Update: 30 November 2022 by Charles Riordan
Romania SAF-T Filing declarations are changing. The draft order extending the grace period for SAF-T will not be implemented. The President of ANAF has confirmed that decision.
The extension originally supported large taxpayers who have had to submit SAF-T since 1 January 2022. ANAF now states that large taxpayers have, on the whole, complied with the original deadlines. This renders the extension “not appropriate.”
ANAF will follow an unofficial policy of leniency for SAF-T submissions. According to a spokesperson, the agency will first give notifications to delinquent taxpayers. Next, they will issue warnings. Fines are a last resort.
The initial six-month grace period for SAF-T hasn’t been formally extended, but it remains in force. Taxpayers will not receive penalties for late or missed filings while the grace period exists.
The grace period applies for six months after the obligation to file SAF-T arises. This obligation begins:
Still have questions about SAF-T Filing Declarations in Romania? Speak to our tax experts or see this overview about VAT Compliance in Romania.
Update: 18 August 2022 by Charles Riordan
On 1 August 2022, the Romanian National Agency for Fiscal Administration (ANAF) published a draft order extending the current grace period for Standard Audit File for Tax (SAF-T) declarations from six months to twelve months. The order will take effect upon approval and publication in the Official Gazette. At the time of writing, approval and publication are expected shortly.
The Romanian tax authority initially granted the grace period due to the complexity of the country’s SAF-T filing. The SAF-T must include available data from master files, source documents, general ledger entries, and, on a separate cadence, data related to fixed assets and inventory. Because of this complexity, ANAF instituted a six-month grace period, during which taxpayers would not be penalised for late or incorrect filings. The ANAF also implemented SAF-T in phases, with the large taxpayers obliged to file before mid-sized and small taxpayers.
ANAF has acknowledged, however, that even large taxpayers have struggled to meet the technical requirements of the SAF-T declaration. Therefore, with the initial six-month grace period set to expire, ANAF proposes to extend it to alleviate the burden on filers.
The grace period, as before, takes effect from the date a taxpayer is obliged to submit the SAF-T declaration. The obligation for different categories of taxpayers begins:
This means that taxpayers who are obliged to file SAF-T in 2022 will now have grace periods extending into 2023 (e.g. 1 January 2023 for “large taxpayers” who were categorised as such in 2021; 1 July 2023 for “large taxpayers” who were only categorised as such in 2022).
The language of the amendment doesn’t limit the twelve-month grace period to large taxpayers, so it is presumed that the grace period will apply to other taxpayers as well. This amendment would extend the grace period for medium taxpayers into 2024 and all others into 2026. Further clarifications on this point may be released in the future.
The rollout of SAF-T in Romania has been eventful, with multiple revisions to both the schema itself and taxpayer obligations. Taxpayers doing business in Romania must ensure that they stay abreast of the latest developments with this declaration, as there will undoubtedly be more to come.
Need to comply with the latest changes in Romanian SAF-T? Speak to our team. Follow us on LinkedIn and Twitter to keep up-to-date with the latest regulatory news and updates.
In Italy, the discipline of transfer pricing states that in intra-group transactions between entities from different countries, where one is resident in Italy, transactions must take place on an arm’s length basis. In other words, transactions are based on freely competitive prices and under comparable circumstances.
Companies carefully treat the transfer pricing adjustments from a corporate income tax perspective. However, less attention is paid from a VAT perspective.
It’s worth mentioning that in most cases, the transfer price adjustments are profitability adjustments (rather than price) of the transactions carried out between associated companies.
However, treating the transfer pricing adjustments as outside the scope of VAT might cause problems in case of a tax authority audit and re-qualification of the transactions.
The issue of transfer pricing adjustments for VAT purposes is not expressly regulated by the Italian legislator, other EU Member State legislators or from an EU VAT legislative point of view. In the absence of an ad hoc provision, reference is made to EU and local legislation, and private and public rulings on a case-by-case analysis.
Regarding public rulings, Italian tax authorities published several responses in 2021.
With the last response to ruling no. 884 of 30 December 2021, inspired by EU Commission Working Paper n. 923 and VAT Expert Group document n. 071, Italian tax authorities clarified that to establish whether transfer pricing adjustments represent the consideration for a transaction relevant for VAT:
In the 30 December 2021 ruling (no. 884), Italian tax authorities confirmed the adjustments in question were outside the scope of VAT following the transfer pricing adjustments. It stated for subsidiaries “the recognition of an extra cost aimed at lowering their operating margin“, wasn’t “directly related to the original supplies of finished products“.
The same outcome didn’t apply to ruling no. 529 of August 6, 2021.
In this case, at the time of the sale of the goods, the seller applied a provisional price.
That provisional price was then subject to adjustment on a quarterly basis, through the so-called “Profit True Up“. The result could consist either of a claim by the transferor against the transferee or, conversely, transferor’s debt.
In this specific case, Italian tax authorities found a “direct link between the sums determined in the final balance and the supplies” and concluded by determining the relevance of the transfer price adjustments made by the taxpayer for VAT purposes.
Whether or not your business is operating in Italy, the above shows how important the potential VAT implications of transfer pricing adjustments are and the confusion for businesses on how to proceed in different scenarios.
At Sovos we’ve seen more local tax authority audits focused on clarifying if the treatment is valid from a corporate income tax and a VAT perspective.
After a review of the contracts and agreements between the companies and subsidiaries involved, it’s essential to understand whether the transfer pricing adjustments are:
Speak to our team if you have questions about the latest approach from a VAT perspective on transfer pricing adjustments in Italy, the EU and the UK and the potential solutions to mitigate any risk of audit and penalties.
The European Commission (EC)’s action plan for fair and simple taxation – ’VAT in the Digital Age’- continues to progress. After a public consultation process, the EC has published Final Reports discussing the best options for the European market to fight tax fraud and benefit businesses with the use of technology.
The areas covered are:
The EC is expected to propose legislative amendments in the VAT Directive this autumn.
The report focusing on VAT reporting and e-invoicing evaluates ‘Digital Reporting Requirements (DRR)’. This is any obligation for VAT taxable persons to periodically or continuously submit transaction data digitally to the tax authority, e.g. by use of SAF-T, VAT listing, real-time reporting or e-invoicing.
According to the report, the best policy choice would be the introduction of a DRR in the form of an EU-wide continuous transaction controls (CTC) e-invoicing system covering both intra-EU and domestic transactions. Member States with an existing e-invoicing system would be able to keep this in the short term via a standstill clause, provided they ensure interoperability with the new EU system. However, in the medium term of five to ten years, national e-invoicing systems would be required to converge to the EU system.
The report clearly favours the policy option of a full EU harmonisation through a CTC e-invoicing system, meaning the invoice will be submitted to the authorities before or after issuance. The harmonisation focus seems to be primarily on form, with a suggestion of an EU-wide common protocol and format. Whereas important decisions regarding architecture risk being left to the Member States include whether the system will be clearance or simply reporting, whether to leverage an existing domestic B2G platform and the periodicity of the reporting etc. The only requirement on Member States seems to be accepting issued and transmitted e-invoices based on a common protocol and format.
The report suggests aligning the scope of requirements and excluding non-registered taxable persons and those covered by the SME VAT scheme. In the short term, only B2B and B2G transactions are covered, with B2C transactions remaining out of scope.
Finally, the report suggests that to ease the burden on businesses Member States must consider a number of measures such as jointly removing other reporting obligations, providing pre-filled VAT returns, supporting the investment in business automation (especially for SMEs) and providing public support to the adoption of the IT compliance systems
How this will be jointly coordinated isn’t discussed but it doesn’t sound like the EC expects such measures to be harmonised by the EU.
Although the report concludes implementing an EU-wide mandatory e-invoicing system is the best and most future-proof measure, how to design an effective e-invoicing system is not explained in the report and doesn’t seem to be in scope for harmonisation.
However, the design of the e-invoicing system may have an important impact on fiscal and economic results. As the independent expert report ʻNext Generation Model Decentralized CTC and Exchange’ (supported by EESPA, openPEPPOL and other key stakeholder groups) describes, the greatest benefits can only be realised when an e-invoicing system allows businesses to automate other processes as well as invoicing.
It’s a welcome start that the Commission is aiming for an EU-wide CTC e-invoicing scheme. It remains to be seen how effective this harmonisation will be. When Europe’s politicians return from this year’s summer break, we’ll start to gain more insight into the overall feasibility of the Commission’s views.
As a vendor that has implemented CTC and VAT compliance solutions around the world for several decades now, our desire would be for the debate to go beyond interoperability on a data level, so that Europe can take bold steps towards a future that preserves supply chain automation and technological innovation.
To find out more about what we believe the future holds, download the 13th Annual Trends. Follow us on LinkedIn and Twitter to keep up-to-date with regulatory news and updates.
A parafiscal tax is a levy on a service or a product which a government charges for a specific purpose. It can be used to financially benefit a particular sector (public and private).
Unlike the drastic changes in Stamp Duty reporting within the Portuguese region, the parafiscal taxes have remained consistent and unchanged for many years. Sovos helps customers report the central parafiscal taxes within the region:
The reporting of these taxes is varied and comprehensive which can become confusing for businesses unfamiliar with the requirements. The parafiscal charges, more notably INEM and ANPC, are reported on a monthly declaration structure, whilst PR and FGA are reported on a quarterly structure, and ASF is reported on a half-yearly basis.
The ANPC and INEM are reported quarterly, and premiums concerning the Azores, Continent (mainland Portugal), and Madeira must be split. This should be identified by the insurer and declared to the corresponding tax authorities.
The tax ANPC (also known as the National Authority for Civil Protection Contribution) can be applied in classes 3 – 13 and is commonly applied at 13% of the fire risk premium. However, this rate is not consistent for all classes of business and can fluctuate accordingly.
Moreover, the tax INEM (also known as the National Institute of Medical Emergency Contribution) can be applied to classes 1, 2, 3, 10 and 18 and at 2.5% of the taxable premium. The rate of 2.5% is consistent between all classes of business and reported on the compliant tax point with Portugal, which is the cash received date (much like ANPC, FGA, PR and ASF). Finally, an annual report for INEM needs to be reported directly to the tax authorities, confirming the total liabilities due throughout the fiscal year.
The reporting of FGA and PR is completed quarterly and submitted on two separate returns. The tax PR is reported at 0.21% of the premium (relating to motor insurance) for classes of business 1, 3 and 10; whilst an FGA rate of 2.5% of the premium (relating to Compulsory Third Party Liability) is only applicable to class 10.
The ASF tax is applied at a tax rate of 0.242% of the taxable premium and is calculated on all classes of business. The rate of 0.242% is confirmed annually by ministerial order within Portugal. So, the tax authority can effectively change the rate annually. It’s also important to mention that a separate rate of 0.048% applies to life insurance and is included within this return.
Need to ensure your business is fully compliant with the ever-changing IPT requirements in Portugal? Get in touch with Sovos’ tax experts.
On 22 July, the EU Commission opened four new infringement proceedings against the United Kingdom for allegedly breaching the 2021 Northern Ireland Protocol on conditions related to customs requirements, excise tax and VAT. The EU has brought seven proceedings against the UK over the Protocol since 2021.
Following the UK’s departure from the EU in 2020, the parties agreed that customs checkpoints on the land border between Northern Ireland and the Republic of Ireland could lead to political instability. The Protocol was an attempt to avoid border posts between the two countries.
Instead, the Protocol ensures customs checks are done in Northern Irish ports before goods are released into the Republic of Ireland. This process effectively created a customs border on the Irish Sea. In addition, the Protocol allows Northern Ireland to follow EU rules on product standards and VAT rules related to goods.
The Protocol has been controversial in the UK, as it creates special rules for Northern Ireland that don’t apply in England, Scotland or Wales. Members of the UK’s governing Conservative Party – including Liz Truss, a frontrunner to replace Boris Johnson as UK Prime Minister – have recently introduced a Northern Ireland Protocol Bill that would allow the UK to amend the terms of the Protocol.
Among other things, the draft legislation seeks to remove dispute settlement from the jurisdiction of the Court of Justice of the European Union, authorises “green [fast track] channels” for goods staying within the UK, and allows for UK-wide policies on VAT. Proponents of the bill claim it is necessary to protect the “essential interest” of peace in Northern Ireland.
However, European Union Representatives have condemned this draft legislation as a potential violation of international law. In its most recent infringement proceedings, the EU alleges that the UK has not substantively implemented parts of the Protocol at all.
In particular, the EU claims that:
The last point is particularly interesting for VAT purposes, as the IOSS scheme is a signature piece of the EU’s “VAT in the Digital Age” initiative.
At the time of writing the Northern Ireland Protocol Bill has not yet been adopted by the UK Parliament. It awaits review in the House of Lords. The UK and the EU have stated that further negotiations over the Protocol would be the preferred option. The parties, however, remain far apart on the details.
The EU has set out two months for the UK to respond to the infringement action. Failing any new agreements, the action could lead to possible fines and/or trading sanctions between the parties. Taxpayers conducting cross-border trade between the UK and EU should ensure they stay on top of future developments.
Need more information on IOSS and how it could impact your business’s compliance? Get in touch with our team.
Your guide to making VAT compliance simple
There are many elements to understanding European VAT compliance; our tax experts continually review regulations, compliance rules and tax authority updates to understand VAT requirements across Europe and beyond. This e-book is the result of their research and is ready for you to download. It’s ideal for anyone involved in VAT compliance who is keen to learn more.
Navigating cross-border and understanding European VAT compliance can be complicated. With requirements varying from country to country it’s important to be prepared for any upcoming changes to ensure continued compliance. The digitization of VAT continues, and our guide will help you understand and be ready for changes.
Quick Links
Minimise compliance risks
Essential VAT Guide
Including latest VAT trends
The guide provides information on understanding European VAT compliance including some of the biggest trends in VAT. We also look at some of the more complex VAT requirements including Intrastat, supply chain management, the EU e-commerce VAT package and VAT for events – all in one easy to understand e-book:
VAT compliance means ensuring that VAT is applied and submitted in the correct format and by the relevant deadline to the relevant tax authority.
Each Member State has its own VAT invoicing and reporting requirements. VAT requirements continue to change so it’s important to be aware of upcoming regulations and prepare in advance to remain compliant with the latest requirements.
To obtain a VAT number a company must register for VAT in the EU. Registering for VAT in the EU remains a complicated task, with each Member State having bespoke processes and procedures to obtain a VAT number. VAT reporting includes many elements, from registration to fiscal representation and filing returns. This guide explains the VAT reporting process, as well as upcoming changes that organisations should be aware of to remain VAT compliant.
End-to-end, technology-enabled VAT Managed Services ease your compliance workload and mitigate risk wherever you operate today while ensuring you’re ready to handle the VAT requirements in the markets you intend to dominate tomorrow.
Ease your VAT compliance workload and mitigate risk wherever you trade with Sovos’ complete end-to-end offering, enabled by our comprehensive software, helping you stay up to date and reducing the burden on your team.
The Philippines continuous transaction controls (CTC) Electronic Invoicing/Receipting System (EIS) has been officially kicked off for the 100 large taxpayers selected by the government to inaugurate the mandate. Although taxpayers were still struggling to meet the new e-invoicing system’s technical requirements just before the go-live date, the Philippines upheld its planned deadline and went live with this pilot on 1 July 2022.
The Philippines roll-out has once again highlighted the challenges of complying with new mandates and shown that readiness is vital.
Together with one of the six initial pilot companies, which started testing early this year, Sovos has developed the first software solution to obtain approval by the EIS to operate e-invoice transmission through the government’s transmission platform. Sovos’ solution is up and running in the Philippines.
One day before the EIS go-live, the Philippines tax authority, BIR (Bureau of Internal Revenue), published Revenue Regulations n. 6-2022, 8-2022, and 9-2022, containing the new system’s policies and guidelines and documenting the rules and procedures adopted by the EIS.
While the regulations do not represent news for pilot taxpayers who have successfully implemented their CTC e-invoice reporting systems, the same might not be accurate for those preparing to comply with the new mandate. The legislation officially establishes the country’s e-invoice/receipt issuance and reporting initiative, first introduced in 2018 by the Tax Reform for Acceleration and Inclusion Act (TRAIN), and documents relevant information.
As of 1 July 2022, 100 selected pilot taxpayers have been obliged to issue and transmit e-invoices and e-receipts through the EIS. The BIR is planning a phased roll-out for other taxpayers within the scope of the mandate, starting in 2023, but no official calendar has been announced yet.
Taxpayers covered by the mandate are:
The mandate requires electronic issuance of invoices (B2B), receipts (B2C), debit and credit notes and transmission through the EIS platform in near real-time, that is, in up to three (3) calendar days counted from issuance date. Documents must be transmitted using the JSON (JavaScript Object Notation) file format.
Issuance and transmission can be done through the EIS taxpayer portal or using API (Application Programming Interface), in which taxpayers must develop a Sales Data Transmission System and secure certification before operating through the EIS. This entails the application for the EIS Certification and a Permit to Transmit (PTT) by submitting documentation with detailed information about the taxpayer’s system.
Although the regulations state that the submission of printed invoices and receipts is no longer required for taxpayers operating under the EIS, archiving requirements have not been modified. This means that during the 10-year archiving period, taxpayers must retain hard copies of transmitted documents for the first five (5) years, after which exclusive electronic storage is allowed for the remaining time.
Additionally, the legislation states that only the invoices successfully transmitted through the EIS will be accepted for VAT deduction purposes.
Many of the 100 pilot taxpayers struggled to comply with the country’s deadline. For this reason, the EIS has allowed alternations to the deadline for certain taxpayers, provided they submit a Sworn Statement detailing the reasons why they are not able to meet the requirement on time and a schedule with the date they intend to comply by, which are subject to the EIS’ approval.
Regarding non-compliance, the regulations state that the tax authority shall impose a penalty for delayed or non-transmission of e-invoices/receipts to the EIS and that unreported sales will be subject to further investigation.
After the pilot program kick-off and legally establishing the CTC framework, the government plans to gradually roll out the mandate to all taxpayers included in the scope in 2023. However, taxpayers who are not in the mandatory scope of the EIS may already opt to enrol in the system and be ready to comply beforehand.
Sovos was the first software provider to become certified, in conjunction with one of the pilot taxpayers, to transmit through the EIS, and is ready to comply with the Philippines CTC e-invoice reporting. Our powerful software combined with our extensive knowledge of the Philippines tax landscape helps companies solve tax for good.
Need to ensure compliance with the latest e-invoicing requirements in the Philippines? Speak with a member of Sovos’ team of tax experts
Enhance compliance in your SAP ERP and automate VAT determination decisions with our SAP certified add-ons
VAT determination is challenging for any company with complex transactions in its supply chains. Business sectors such as manufacturing, pharmaceutical, construction, retail and logistics are particularly overburdened trying to manage this requirement.
Limitations in SAP functionality has created another level of complexity. Custom coding in SAP is often required to achieve reliable determination decisions and the need for ongoing customisation makes maintaining master data difficult.
These challenges typically prevent companies from achieving a desirable level of transparency across their determination process. When a business deals with complex transactions, often due to multi jurisdictional supply chains, accurate VAT determination is vital. Any errors at this point can lead to severe consequences for accounting accuracy and financial resilience.
A powerful suite of SAP-certified add-ons automate VAT determination, simplifies master data maintenance and mitigates the compliance risks caused by inaccurate data.
Deliver enhanced SAP functionality that alleviates pressure for both tax and IT professionals to meet your ever-evolving VAT requirements.
Handle future changes without specialist SAP experts, and reduce the technical maintenance burden to free SAP-resources to focus on other projects
Deliver accurate and reliable tax decisions though intelligent, automated logic directly embedded within SAP processes
Identify errors by comparing general ledger and account balances with postings against specific tax codes
Drive accuracy of data in downstream processes for periodic reporting including VAT Returns, EC Sales Lists, Intrastat Declarations and SAF-T
The trend towards digitisation continues with governments becoming increasingly present in your data. By partnering with Sovos, you gain greater clarity for VAT determination and peace of mind that your business is safeguarded from risk of future audits
Increase invoicing accuracy with robust determination decisions, so billing teams don't need to correct and reissue invoices. Similarly, when invoices received by a company are accurate they can be processed without delay
The EU and the UK use the Economic Operators Registration and Identification System (EORI) to identify traders.
Businesses and people wishing to trade in the EU and the UK must use the EORI number as an identification number in all customs procedures when exchanging information with customs administrations. The EU has one standard identification number across the EU, while the UK requires a separate GB EORI number for trade in the UK post-Brexit.
The purpose of having one standard ID in the EU is that it creates efficiency for both traders and the customs authorities. However, it’s vital to ensure all aspects of the system are considered.
The primary need for an EORI number is to be able to lodge a customs declaration for both imports and exports. Guidance is that a trader should obtain an EORI number in the first country of import or export. Carriers will also require an EORI number.
The EORI number exists in two parts:
The UK has also adopted this format, with both GB EORI numbers for trade into Great Britain (GB) and an XI EORI number for trade via the Northern Ireland protocol. The UK and EU have online databases where it is possible to check the status of an EORI number.
Since the UK left the EU, it is now required to have a separate GB EORI number to import and export from GB. This number will not be valid in the EU. However, should businesses be trading from Northern Ireland, then due to the Northern Ireland protocol, it is possible to apply for an XI EORI number to import into the EU.
Initially, after the introduction of the XI prefix, there were several reported issues. They included tax authorities being unable to recognise XI EORI numbers or link them to existing EU VAT numbers. Often it is the case that businesses have found it simpler to cancel an XI EORI number and apply for an EU EORI number in a Member State, particularly if that Member State is the main point of entry for imports into the EU.
Some of the most common issues we see at Sovos include:
Sovos provides an EORI registration service for traders who must apply for an EORI number. We can also link any existing EU VAT numbers to the EORI to ensure that customs declarations can be logged correctly, ensuring a smooth process and avoiding delays. You can find more information about EU VAT and the EU VAT e-commerce package here.
Contact us if you need help with VAT compliance.
According to European Customs Law, non-EU established businesses must appoint a representative for customs purposes when importing goods into the EU. In particular, the Union Customs Code establishes that non-EU resident businesses must appoint an indirect representative.
At the end of the Brexit transitionary period, many UK businesses suddenly needed to appoint an indirect representative to clear goods into the EU. In this article, we will look in further detail at this requirement’s challenges.
Indirect representation implies that agents are jointly and severally liable for any customs debt (import or export duties), which is why it’s harder for businesses to find freight companies and customs brokers willing to act on their behalf than for direct representation imports.
The conditions to be an indirect representative are that the customs agent must have a registered office or permanent establishment in the EU. An agent would require a Power of Attorney that enables them to act for the company. The main characteristic of indirect representation is that the agent will act in their own name but on behalf of the company that appointed them, essentially transferring the rights and obligations of customs procedures to the representative.
On the other hand, agents act in the name and on behalf of the company in direct representation.
In addition to the customs implications, agents acting as the importer of record or declarant may also be considered liable for complying with regulatory requirements. For example, any error in the declarations (ex. Article 77 paragraph 3 Union Customs Code (UCC), if the agent was aware of incorrect information or if they “should have known better”).
The European Court of Justice recently expressed its opinion on this matter with the ruling on the case C-714/20, UI Srl. This ruling determined that the indirect representative is jointly and severally liable from a customs law perspective, but not for VAT (contrary to a previous interpretation of Article 77 (3) UCC). The court specified that it’s up to the Member States to expressly determine if other persons, such as indirect representatives, may be considered jointly and severally liable for VAT of their importer clients. However, according to the principle of legal certainty, this should be clearly expressed in the local legislation before courts can enforce said responsibility.
For these options, each alternative solution will have economic and administrative implications to be considered. It is recommended that businesses carefully review their overall strategy before deciding what can be adjusted to comply with customs formalities.
Contact Sovos’ team of VAT experts for help with meeting VAT compliance obligations.
Following other Eastern European countries such as Poland and Romania, Serbia is on its way to implementing the mandatory e-invoicing system for the B2B (business to business) and B2G (business to government) sectors.
The Law on Electronic Invoicing that came into force in May 2021, introduces the clearance e-invoicing system and presents the centralised continuous transaction controls (CTCs) platform called SEF (Sistem E‑Faktura) for sending, receiving, capturing, processing and storing structured electronic invoices. Additionally, there is a system to help taxpayers with the processing and storage of invoices called the Sistem za Upravljanje Fakturama (SUF).
The new legislation aims to replace paper invoices with electronic invoices and outlines the requirements for the issuance of e-invoices in B2B and B2G transactions.
Under the new e-invoicing framework, e-invoices must be sent and received in accordance with Serbian e‑invoicing standards (custom application of the standard EN 16931-1). All e‑invoices must be submitted via a centralised platform to the recipient who must accept or reject the invoice.
Currently in scope are resident taxpayers in the private and public sector and non-resident businesses with a local fiscal representative in Serbia.
May 2021: Law on Electronic Invoicing entered into force
1 May 2022: All suppliers in the public sector must send invoices electronically and the Serbian government must be able to receive and store them. (G2G/B2G)
1 July 2022: Serbian public entities are obliged to send e‑invoices to companies, who must be able to receive and process them. (G2B)
1 January 2023: E‑invoicing will be extended to the entire B2B sector. (B2B)
Need help to ensure your business stays compliant with the emerging mandatory e‑invoicing for all taxpayers in Serbia?
Our experts continually monitor, interpret and codify legal changes into our software, reducing the compliance burden on your tax and IT teams.
Learn how Sovos’ solution to address the changing VAT compliance requirements in Serbia can help companies stay compliant.
Sovos recently hosted an online webinar on VAT recovery where we covered reciprocity agreements between the UK and EU Member States when making 13th Directive VAT refund claims. One of the questions that kept coming up is what are reciprocity agreements and why do they matter?
When making 13th Directive refund claims, each EU Member State has different rules or conditions to meet before agreeing to a VAT refund. One of the conditions that EU Member States may require is a reciprocity agreement. A reciprocity agreement is a deal to reciprocate VAT refunds between two countries.
Therefore, VAT is only refundable when a similar tax is refundable for local businesses in the applicant’s country. For example, suppose a Spanish business was allowed to obtain a VAT refund in Norway through a similar scheme to the 13 Directive. In that case, Spain would likely have reciprocity with Norway and will allow the Norwegian businesses to make a 13th Directive Refund Claim in Spain.
There are currently around 19 EU Member States that require reciprocity agreements for non-EU businesses to make VAT refund claims. Of those, Greece and Slovenia currently only have reciprocity agreements with two countries (Norway and Switzerland), whilst Italy has three (Norway, Switzerland and Israel). When making EU VAT refund claims, businesses should review reciprocity and not assume they will automatically be approved.
Before Brexit, UK businesses could make VAT refund claims through the EU VAT Refund Directive (also known as the 8th Directive) which was built to allow reciprocity freedom for all EU Member States. However, post-Brexit, this mechanism for VAT refund claims no longer applied, and the UK fell within the 13th Directive Refund Scheme as a non-EU business.
Whilst the UK and EU have a Free Trade and Cooperation Agreement in place, there was no specific mention of reciprocity in VAT refund claims as these should be agreed between those particular EU Member States and the UK. Therefore, it may be more difficult for UK businesses, that make refund claims around the EU, to recover VAT incurred in some countries.
Regarding current reciprocity agreements with the UK, the only official announcements we have seen to date have been from Germany, Spain and Hungary. However, we are aware of ongoing discussions between the UK and other EU Member States.
HMRC states they will only refuse a claim if the reciprocal country has a scheme for refunding taxes but refuses to allow UK traders a refund. Therefore, HMRC is willing to allow VAT recovery in the UK for EU businesses providing UK businesses receive the same treatment as the EU. It would therefore be in the interests of EU Member States to allow VAT recovery for UK businesses for businesses in their own country to benefit from the same treatment.
Most EU Member States require reciprocity when making VAT refund claims. Therefore, the law of reciprocity is an integral factor when looking to make a VAT refund claim in any jurisdiction. It’s important to understand these reciprocity laws to prevent wasting time and money on making a VAT refund claim from a country that doesn’t allow it.
To find out more about what we believe the future holds, download the 13th Annual VAT Trends whitepaper. Follow us on LinkedIn and Twitter to keep up to date with regulatory news and updates.
Our previous articles covered audit trends we have noticed at Sovos and common triggers of a VAT audit. This article discusses the best practices on how to prepare for a VAT audit.
Each country and jurisdiction may have different laws and requirements related to the VAT audit process. Tax authorities can carry out audits in person or by correspondence, the latter often being the case for non-established businesses in the country in question.
A business may be audited at random or because there are reasons for the tax authority to believe that there is a problem with the company’s VAT return.
Generally speaking, authorities use audits and inspections to verify the accuracy of taxpayers’ declarations, identify possible errors or underpayments, and approve refunds.
As discussed in our previous article, to understand how to best prepare for a VAT audit, it’s essential to identify the reason why the audit was initiated.
Although specific checklists are available depending on the country of the audit, there are several actions that a business can carry out to prepare for an VAT audit. The most important of which is to collect documents and answers in advance. Frequently requested items during an audit include:
It is important that records of the above-listed documents, where applicable, are kept in line with local record keeping requirements. The need to prepare these documents in advance and the ability to produce them quickly becomes essential when a company is, for example, due to request the refund of VAT credits, to submit a de-registration or has, in general, any reason to expect for an audit to be initiated.
Authorities can open a cross check of activities with the company’s customers and suppliers, which will be initiated in parallel to the audit to verify that the information provided from both sides is consistent. Therefore, it is recommended to inform suppliers about any ongoing audit, communicate any questions or clarify outstanding queries. If, for example, a correction of invoices appears to be necessary, these should be finalised already in preparation for the VAT audit.
The tax authorities may impose very short and strict deadlines once an audit is initiated. Although it may be possible to request an extension, it is not necessarily guaranteed to be granted. In certain circumstances, authorities may impose penalties for late responses. Providing a clear and understandable set of documents to the tax office queries is essential to avoid any detrimental effects.
The advantages of preparing for a VAT audit can be summarised as follows:
Whether a business decides to handle the audit in-house or request the support of an external advisor, it is essential to consider the consequences of the audit, especially if high amounts of VAT to recover are at stake. In the event of an audit, the main objective should be to resolve it successfully and quickly, limiting as much as possible any detrimental impact to the business.
Get in touch about the benefits a managed service provider can offer to help ease your VAT compliance burden.
2014 – e-Faktur Pajak introduced
2016 – e-Faktur Pajak became effective
1 October 2020 – New e-Faktur Pajak version 3.0 released
Need help to ensure your business stays compliant with the e-invoicing obligations in Indonesia?
Our experts continually monitor, interpret and codify changes into our software, reducing the compliance burden on your tax and IT teams.
Learn how Sovos’ solution for VAT compliance changes can help companies stay compliant in Indonesia and around the world.
Israel is set to implement a continuous transaction controls (CTC) model that will require businesses to submit invoice data in electronic format for the tax authority to validate.
The mandate, set to come into force in May 2024, will require invoice data to be validated by the country’s tax authority before being sent to the final recipient. Read on for an overview of Israel e-invoicing requirements – we encourage you to bookmark the page to stay updated as the mandate develops.
1. At a glance: Characteristics of invoicing data submission in Israel
2. Electronic invoicing laws in Israel
3. Benefits of using e-invoicing in Israel
4. Timeline of e-invoicing clearance in Israel
5. What is the future of e-invoicing in Israel?
6. What happens if I don’t comply?
CTC Type
CTC Clearance
Format
JSON
Allocation Number
Assigned by the ITA
E-invoicing
Not mandatory
Electronic Signature
Not applicable (though needed in case of e-invoicing)
Archiving
Not applicable
From 5 May 2024, Israel will make clearance CTC clearance mandatory. Authorised dealers (taxpayers) will have to clear invoices above a threshold of NIS 25,000 (before VAT), obtaining an allocation number acquired by the SHAAM – a computer system provided by the Israeli Tax Authority (ITA).
The invoice value threshold will be gradually reduced annually until 2028, ending at NIS 5,000 pre-VAT. Nevertheless, suppliers may report invoice data to the tax authority for clearance and request an allocation number for any amount.
Besides CTC clearance, e-invoicing rules remain in place and do not change with the new CTC requirements. Electronic invoices are still optional.
Since 2019, public entities in Poland have been mandated to receive and process e-invoices. While currently optional for suppliers of public entities, the transmission of e-invoices will be required for B2G and B2B transactions when the mandate is implemented (this was planned for 1 July 2024 until it was postponed in January 2024).
Israel’s model will include a clearance system from 5 May 2024. Businesses that exceed a specific threshold will be required to obtain an allocation number for invoices regarding B2B transactions. They can do so by issuing the invoice to the tax authority before sending it to the final customer.
Without receiving this number and including it on invoices, businesses will not be able to deduct input VAT.
Israeli CTC clearance covers B2B transactions between authorised dealers.
However, e-invoicing is not mandatory under the new CTC clearance system. In case invoices are issued in electronic format (structured or unstructured format, including PDF), they must be cleared by the ITA and assigned with an allocation number before exchanged with the trading party.
Without receiving this number and including it on invoices, businesses will not be able to deduct input VAT.
Although CTC Clearance mandate does not require e-invoicing, there are numerous benefits for businesses that electronically issue and receive invoices, including:
While combating fraudulent invoices has been discussed in Israel for a long time, the implementation of the upcoming CTC model is a relatively recent development.
While electronic invoice data will be required as part of the CTC initiative, Israel does not yet have a specific electronic invoicing mandate requiring dealers to issue invoices electronically.
Currently, Israel’s e-invoicing rules – which are classified as post-audit – include e-signing, content remarks and prior notification to the tax authority.
Israel has the potential to go the way of countries like Romania and Spain, mandating the use of e-invoices across transactions with governments and businesses. There is no official word on Israel’s future e-invoicing plans beyond the current CTC mandate.
If an allocation number is not requested for the invoice by the supplier, the buyer cannot deduct its VAT based on that invoice.
Sovos’ continuous transaction controls (CTC) software was purpose-built to help customers stay on top of their obligations wherever they do business, even as the rules change.
Currently, e-invoicing is permitted in Israel, provided it is prominently stated on the invoice that it is a ‘computerized document’ and prior notification is made to the ITA. A digital signature compliant with the local law is required to ensure the integrity and authenticity of the electronic invoice.
Storage of e-invoices must be within Israel – unless derogation has been granted. Both issuance and storage of e-invoices can be outsourced to third parties like Sovos.
Taxpayers opting to use e-invoices must comply with the abovementioned rules, as well as the CTC clearance requirements rolling out in 2024.
As CTCs and e-invoicing continue to grow in global adoption, it is vital to partner with a provider that closely monitors the decisions of tax administrations and understands the regulations you face. Sovos can help to stay compliant wherever you do business.
Get in touch today.
No, e-invoicing is not mandatory in Israel. Israel’s continuous transaction controls (CTC) mandate involves the electronic submission of invoice data and is set to come into effect on 5 May 2024.
Electronic invoice data must include specific information when submitted to the tax authority, including invoice ID, VAT number, invoice date, invoice amount and accounting software number. They also need to be given an allocation number by the ITA for the buyer to use this invoice for a tax deduction, as per the CTC clearance mandate.
Sovos has the first global solution for e-invoicing compliance, including e-reporting functionality.
Within the CTC mandate, the use of emergency allocation numbers is instituted as a contingency measure to address potential failures in its computer systems. In anticipation of such events, taxpayers must acquire and store these emergency numbers.
In case the taxpayer chooses e-invoicing, electronic invoices in Israel must be signed with a digital signature compliant with the local law.
Israel’s mandated CTC clearance platform requires electronic invoice data to be submitted to and approved by the Israeli Tax Authority in real time. The authority will assign an allocation number and verify or reject the invoice data. Once validated, the allocation number will be returned to the seller so it can be issued to the buyer (in electronic or paper format).
It’s no surprise that inflation is on the forefront of everyone’s mind, with prices continuing to sky-rocket month by month. Data from the United Kingdom shows that the Consumer Prices Index (CPI) inflation jumped to a 40-year high of 9% in the past 12 months. Governments around the world are looking for ways to reduce the burden for consumers to keep global economies afloat. One method – implementing VAT rate cuts to certain goods and services – looks to be coming out on top as multiple countries around the world announced emergency budget sessions or introduced proposals to temporarily cut VAT rates.
Temporary VAT rate cuts are generally quick and easy to implement, which is why they are favored by governments globally. These cuts essentially allow for a boost to the economy by providing consumers with an overall higher amount to spend, incentivizing consumers to spend now while rates are lower.
As expected, many countries have already announced VAT rate cuts or measures to stimulate their economies:
Additional countries such as Estonia, Netherlands, Latvia, Greece, and Turkey are also taking measures to implement VAT rate cuts to fight the ever-rising costs for consumers.
These VAT rate cuts coincide with new measures passed recently by the European Commission allowing Member States to apply reduced rates to more items, including food. Though many Member States seem to be moving towards taking advantage of this new flexibility on VAT rate reductions, it’s expected that as costs continue to rise more Member States and countries around the world will introduce VAT rate cuts to ensure consumer spending doesn’t continue to trend downward.
To find out more about what we believe the future holds, download the 13th Annual Trends. Follow us on LinkedIn and Twitter to keep up-to-date with regulatory news and updates.
Since many audits seem to occur at random, it’s not always possible to identify the reason why a tax office would decide to initiate one.
We’ve previously spoken about an increased interest in audits from the EU and audits for e-commerce. This article covers the most common reasons behind a VAT audit to help businesses anticipate and prepare for one when possible.
There are specific “trigger” events among the most common reasons that could cause further queries from the tax office. Generally speaking, these are changes in the company’s status such as a new registration, a de-registration, or structural changes within the company.
VAT refund requests also fall into this category. In some countries (Italy and Spain, for example) a refund request is almost certainly a reason for an audit to be initiated since the local tax office cannot release the funds before checks are completed. In this case, the likelihood of an audit increases when a refund is particularly substantial and the business requesting it is newly VAT registered. However, it doesn’t mean that the tax authority will not initiate an audit if the amount requested in a refund is relatively small.
Certain types of businesses are naturally more subject to audits due to their structure and business model. Groups commonly selected for scrutiny include, for example, large companies, exporters, retailers and dealers in high-volume goods. Therefore, elements such as a high number of transactions, high amounts involved and complexity of the business structure could be another common reason for an investigation to be initiated by the local tax authorities.
Tax authorities often identify individual taxpayers based on past compliance and how their information compares with specific risk parameters. This would include comparing previous data and trading patterns with other businesses in the same sector. Therefore, unusual patterns of trading, discrepancies between input and output VAT reported, and many refund requests may appear unusual from the tax office perspective and give rise to questions.
Another common reason for the tax authorities to request further information from taxpayers is the so-called “cross check of activities”. In this case, either a business supplier or client is likely to be subjected to an audit. The tax office will contact their counterparts to verify that the information provided is consistent on both sides. For example, if a business is being audited following its refund request, the tax office will likely contact the suppliers to verify the audited company didn’t cancel the purchase invoices and that they have been paid.
This category also includes cross checking activities on Intra-Community transactions reported by a business. In this scenario, the cross check would be based on information exchanges between local tax authorities through the VAT information exchange system (VIES). The tax authorities can check Intra-Community transactions reported to and from specific VAT numbers in each EU Member State and then cross check this information with what has been reported by a business on their respective VAT return. If any discrepancy arises, the tax office will likely contact the business to ask why they have (or haven’t) reported the transactions declared by their counterparts.
As we’ve already seen in an earlier article, audit triggers are also influenced by changes in legislation or shifts in the tax authorities’ attention to specific business sectors.
Regardless of whether it’s possible to identify the actual reason the tax authority initiated an audit, a business can undertake several actions in preparation for a check of activities, which will be covered in the next article of this series.
Get in touch about the benefits a managed service provider can offer to ease your VAT compliance burden.
Update: 21 June 2023
Changes are coming to VAT on virtual events. To ensure taxation in the Member State of consumption, all services supplied to a customer electronically will be taxable where the customer is established, has his permanent address or usually resides.
Member States must adopt and publish the required laws, regulations and administrative provisions by 31 December 2024 and must apply these from 1 January 2025. This blog will consider some of the issues that may arise from the impending changes.
Where there is physical attendance at an event then the place of supply is the place where the event takes place for all delegates.
For B2B delegates the current rules mean that virtual admission will be classified as a general rule service so VAT is due where the customer is established.
For B2C delegates the current rules depend on whether the virtual attendance can be considered an electronically delivered service or a general rule service. For electronically delivered services supplied, the place of supply is where the customer normally resides and for other services the place of supply is where the supplier is established.
The changes apply to “services that can be supplied by electronic means” but this is not defined. It would appear, from the following to be wider than “electronically delivered”.
To achieve this the current law governing attendance by B2B delegates which results in VAT being due where the event is held will specifically exclude admission where the attendance is virtual.
This suggests that “supplied to a customer by electronic means” occurs when attendance is virtual. This has the effect of removing the distinction of “human intervention” in respect of electronically delivered services.
The law governing B2C sales will state that where activities are “streamed or otherwise made virtually available”, the place of supply is where the customer is established.
These changes suggest that “supplied to a customer by electronic means” occurs when the service is streamed or available virtually. The possibility of streaming (which can be live or recorded) does not appear in the amendment to the B2B rule.
An update to the law governing use and enjoyment reflects these additions.
Many hosts currently use the available educational or fundraising exemptions, especially where the delegates are private individuals without the right of deduction, e.g., doctors. For events with physical attendance the host must consider the rules of the Member State where the event is held since that is where the VAT is due.
Under the new rules, a VAT exemption will be less relevant for B2B virtual events where the reverse charge applies as the attendee assesses the charge to tax themselves. However, it will remain relevant where delegates are unable to apply the reverse charge and unable to deduct the VAT charged – e.g. doctors. In such circumstances, VAT is due where the doctor normally resides and that is where the exemption must be considered.
These new rules may require the host to assess the availability of the exemption in several Member States and may also require multiple ruling request submissions. This is likely to increase operating costs substantially, and the (unintended) consequence could be that exemptions are not considered to the detriment of delegates.
Many future events are likely to include virtual attendees since it increases overall attendance at an event, requiring the host to manage two invoicing regimes.
There could be issues where one taxpayer has both physical and virtual attendees. In this case, the host will need to issue two invoices – one with local VAT for the physical attendance (and where the exemption may apply) and one where VAT is due in the customer’s Member State and the general reverse charge may apply. The attendance of B2C delegates will further increase this complexity for the host.
What happens if a delegate is invoiced for physical attendance, but changes to virtual attendance at the last minute?
When the host provides the login details for virtual attendance, this may change the place of supply. If the place of supply changes, the host must cancel the original invoice and issue a new invoice with the amended VAT treatment.
Where a host currently holds an event with virtual admission for non-taxable EU delegates (e.g. doctors) then the place of supply is where the supplier is established. For a host established outside the EU, no EU VAT is due (ignoring the possibility of use and enjoyment), and it is also likely that no local VAT is due in the host’s own country.
Implementation of the new rules will mean that the host must charge VAT in the Member State where the doctor normally resides. This will not only result in unrecoverable VAT for the doctor but will also increase the compliance costs of the host. Virtually attending such an event in 2025 may become significantly more expensive than in previous years.
The article governing the transposition of these changes requires Member States to “adopt and publish” the necessary laws, regulations etc., by 31 December 2024. The changes will then apply from 1 January 2025.
Member States must not break rank and apply these rules before this date. A situation where some Member States adopt and apply the rules early could lead to double taxation, particularly in B2C transactions.
Once the rules are in force on 1 January 2025, several issues could arise. What happens for an event in January 2025 where delegates must pay for admission ahead of time in 2024? Where is VAT accounted for, and under which rules?
For B2B, there should be no issue since the service remains a general rule, but there is a real issue for non-taxable delegates, e.g. doctors.
For example, a US host holds an event where a German doctor will attend virtually. The event is in January 2025, but the delegate must pay the admission fee by 30 November 2024 to secure a place. Under current rules, applicable in 2024, the place of supply is where the supplier is established, so no VAT is due on the invoice. But when the event happens in January 2025, the new rules say that German VAT is due.
The time of supply rules are not affected by these changes but could a tax authority seek to change these to increase its tax revenue? For example, Greek VAT law says that the tax point is when the event takes place – not when the invoice is issued/payment received. So, in the above example, Greek VAT would be due for a Greek B2C delegate.
When considering the taxation of virtual events, the new rules state it should be possible for Member States to provide the same treatment of live-streamed activities, including events, as those which are eligible for reduced rates when attended in person.
To enable this, amendments to the annex detailing which services can benefit from a reduced rate will include admission to:
This change means that events that are live streamed can benefit from a reduced VAT rate. Though the changes to the place of supply rules refer to “virtual attendance” for B2B and “streamed or made virtually available” for B2C.
Are we to assume that “virtual attendance” = “live streamed”? But “streaming” can be live or recorded. Do these changes also cause an issue for VAT rate determination?
If a delegate watches an event live, then a reduced rate is possible. If the same event is watched via downloading a recording later, then the reduced rate is not possible. If one fee gives a delegate the right to attend the event virtually and download the event for future reference, then the concept of a mixed supply may be relevant.
For events attended virtually, the place of supply for both B2B and B2C will be where the customer is established – although this can be amended by application of the use and enjoyment rules.
For B2B attendees, the host will not charge local VAT as the reverse charge will apply unless the host and attendee are established in the same Member State.
For B2C attendees the host will charge local VAT according to the location of the attendee. The Union and non-Union One-Stop Shop (OSS) will be available to assist reporting where the attendee is in the EU.
Get in touch to discuss your VAT compliance needs or download our guide, Understanding VAT Obligations: European Events.