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.
Sovos VAT Managed Services
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.
Local VAT representation
Receive comprehensive expertise in all the relevant regulations wherever your company does business.
Outsourced registration process
Let our global VAT experts handle your registration so you can concentrate on your core competencies.
Accurate VAT calculations based on country jurisdictions
Count on the numbers you receive from our solutions because they come from extensive knowledge of each territory’s rules.
Help with your local tax filings
Let our experts take care of the details so you can focus your attention elsewhere.
Tax returns prepared and submitted
Use our VAT return services to make certain every aspect is handled in the most appropriate manner.
Easy access to a maintained and full audit trail of accounts
Ensure total compliance with our comprehensive VAT reporting solutions.
Real-time regulatory updates for all tax jurisdictions
Stay on top of all the latest developments wherever you have operations, at all times.
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.
Take Action
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.
Take Action
To find out more about what we believe the future holds, follow us on LinkedIn and Twitter to keep up-to-date with regulatory news and other updates.
Split payments is one of the methods that European countries with a considerable VAT gap use to tackle it. Across the EU, the VAT gap in the EU in 2016 was reported to be €147.1bn.
Poland introduced voluntary VAT split payments in July 2018. Since then around 25% of taxpayers have adopted this payment method. This equates to 400,000 out of 1.6 million taxpayers currently active on the Polish market. However, only 9% of the total amount of VAT has been paid using this mechanism since last year.
The VAT split payment mechanism means that the amount of commodities or supplies for consideration is being paid to the taxable person into one account, while the VAT amount charged in the underline transaction is deposited in a different bank account designated for this purpose.
On May 16, 2019 the Ministry of Finance published draft legislation which intends to introduce mandatory split payments from September 1, 2019. Poland received temporary approval, valid until 2022, from the European Commission on February 18, 2019, subject to introducing some limitations to the mandate. Consequently, split payments will apply to (and substitute) reverse charge transactions and those with purchaser tax liability; it will also apply to 150 selected goods and services, such as car parts, coal, fuel, waste and some electronic equipment. In addition, to comply with the mandate, the value of the transaction must exceed the threshold of PLN 15,000 (approximately €3,500). The Ministry of Finance reported that the selected industries are those where state tax administration observes the highest tax avoidance.
Since July 2018, taxpayers complained that the way in which split payment is regulated influences their financial liquidity. The bank account to which VAT is paid belongs to the taxpayer, however, its freedom to spend this money is currently limited to paying VAT. With the planned amendments, taxpayers will be able to pay other state charges from the VAT accounts, such as social security charges and other tax liabilities including income tax, excise and customs duties.
Split payments will also apply to non-resident companies subject to VAT in Poland, who are settling transactions by means of bank transfers, and are otherwise in scope of the mandate as per the general rules. Based on the Ministry of Finance estimates, there are around 550 such companies, 150 of which do not even have a local bank account. Complying with the local split payment regime will be more of a challenge for these companies.
Sanctions for non-compliance may affect both the supplier and buyer. Suppliers may be charged with 100% of the VAT due for not including a mandatory statement on the invoice which is subject to split payment (in Polish: “mechanizm podzielonej płatności”). Buyers may be penalised in the same way for not paying VAT to the VAT account, alternatively they may be deprived of the right for tax deduction.
Split payment was either introduced or is being considered in three other European countries. Italy and Romania both introduced a split payment mandate for certain businesses from 2015 and 2018 respectively. In the UK, public consultations were held throughout 2018 with a view to introducing split payments. From April 2019 Romania withdrew mandatory split payments, following the November 2018 order of the European Commission which concluded that the mandate is disproportionate. It will now maintain a voluntary split payment regime.
Take Action
Read more about split payments across Europe, download Trends: e-invoicing compliance and join our LinkedIn Group to keep up to date with regulatory news and other updates.
Ashland maximises VAT reporting efficiency with Sovos
case study
Ashland
Ashland gained standardisation, efficiency, accuracy and tailored service in 40 VAT regimes and two shared services centers by turning to Sovos VAT Reporting.
Summary
Business Challenges
Processing 40 VAT returns in EMEA, plus reports, each month, Ashland’s approach to compliance was centralised but not standardised, making compliance time-consuming and error prone.
The company turned to two shared service centres, and needed a VAT solution to standardise compliance and improve efficiency.
Solution
Ashland implemented Sovos’ VAT Reporting solution to address these challenges and provide customised support.
Ashland has since also implemented Sovos SAF-T and Spain SII solutions to maintain a centralised, efficient compliance process.
Results
With Sovos, Ashland realised standardisation, efficiency and accuracy, allowing its team to focus on analysis and process improvements.
The time needed to prepare a VAT return decreased by an average of 30%-50%.
Ashland maintains constant compliance in the countries in which it operates.
The Company
Ashland Global Holdings Inc. (NYSE: ASH) is a premier global specialty chemicals company serving customers in a wide range of consumer and industrial markets, including adhesives, architectural coatings, automotive, construction, energy, food and beverage, personal care and pharmaceutical. Ashland employs approximately 6,500 passionate, tenacious solvers – from renowned scientists and research chemists to talented engineers and plant operators – who thrive on developing practical, innovative and elegant solutions to complex problems for customers in more than 100 countries.
The Challenge
With 40 VAT registrations throughout EMEA and two shared services centers in different locations, Ashland’s approach to VAT returns and reporting was not standardised. Each accountant had an individualised approach to reconciliations and report preparation, making it difficult to review and validate returns in an efficient manner. Without a standardised process, VAT compliance was a time-consuming initiative.
The Solution
Processing 40 VAT returns per month in EMEA, in addition to other VAT reporting, Ashland decided to move its VAT compliance processes to two shared service centers – one in Poland and one in India. With this centralisation, the company needed a single tool that would not only generate returns in each country, but also enable standardisation and accuracy.
“Without good software, it would be impossible to adjust to the quickly changing VAT reporting obligations. We would not be able to meet these new regulations on time without Sovos.”
Anna Buchnowska
EMEA VAT manager, Ashland
The Benefits
Ashland cites several advantages from standardisation resulting from Sovos VAT Reporting solution implementation, particularly in terms of efficiency and accuracy. VAT processes, including preparation, reconciliation and generation of reports, are now more efficient. This leaves more time for the tax team to focus on real analysis instead of answering to auditors and managing the technical aspects of compliance (e.g., data gathering, excel tables, etc.). This also makes reports easier for the VAT manager to review and control.
VAT reports are automated, improving accuracy by reducing human errors, enabling review of several transactions at once and self-auditing before reports are submitted. Sovos also allows Ashland to quickly adjust to new and expanding VAT reporting obligations, like SAF-T.
On the corporate end, Ashland has realised efficiencies and cost-cutting, allowing the company to maintain and continuously improve its level of compliance.
The Results
Despite growing complexities in the EMEA compliance landscape and an ever-expanding number of reporting requirements, Ashland is able to manage VAT reporting with the same number of staff members as it did prior to implementing Sovos – and do so more efficiently. The time needed to prepare a VAT return decreased by an average of 30%-50% with the implementation of Sovos, allowing the VAT team to focus more on improving verifications, control processes and conduct analysis. Since implementing Sovos, Ashland is able to identify any problems before reporting and manage audits very quickly, mitigating the risk of penalties with clear, accessible and verified data.
Why Sovos?
As Ashland considered options for VAT compliance, it looked at consulting firms in addition to technology providers. With Sovos, Ashland got the standardisation and accuracy it required. As it was determining its VAT solutions partner, though, the decision was not simply driven by technology. The company placed an emphasis on service as well. Ashland ultimately selected Sovos because tax leaders were convinced they would get strong, tailor-made service, much more so than traditional consulting models.
Since initially selecting Sovos for its VAT reporting solution, Ashland has expanded its relationship to include compliance with Spain’s SII requirements as well. A natural fit for emerging compliance requirements around the globe, Ashland benefits from using Sovos to maintain one compliance solution.
Companies dealing with complex sales and use tax determination, VAT regulations and other tax challenges across the globe know that SAP alone is not equipped to support the varying requirements from country to country. As SAP sunsets support and updates for ECC and R3, companies must move to HANA to keep their systems up to date. With this inevitable change to S/4HANA or HANA Enterprise Cloud, now is the perfect time to step back and develop a comprehensive strategy to managing tax worldwide.
SAP users must migrate to HANA by 2025, but a majority have not yet started the process. Since the move requires major changes to ERP infrastructure, SAP users with global operations should take advantage of the unique opportunity to be more strategic in their implementation. With the right approach, companies can future-proof their solutions in a way that ensures they can keep pace with constant changes in tax regulations throughout Latin America, Europe and beyond.
Learn how to minimise business disruption during an SAP S/4HANA upgrade project in the wake of modern tax: Read Preparing SAP S/4HANA for Continuous Tax Compliance and don’t let the requirements of modern tax derail your company.
Governments around the world are implementing technology for tax enforcement. In order to keep up, companies must make the digitisation of tax a core pillar of their HANA migrations.
In the move to HANA, companies must consider the new world of tax, which includes:
Constant change management – Companies must be able to anticipate and quickly adapt to major tax reform legislation and smaller rate and field changes while not disrupting operations or risking non-compliance.
Internal processes – Compliance often requires changes to basic processes, procedures and technologies employed by global companies. For example, in Latin America, logistics can be impacted by VAT regulations because many countries now require e-invoices to act as a bill of lading, created before products can ship.
Required automation – Standardisation requirements in Latin America and Europe are designed to quickly identify errors and data discrepancies by eliminating paper-based reports in favour of automated processes. Companies must automate their own operations to avoid errors and audit triggers.
The move to S/4HANA or HANA Enterprise Cloud requires companies to move all of their processes, customisations and third-party add-ons to the new platform. As such, there are several critical considerations.
What to migrate, and when
Since most companies’ SAP ERP systems have been built and customised over many years, many will benefit from a phased approach to HANA implementation. The less customised modules, such as Financial Accounting (FI) and Controlling (CO) will be easier to move than Materials Management (MM) or Sales and Distribution (SD), which will need a long-term plan for customisations.
What to do with customisations and third-party apps
Many SAP configurations have become a patchwork of customised code and bolt-on applications. This is especially true when it comes to sales and use tax determination, e-invoicing, and VAT compliance and reporting, since requirements are vastly different in every jurisdiction a company operates. The move to HANA gives companies the opportunity to consolidate, eliminating local configurations in favour of a global strategy. Companies that proactively plan can help to ensure that the next 15 years are simplified, without the constantly changing configurations needed in the previous 15 years as governments have gone digital.
Take Action
With an upcoming migration to SAP HANA, businesses must consider a solution that maintains SAP as the central source of the truth while keeping pace with constant regulatory change. Learn how Sovos is helping companies do just that, safeguarding the value of their HANA implementation here.
Countries within the European Union (EU) are losing billions of euros in value-added tax (VAT) every year because of VAT fraud, VAT evasion, VAT avoidance and inadequate tax collection systems. As of 2016, the VAT gap in the EU was 159.5 billion euros, or 14% of the total expected VAT revenue for the EU. As a result, EU countries have been introducing several measures to increase VAT compliance and make their VAT systems more fraud-proof. One such measure is the split payment mechanism.
What are Split Payments?
The split payment mechanism changes how VAT is generally collected by making the payment for the tax base (i.e., product price net of VAT) separate from that for the VAT amount. There are variations of the split payment mechanism, but generally, an invoice is paid by the customer to two separate accounts: The net amount is paid to the supplier’s business bank account, and the VAT amount is paid directly to a dedicated bank account of the supplier, called a VAT account. In practice, a single payment will be made and it will be divided by the bank.
Split payments are regarded as a measure to combat VAT fraud and non-compliance by removing the opportunity for suppliers to charge VAT and disappear without declaring or paying it to the tax authority (‘missing trader fraud’). It digresses from the mainstream of VAT collection in the EU, which relies on vendor-based collection of VAT and on periodic remittance of VAT by registered traders.
The European Commission completed a comprehensive study of split payments in December 2017 to design and assess legally and technically feasible scenarios for a split payment mechanism as a VAT collection tool. The study found:
“….no strong evidence that the benefits of split payment would outweigh its costs. The main identified effects were that a wider scope of split payment would potentially provide a larger decrease of the VAT gap, but would also significantly increase the related administrative costs.” [source]
EU Countries with Split Payment Mechanism
Despite the European Commission’s inconclusive assessment, split payment mechanisms are currently in place around the world, primarily outside of the EU. In the EU, Italy and Romania have implemented split payment mechanisms while Poland plans to implement it, and the UK has started to consider it.
Italy has employed a split payment mechanism since January 1, 2015 for payments to public authorities under Law 23/12/2014, n. 190 (Stability Law). It has been expanded several times, most recently on January 1, 2018. Currently, it applies to supplies of goods and services rendered to several categories of public bodies, such as public economic entities, special companies, foundations and their subsidiaries, as well as companies included in the FTSE MIB index. As per the design of the system in Italy, suppliers charge Italian VAT on goods and services made to the entities listed above. These customers then “split” the payment of the invoice: they pay the taxable amount to the suppliers and pay the VAT to an allocated VAT bank account of the treasury.
In Poland, split payments are scheduled to be implemented as of July 1, 2018. Unlike Italy, Poland’s scheme will not require customers to make two separate payments. Instead, Poland will require a single payment executed to the bank who will then split the payment into two separate bank accounts: one account for the amount net of VAT to be paid to the supplier’s business bank account, and the other account for the VAT amount to be paid directly to a dedicated VAT bank account of the supplier.
The scope of Poland’s split payment mandate is much broader than Italy’s as it will apply to all VAT registered businesses. On the other hand, the Polish split payment mechanism will be optional as the buyer may but does not have to apply it.
In Romania, a split payment mechanism has been implemented since January 1, 2018 for companies which exceed certain thresholds for outstanding VAT liabilities. Under the Romanian split payment mechanism, obligated VAT registrants are required to open separate bank accounts for the collection and payment of VAT. The VAT split payment applies to all their taxable supplies of goods and services, for which the place of supply is in Romania. Similar to Italy but unlike Poland, the split payment mechanism is mandatory. The suppliers charge Romanian VAT on goods and services, then the split payment is made by the business customer, who transfers the VAT directly to the VAT bank account of the supplier. The VAT bank account of the supplier can only be used for output and input VAT payments.
The UK has held a public consultation on adopting anti-VAT fraud split payment mechanism for eCommerce. The split payment mechanism would require the VAT due on online supplies to be paid directly to the UK tax authorities at the time of purchase. The UK is debating several issues:
Which party in the transaction is best placed to identify and pay the VAT directly to the tax authorities;
The role of online marketplaces in determining the VAT and split payment calculations;
How to calculate the VAT due;
A timetable to build the necessary IT infrastructure for all parties.
HMRC has made an initial proposal with respect to how the split payment mechanism would function, titled “Alternative method of VAT collection – split payment,” and is seeking public comment until June 29, 2018. HMRC’s proposal would have the merchant identify and make the split payment for transactions relating to UK residents, and have payment service providers identify and fulfill the split payment for transactions relating to non-UK residents. There would be an approved register of payment companies (both merchants and payment service providers) who could split payments. With respect to overseas sellers, for each payment, the card issuer would check if an approved payment company will be responsible for splitting that payment. If so, the card issuer would pass the payment in full to the payment company. The payment company would then split out the VAT, pay it directly to the HMRC, and pass on the balance to the overseas seller’s bank account. If not, then the card issuer would have to split out the VAT, pay it directly to the HMRC, and pass on the balance to the unapproved payment company which would then pass on that amount to the overseas seller’s bank. Finally, the HMRC would credit the seller’s UK VAT bank account with the output VAT thus collected.
Impact of Split Payment on Companies
Under a split payment mechanism, suppliers may suffer negative cash flow. Although funds within the VAT account belong to the supplier, the supplier will not be able to use them freely. Such funds may be spent only in specific ways prescribed by the regulatory regime. In Poland, businesses can use the funds only to pay invoiced VAT to the VAT account of the invoice issuer, and to pay VAT to the tax authorities.
In Italy, a large delay has been observed on processing refunds to businesses (up to 90 days after quarterly VAT refund request). This hiatus allows authorities to hold input VAT for a longer period of time, earning interest for the government, while affecting the cash flow of Italian businesses. To fully estimate the cash flow implications of a split payment system, one must consider the costs of borrowing for the businesses and for the government.
The European Commission considered a variety of factors and models of split payment mechanism to determine impacts on businesses. The impact of split payments on different types of businesses varies depending on a number of factors, including the type of transaction, where the liability lies for the payment, whether the transaction is cross-border, and compliance costs that businesses will bear to implement split payment best practices.
Take Action
Split payments are emerging as a new VAT collection mechanism in the European Union. Businesses need to continue to stay alert and adaptive in the ever-changing landscape of VAT compliance. Contact us to know how we can help your business to stay on top of VAT Compliance landscape.
By Andy Hovancik – President & CEO
Today, we announced the acquisition of Stockholm-based TrustWeaver to create a clear leader in modern tax software.
TrustWeaver has become a seal of approval for the world’s largest procure-to-pay and AP systems. This is a testament not only to the effectiveness of its e-invoicing software and integrations, but also to its ability to monitor and interpret regulatory change around the world.
With the acquisition, we are poised to do three big things together:
Create the first complete solution for global e-invoicing, handling both post-audit and clearance models in 60 countries.
Combine the talented teams that pioneered e-invoicing software — and in the process, shape the future of digital tax compliance worldwide.
Deliver a complete tax solution, including tax determination and reporting, in the world’s leading purchasing and AP systems, including SAP Ariba, IBM and Coupa.
We’ve reached a tipping point in modern taxation.
Governments are quickly adopting digital models to better collect every type of transactional tax, including VAT, GST and sales & use tax. As a result, businesses are faced with mounting complexity, rising costs and unparalleled risks.
Last month, the European Commission granted Italy permission to mandate e-invoicing, making it the first country in the European Union to do so. Italy’s move paves the way for rapid expansion of real-time, transaction-level reporting in Europe.
The game is changing
Here at Sovos, we’ve assembled the only solution capable of dealing with the complexities of modern tax, a complete software platform with global tax determination, complete e-invoicing compliance and a full range of tax reporting solutions including e-accounting and e-ledger.
TrustWeaver is our third e-invoicing acquisition in two years, and it’s one of the most important acquisitions in our history.
TrustWeaver has built up coverage across Europe, the Middle East, Africa and Asia Pacific regions, complementing our strength in Latin America. And, it adds support for “post-audit” compliance, including e-signatures in compliance with the eIDAS Regulation, which is an onerous set of standards for electronic trust and identification in Europe.
With the addition of TrustWeaver, we’re one step closer to our mission, which is to reduce the friction between businesses and governments so commerce can grow faster and communities can thrive by simply collecting the tax they’re already owed.
Earlier today, we announced that Sovos has acquired U.K.-based FiscalReps, Europe’s leading solution for Insurance Premium Tax (IPT) compliance. The acquisition does a few important things for our clients and the market as a whole:
It adds IPT to our global solution for insurance companies, helping those businesses consolidate solutions on a single platform with a single source of data.
It automates another critical indirect tax solution, combining a market-leading solution with the Sovos software platform to help clients prepare for the digital future of IPT compliance.
It expands our team in Europe to support increased demand for tax and reporting automation in the region.
Here’s what Sovos CEO Andy Hovancik had to say about the news:
“Insurers across Europe trust FiscalReps because the solution safeguards their businesses from mounting risks from governments looking to close longstanding gaps in IPT compliance. The addition of FiscalReps presents an opportunity to better prepare insurers for the digital future of tax compliance and reporting, while at the same time adding a talented team to support our clients in the region.”
A Changing Regulatory Environment. A New Risk to Already-Thin Profit Margins in Insurance
Similar to other indirect tax regulations, IPT compliance has become increasingly burdensome in recent years, requiring insurers to comply with 90 unique taxes and more than 500 complex forms in the European region alone. As governments turn to technology to clamp down on non-compliance, businesses have quickly turned to automation.
Through a combination of managed services and software, FiscalReps helps more than 400 businesses — including 20 of the top 50 insurance companies in Europe — calculate and file IPT in 27 European countries. FiscalReps gives those businesses a more automated and more accurate solution for filing thousands of IPT reports each year.
The Future of IPT Compliance Will Be Built on Global Software
The addition of FiscalReps to Sovos’ cloud software platform takes the solution one step further, according to FiscalReps CEO Mike Stalley, setting the stage for a unique global solution for the insurance market and accelerating software innovation in IPT compliance.
“The acquisition by Sovos is a great opportunity for our insurance clients, who will now have a truly global solution for all of their premium tax and regulatory reporting needs,” Stalley said. “With a proven track record in delivering tax technology solutions globally, the Sovos strategy aligns perfectly with FiscalReps’ ambitions to remain the market leader in this increasingly complex and challenging environment. We look forward to being part of the Sovos team and contributing to the success story.”
Another Step Closer to a Single Global Platform for Tax Compliance and Reporting
The FiscalReps acquisition is the second major deal in three months for Sovos, following the acquisition of Paperless, a leading software solution for a similar compliance challenge, real-time VAT reporting. For the past few years, we have been actively acquiring leading software businesses around the globe and integrating them into our Intelligent Compliance Cloud, an approach that is critical to keeping businesses ahead of disruptive tax and regulatory reporting requirements.
“The IPT market is another great example of governments pushing businesses toward global software automation by getting aggressive on enforcement of regulations to collect tax revenue,” Gledhill said. “As that trend continues to accelerate, Sovos is committed to adding market-leading solutions, like FiscalReps, to solve our clients’ biggest compliance challenges on a single platform and from a single source of data.”
The main indirect tax of Mexico is the Value Added Tax (locally known as IVA), which generally applies to all imports, supplies of goods, and the provision of services by a taxable person unless specifically exempted by a particular law. The tax is imposed by the federal government of Mexico and ordinarily applies on each level of the commercialisation chain. This tax has been applied in Mexico since 1980.
Click here to read “Why the New Process for Cancelling E-Invoices in Mexico Matters“
Tax Rate
Mexico applies a single standard rate of 16% across the country. However, there is also a 0% rate applicable to exports and the local supply of certain goods and services. Sales of ice, fresh water, machinery and raw materials for manufacturers, books, newspapers, magazines by their editors, medicines, as well as the supply of services to eligible manufacturers, are subject to the 0% rate.
It is worth mentioning that until December 2013, Mexico applied a reduced rate of 11% in Mexican Border states of Baja California Norte, Baja California Sur, Quintana Roo, the municipalities of Caborca and Cananea, and in the bordering regions of the Colorado River in the state of Sonora. This was an effort largely to attract businesses to these areas and because the sales tax in the U.S. border states was half of the IVA in Mexico. These regions were commonly referred as the “maquiladora zones.”
That 11% reduced rate was revoked starting January 1, 2014, and substituted with a broader regime of incentives aimed at the manufacturing companies located in that region.
Taxable Base and Exemptions
As mentioned before, the Mexican IVA applies to all goods and services unless specifically exempted by the law. There is a wide variety of goods and services exempt from the tax, including:
Sales of houses except those to be used for commercial purposes
Retail sales of books, magazines and newspapers
Used goods sold by non-taxpayers
Currencies
Financial instruments
Gold at least 99% pure
Machinery and equipment used on agriculture
Certain goods between manufacturers subject to special export oriented regimes
Certain commissions related with mortgage loans and the administration of retirement funds
Free services provided to members of qualifying nonprofit organisations
Educational services provided by public and private chartered entities
Public transportation provided in urban or suburban zones
Maritime transportation of goods provided by entities not resident in Mexico
Insurance services
Qualifying financial services
Certain public shows
Professional medical services
Copyrights
Credit-Debit Mechanism
The Mexican IVA doesn’t differ much from IVA in other countries in that it allows the taxpayer to deduct the IVA that has been paid to the taxpayer’s suppliers or IVA that the taxpayer has paid himself at the time of importing goods that were subject to the tax. In addition to the IVA paid on imports and local purchases, the taxpayer also has the right to credit the IVA withheld by clients that are required to apply the reverse charge system that we are going to examine later.
In those instances where the taxpayer cannot use all the credit that has been accumulated on its purchases, the remaining amount can be carried over to later periods or eventually even to request a reimbursement from the government.
Taxable Event and Periodic Payment
One of the unique characteristics of the Mexican IVA is that when determining the taxable event, the law requires the taxpayer to use the cash accounting method rather than the accrual accounting method. What this basically means is that IVA on a sale is considered due when the seller is effectively paid, rather than when the invoice has been issued, the service provided or the good has been supplied. If the seller does not get paid, no tax liability exists either.
In general, the Mexican IVA should be paid on a monthly basis, no later than the 17th day of the month after the taxable event occurred.
