity and integrity, and the transmission of transaction data to the tax authority in real-time. Other outsourced functions include e-invoice delivery to the buyer directly and archiving on behalf of the issuer.
Software requirements
The service provider’s software must meet a number of requirements. It must for example be able to guarantee integrity and authenticity of the invoice according to the SHA-1 algorithm, provide real-time connection with the customer’s software, and make the invoice available to the customer in electronic (or, upon request, in paper) form. Any software which meets these criteria recieves a “Suitability Permit”, which is valid for five years.
Service provider requirements
Service providers must be a Greek registered entity or permanently established in Greece. They must also meet certain technical, security and financial criteria and the invoice data must be stored within the EU. Other obligations also include making a user manual available to the customer; notifying the tax authority of each outsourcing contract they have entered into; and addressing privacy-related matters.
Transmission method and e-invoice format
The transmission method to the myDATA will be the myDATA REST API and the format of the e-invoice exchanged between the parties is based on the EN norm, as defined by law just a few days ago. The myDATA website will publish any details and further legislation.
Through this Decision, the Greek Government is introducing the long-awaited secondary legislation, as mandated in the budget law 2020 earlier this year. Precisely how these provisions will work together with the myDATA scheme, scheduled to be fully operational on 1 April 2020, is still to be defined by the authorities. However, Greece requires further legislation, as well as a formal derogation decision from Brussels. This is if the Greek government wishes to mandate e-invoicing in the country. As such a reform would deviate from principles laid out in the EU VAT Directive.
For those following the ongoing tax control reform in India, 2019 has been a very eventful year for Indian e-invoicing. Starting last spring, a group of government and public administration bodies have convened regularly with the mission of proposing a new way of controlling GST compliance through the introduction of mandatory e-invoicing. Given the vast impact such a reform would have on not just the Indian but the global economy, these discussions, often carried out behind closed doors, have triggered a large number of rumours, sometimes leading to misinformation on the market.
Navigating the information deficit
So far, not much information of a formal or binding nature has been published or made available to the public. After the public consultation held earlier this autumn, a high-level whitepaper describing the envisaged e-invoicing process was published; however, since then nothing formal or binding has been released. A recent media note made available by the relevant authorities to the press indicated that the timeline envisaged by the government for the roll-out would be:
1 January 2020: voluntary for businesses with a turnover of Rs.500 Crore or more;
1 February 2020: voluntary for businesses with turnover of Rs.100 Crore or more;
1 April 2020: mandatory for both of the above categories and voluntary for businesses with a turnover of less than Rs. 100 Crore.
While the clarity was welcomed, this timeline was not yet binding, and as a result, taxpayers were left with little information on how to meet the requirements of the tax control reform, and no binding indication of when they need to comply. However, this situation is now currently being remedied, and we are seeing the first codification into law.
The first pieces of legislation make an entrance
On December 13, 2019, a set of Notifications (No. 67-72/2019) introducing amendments to the existing GST legislation framework were released and are currently awaiting publication in the Gazette of India. In a nutshell, these Notifications:
Introduce the principle that an invoice is only considered as valid if it contains an Invoice Reference Number (IRN), and failing to issue it according to the envisaged process means that it cannot be considered as an invoice;
Formalise the first mandatory part of the roll-out plan: introducing the obligation to comply with these requirements by 1 April 2020 for companies with a turnover of Rs.100 Crore or more;
Introduce an obligation for businesses with a turnover of Rs.500 Crore or more to include a QR code on B2C invoices as of 1 April 2020.
These Notifications issued on December 13 will be the first of many pieces of documentation that are needed to formally clarify the details of the upcoming e-invoicing reform. More important still, they serve as a clear indication that the relevant Indian authorities are nearing the end of what has been an analytical and consultative design period, and that they now instead are transitioning into a period of preparation for the first roll-out.
Your SAP S/4 Migration and ‘Always On’ VAT Compliance Are on a Collision Course – Here’s How to Manage
If you’re an SAP user and you want to better understand your options in moving to S/4 in relation to tax compliance, this story should help. Download it now.
Prepare for the SAP S/4 migration to ensure continued tax compliance
SAP users wanting to better understand their options when migrating to S/4 from a tax compliance perspective should read this e-book. Gain insight into the future of global tax, including paperless transactions, business networks and the advent of transaction-orientated indirect tax enforcement.
The e-book also provides examples that explain the options for moving to a new ERP software – an important decision spanning multiple business departments, such as tax, accounting, IT and revenue.
Download our e-book to understand:
What are the greenfield and brownfield S/4 migration options?
What has changed in global tax?
What other approaches exist for S/4 migration?
What are the criteria for a future-proof VAT compliance solution?
How can Sovos help?
SAP plans to discontinue support for ECC6 by 2025 and that deadline will loom closer and closer as the months pass by.
It is quite clear from market data that many companies will not be able to migrate to S/4 prior to the 2025 deadline – even 2025 will prove tight on time for many, and in some cases, companies will find this deadline near-impossible to make.
Furthermore, many SAP users are yet to automate procurement and customer interactions: a significantly large proportion of orders and invoices are still exchanged on paper, often using ample scanning and OCR software in accounts payable.
Tax digitization is a trend that continues to rise in importance, with tax authorities across the globe introducing e-invoicing and continuous transaction controls (CTCs) to close the VAT gap. Tax compliance requires processes to be updated to comply with these digital tax changes.
Legacy reporting processes, organizational structures and technologies that continue to directly interact with your ERP systems need to evolve. The transformation of indirect tax is becoming a reality: manual, decentralised or shared service centre-aided indirect tax reporting will become a peripheral activity while your organisation negotiates the transformation to ‘always-on’ compliance.
If these challenges sound familiar, our e-book is equipped to help you overcome them. Our expert team have distilled their knowledge into this easy-to-digest guide on a complex subject that is underpinned by an increasingly urgent deadline.
How Sovos can help
At Sovos our goal is to allow our SAP customers to switch to a single vendor they can entrust their data to. This seamless migration will simplify operations and ensure compliance with each country’s different periodic or continuous controls at any time.
In doing so, you decouple business and tax functionality so you can focus on the former to power your digital and finance transformation – important considerations in an increasingly digital world where widespread digitisation is the expected status quo rather than a purely innovative force.
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.
Experience end-to-end handling with compliance peace of mind with Sovos.
Italy has been at the forefront of B2G e-invoicing in Europe ever since the central e-invoicing platform SDI (Sistema di Interscambio) was rolled out and made mandatory for all suppliers to the public sector in 2014.
While a number of its European neighbours are slowly catching up, Italy is continuing to improve the integration of new technologies with the public administration’s processes. Its latest move is to make e-orders mandatory in public procurement. By leveraging the successful use of the public administrations’ Purchase Orders Routing Node platform (Nodo di Smistamento degli Ordini, or NSO) in the Emilia-Romagna region, Italy is now extending the functionality throughout the country.
E-ordering for purchases beyond healthcare products
As of 1 October 2019, all purchase orders from the Italian National Health System (Servizio Sanitario Nazionale, or SSN) must be delivered to and received by suppliers through the NSO platform. The suppliers affected by the mandate will be required to receive e-orders from public entities; the public administration will not proceed with the liquidation and payment of invoices issued by non-compliant companies. It is noteworthy that the mandate covers all purchase orders made by entities associated with the SSN, including office supplies and electronics, and not just health-related products.
In addition to mandatory receipt of e-orders, suppliers will also be able to send messages to the public administration. In cases where suppliers and the public administration have previously agreed, the supplying company may send pre-filled e-orders to the public administration buyer, which will confirm or reject the proposed supply.
Foreign suppliers and the new e-ordering mandate
Moreover, foreign suppliers must also comply with this mandate. The NSO mandate will have some impact on e-invoicing for Italian public administrations seeing as certain e-order data must be included in the e-invoices that are transmitted through the SDI.
The NSO system is built upon the existing SDI infrastructure, and as a result, the communication with the NSO requires similar channel accreditation as the SDI. Suppliers and intermediaries already performing the transmission of messages through the SDI platform are required to comply with complementary accreditation requirements, which are yet to be published. Furthermore, the technical specifications show that PEPPOL intermediaries may interact with the NSO platform through an Access Point service accredited with the NSO.
Anyone who has been closely following SAF-T announcements over the past few years may be forgiven for thinking that it all seems rather like Groundhog Day. Commencement dates and reporting requirements have been announced and subsequently amended and re-announced as the respective countries re-evaluate their needs and the readiness of companies to provide the data in the prescribed formats.
Earlier this month Poland announced that the changes planned for 1 July 2019, requiring mandatory filing of SAF-T information and the corresponding withdrawal of the requirement to submit a periodic VAT return, have now been deferred to January 2020.
Also this month, Romania announced plans to become the eighth country to introduce SAF-T by introducing requirements for transactional reporting by the end of 2020.
So, what is SAF-T, what is the latest position for countries which have introduced legislation and what lies ahead?
SAF-T – The Standard Audit File for Tax
The Standard Audit File for Tax (SAF-T) was developed by the Organisation for Economic Co-operation and Development (OECD) with the aim of producing a standardised format for electronic exchange of accounting data from organisations to their national tax authority and external auditors.
The two key principles behind SAF-T are that;
Organisations should be able to export information from their accounting systems (invoices, payments, general ledger journals and master files) into a standardised format and
Tax authorities and external auditors should be able to make their tax inspections and audits more efficient and effective as a result of data being made available to them in that standardised format.
In 2005 the OECD released the first version of the SAF-T schema which provides details of what should be included in a SAF-T xml reporting file and how that data should be formatted and structured. The original schema was based on the general ledger and details of invoices and payments, together with customer and supplier master files. A second version of the SAF-T schema was released in 2010 to incorporate information about Inventory and Fixed Assets.
What the OECD have not defined, and what remains the responsibility for the tax administration in each country to decide, is the exact format in which the data is to be captured and when and how it is required to be sent to the tax administration.
Different approaches
What has emerged from those countries which have adopted SAF-T are three broad approaches;
Data to be provided at the request of the tax authority (usually prior to a tax inspection or audit)
Submission of data periodically in addition to the periodic VAT return
Submission of transactional data as a replacement to the periodic VAT return
In some cases, the mandate starts with a requirement to produce data on request and evolves through to periodic submissions.
Where are we now?
There are currently seven countries which have introduced legislation enforcing SAF-T requirements.
Portugal
Portugal was one of the first adopters and Portuguese entities have been required to extract data into the SAF-T file format (based on version 1 of the OECD SAF-T schema) since 2008 on an annual basis. Further extensions to collect sales invoice data and other documents on a monthly basis followed in 2013.
Luxembourg
Luxembourg introduced the requirement to extract data in the relevant format in 2011. It only applies to Luxembourg resident companies subject to the local chart of accounts and is only required to be submitted when requested by the tax authority.
France
France introduced a SAF-T requirement in 2014, using a proprietary format rather than the OECD standard SAF-T schema, requiring files to be submitted in txt format. It is currently only required to be filed on demand when requested by the French tax authority.
Austria
Austria introduced SAF-T in 2009 and is currently only required on demand when requested by the tax authority.
Poland
Possibly the most significant implementor of SAF-T to date, with large companies having had to file monthly JPK (Jednolity Plik Kontrolny) returns since 2016.
Lithuania
Lithuania introduced the requirement to file the SAF-T based i.MAS on a phased basis, starting with the largest organisations in 2016 and working towards mandating SAF-T for all businesses by 2020. The i.MAS comprises three parts, i.SAF reporting of sales and purchase invoices on a monthly basis, i.VAZ reporting of transport/consignment documents and the i.SAF-T accounting transaction report, which is only required when requested by the tax authority.
Norway
SAF-T has been in place on a voluntary basis since 2017 and there are proposals to mandate it, on an ‘on-demand’ basis from January 2020.
What lies ahead for the future of SAF-T?
Countries which are receiving regular, transactional level details under SAF-T may look to reduce the periodic VAT return requirements. This is because the need to prepare a VAT return summarising the details which the tax authority already receives on a transactional basis can be seen as unnecessary duplication.
Poland is proposing that SAF-T data submissions will displace the need for filing a VAT return from January 2020.
Romania is proposing a phased transition to filing of transactional data from 2020, starting with large organisations, with a reduction in the VAT returns which are required to be filed.
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Split payments is one of the methods that European countries with a considerable VAT gap use to tackle it. Across the EU, the VAT gap in the EU in 2016 was reported to be €147.1bn.
Poland introduced voluntary VAT split payments in July 2018. Since then around 25% of taxpayers have adopted this payment method. This equates to 400,000 out of 1.6 million taxpayers currently active on the Polish market. However, only 9% of the total amount of VAT has been paid using this mechanism since last year.
The VAT split payment mechanism means that the amount of commodities or supplies for consideration is being paid to the taxable person into one account, while the VAT amount charged in the underline transaction is deposited in a different bank account designated for this purpose.
On May 16, 2019 the Ministry of Finance published draft legislation which intends to introduce mandatory split payments from September 1, 2019. Poland received temporary approval, valid until 2022, from the European Commission on February 18, 2019, subject to introducing some limitations to the mandate. Consequently, split payments will apply to (and substitute) reverse charge transactions and those with purchaser tax liability; it will also apply to 150 selected goods and services, such as car parts, coal, fuel, waste and some electronic equipment. In addition, to comply with the mandate, the value of the transaction must exceed the threshold of PLN 15,000 (approximately €3,500). The Ministry of Finance reported that the selected industries are those where state tax administration observes the highest tax avoidance.
Since July 2018, taxpayers complained that the way in which split payment is regulated influences their financial liquidity. The bank account to which VAT is paid belongs to the taxpayer, however, its freedom to spend this money is currently limited to paying VAT. With the planned amendments, taxpayers will be able to pay other state charges from the VAT accounts, such as social security charges and other tax liabilities including income tax, excise and customs duties.
Split payments will also apply to non-resident companies subject to VAT in Poland, who are settling transactions by means of bank transfers, and are otherwise in scope of the mandate as per the general rules. Based on the Ministry of Finance estimates, there are around 550 such companies, 150 of which do not even have a local bank account. Complying with the local split payment regime will be more of a challenge for these companies.
Sanctions for non-compliance may affect both the supplier and buyer. Suppliers may be charged with 100% of the VAT due for not including a mandatory statement on the invoice which is subject to split payment (in Polish: “mechanizm podzielonej płatności”). Buyers may be penalised in the same way for not paying VAT to the VAT account, alternatively they may be deprived of the right for tax deduction.
Split payment was either introduced or is being considered in three other European countries. Italy and Romania both introduced a split payment mandate for certain businesses from 2015 and 2018 respectively. In the UK, public consultations were held throughout 2018 with a view to introducing split payments. From April 2019 Romania withdrew mandatory split payments, following the November 2018 order of the European Commission which concluded that the mandate is disproportionate. It will now maintain a voluntary split payment regime.
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