Identifying the Location of Risk in the case of health insurance can be a tricky subject, but it’s also crucial to get it right. A failure to do so could lead to under-declared tax liabilities in a particular territory and the potential for penalties to be applied once these deficits are identified and belatedly settled. We examine the situation from a European perspective.

Legal background

The starting point in this area is the Solvency II Directive (Directive 138/2009/EC). Notably, Article 13(13) outlines the different categories of insurance risks that are used to determine risk locations. As health insurance doesn’t fall within the specific provisions for property, vehicles and travel risks, it is dealt with by the catch-all provision in Article 13(13)(d).

This Article refers to the ‘habitual residence of the policyholder’ or, where the policyholder is a legal person, ‘that policyholder’s establishment to which the contract relates’. We will consider these scenarios separately, given the distinction between individuals and legal persons.

Where the policyholder is an individual

For natural persons, the situation is generally straightforward. Based on the above, the key factor is the habitual residence of the policyholder. The permanent home of the policyholder tends to be relatively easy to confirm.

More challenging cases can arise where someone moves from one risk location to another. For example, when an individual purchases insurance in a particular country, having lived there for a significant period before moving to another country soon afterwards, the Location of Risk will be the original country. As EU legislation does not go into detail on the point, examples of no apparent habitual residence will be dealt with on a case-by-case basis.

Where the policyholder is a legal person

In this scenario, we have to consider the ‘policyholder’s establishment to which the contract relates’ in the first instance. The establishment is treated quite broadly, as evidenced by the European Court of Justice case of Kvaerner plc v Staatssecretaris van Financiën (C-191/99), which pre-dates Solvency II.

Notwithstanding the above, the habitual residence of the insured should be used to identify the risk location even where the policyholder is a legal person in certain circumstances. This will occur when the insured is independently a party to an insurance contract, giving them a right to make a claim themselves rather than through the corporate policyholder.

This logic can also potentially be extended to dependents of the insured person added to the policy and who can also separately claim under the contract. They will also create a risk location, although this will often be in the same country as the insured person. Ultimately, the compliant approach will be dictated by the overall set-up of the policy.

If any insurers writing business in Europe have any questions on the location of risk rules, whether concerning health insurance or any other insurance, then Sovos is best placed to provide advice to ensure taxes are being correctly declared.

Take Action

Contact us for help with complying with health insurance location of risk rules or download our Location of Risk Rules for IPT e-book for more information.

On 30 January 2022, the Zakat, Tax and Customs Authority (ZATCA) published an announcement on its official web page concerning penalties for violations of VAT rules, and it is currently only available in Arabic. As part of the announcement, the previous fines have been amended, ushering in a more cooperative and educational approach for penalizing taxpayers for their non-compliance with VAT rules than previously.

What’s the new approach?

If ZATCA officials detect a violation during a field visit, the taxpayer will first be given a warning about the violation without any penalty. The ZATCA aims to raise awareness instead of penalizing taxpayers for their first violation. Taxpayers will be granted three months to comply and make necessary changes in their processes.

If non-compliance continues after the first inspection, the taxpayer will be fined 1.000 Riyals, roughly 267 USD. The penalty charge will gradually increase if the taxpayer fails to comply with the rules and doesn’t make necessary changes within three months after the notice.

The fine for each additional repetition time will be as follows: 5.000 Riyals for the third time, 10.000 Riyals for the fourth time and 40.000 Riyals for the fifth time. If the same violation is repeated 12 months after its discovery, it is considered a new violation, and the process will begin with a warning without a fine.

What are the violations of e-invoicing?

According to the announcement, the violations of e-invoicing rules will be penalized per the new procedure described above. The instances that require a notice/fine are slightly different than the initial violations described previously and highlighted as follows:

What´s next?

The ZATCA states that the new approach ensures proportionality between the violation and the penalty imposed on taxpayers while giving taxpayers a chance to comply within a specific time frame. Considering that the introduction of both VAT and mandatory e-invoicing is fairly recent in the country, there are certain aspects that are unclear for taxpayers. This approach will educate businesses and is expected to be welcomed by stakeholders.

Take Action

Download the 13th annual Sovos’ Trends report to find out more about what we believe the future holds. Follow us on LinkedIn and Twitter for the most up-to-date regulatory news.

Towards the end of 2021, the tax authority in Turkey published a draft communique that expands the scope of e-documents in Turkey. After minor revisions, the draft communique was enacted and published in the Official Gazette on 22 January 2022.

Let’s take a closer look at the changes in the scope of Turkish e-documents.

Scope of e-fatura expanded

Taxpayers meeting these thresholds and criteria must start using the e-fatura application from the start of the year’s seventh month following the relevant accounting period.

In terms of accommodation service providers, if they provide services as of the publication date of this communique, they must start using the e-fatura application from 1 July 2022.

For any business activities that start after the publication date of the communique e-fatura must be used from the beginning of the fourth month following the month in which their business activities began.

E-arsiv invoice scope expanded

Taxpayers not in scope of e-arşiv invoices have been obliged to issue e-arşiv invoices if the total amount of the invoices to be issued exceeds TRY 30.000 including taxes (in terms of invoices issued to non-registered taxpayers, the total amount including taxes exceeds TRY 5.000) from 1 January 2020.

With the amended communique, the Turkish Revenue Administration (TRA) lowered the total amount of the invoice threshold to TRY 5.000, and thus more taxpayers will be required to use the e-arsiv application. The new e-arsiv invoice threshold applies from 1 March 2022.

E-delivery note scope expanded

Another change introduced by the communique was the expansion of the scope of e-delivery notes. The gross sales turnover threshold for mandatory e-delivery notes has been revised to TRY 10 million, effective from the 2021 accounting period. In addition, taxpayers who manufacture, import or export iron and steel (GTIP 72) and iron or steel goods (GTIP 73) are required to use the e-delivery note application. E-fatura application registration is not applicable to those taxpayers.

Take Action

Get in touch with our team of tax experts to find out how Sovos’ tax compliance software can help meet your e-fatura and e-document requirements in Turkey.

ebook

Simplify EU VAT with IOSS

The EU E-Commerce VAT Package came into effect on 1 July 2021. And with it, the need for operational change, business disruption and plenty of accounting complexity.

A key component of the package is the Import One Stop Shop (IOSS) – a new way for companies to meet their EU VAT obligations when trading cross-border. 

In this e-book we explain IOSS’s key concepts and common use cases so you can better understand and take advantage of IOSS and how you apply it to your business.

IOSS is expansive, complicated and rewrites the rules for companies selling into and within Europe. This e-book aims to simplify that for you. We cover:

  • The basics
  • Intermediary requirements
  • Key considerations for your business
  • How to ensure IOSS compliance
  • How we can help

Get the e-book

We spend ample time on each of these topics so that you feel confident understanding whether IOSS is the right option for your business.

Our e-book starts with an easy-to-understand primer on IOSS. This includes how IOSS operates, its many rules and what has happened. The e-book also explains more on IOSS intermediaries as well as their purpose and when they can be used.

Find out more about the IOSS registration process, including its effects on:

  • Customer experience
  • VAT registration
  • VAT simplification
  • Record keeping
  • Data collection and invoicing
  • Contingency planning
  • Commercial matters

We answer some important questions you should consider about IOSS registration:

  1. Will you need to appoint an intermediary?

  2. How will you appoint one?

  3. How will you get set up for IOSS registration – will you do this yourself or search for help?

  4. How will you submit monthly returns and pay the VAT or use a partner?

  5. How can you ensure record keeping data is in the right format and up to date?

  6. How will you respond to tax authority audits?

Whatever your eventual IOSS decision is, our e-book will help you make an informed decision for the good of your business.

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

Whatever your VAT implications, Sovos has the expertise to help you navigate your global events and the complexities of cross-border VAT obligations.

Our VAT Managed Services ease your compliance workload while mitigating risk wherever you operate today. In addition, we ensure you’re ready to handle the VAT requirements in the markets you intend to lead tomorrow.

The Tax Bureaus of Shanghai, Guangdong Province and Inner Mongolia Autonomous Region have all issued announcements stating they intend to carry out a new pilot program for selected taxpayers based in some areas of the provinces. The pilot program will involve adopting a new e-invoice type, known as a fully digitized e-invoice.

Introduction of a new e-invoice type

Many regions in China are currently part of a pilot program that enables newly registered taxpayers operating in China to voluntarily issue VAT special electronic invoices to claim input VAT, mostly for B2B purposes.

The new fully digitized e-invoice is a simplified and upgraded version of current electronic invoices in China. The issuance and characteristics of the fully digitized invoice are different from other e-invoices previously used in the country.

Characteristics of the fully digitized e-invoice

Verification of fully digitized e-invoices

Relying on the national unified electronic invoice service platform, tax authorities will provide selected taxpayers for this pilot program with services such as issuance, delivery, and inspection of fully digitized e-invoices 24 hours a day. Taxpayers will be able to verify the information of all electronic invoices through the electronic invoice service platform or the national VAT invoice inspection platform.

What’s next for e-invoicing in China?

This new pilot program has been effective in Shanghai, Guangzhou, Foshan, Guangdong-Macao Intensive Cooperation Zone, and Hohhot since 1 December 2021. Despite the lack of an official timeline for implementation, it’s expected that the scope of this pilot program will be extended in 2022 to cover new taxpayers and regions in China, paving the way for nationwide adoption of the fully digitized e-invoice.

Take Action

To find out more about what we believe the future holds for VAT, download the 13th edition of Trends. Follow us on LinkedIn and Twitter to keep up-to-date with regulatory news and updates.

Indirect Tax Rules for Insurers Across Europe

IPT is a complex thing to deal with.

Many tax authorities are increasing their focus on the insurance industry in an effort to close tax revenue gaps, with many introducing Insurance Premium Tax (IPT) and other indirect taxes for insurance. Globally, IPT is fragmented across over 200+ countries and achieving compliance can be a complex process requiring specialist knowledge.

Insurers, especially those operating across multiple territories, can find keeping up to date with the latest IPT rates, rules and regulations to ensure compliance challenging.

This guide provides a helpful snapshot of the indirect tax rules that apply to insurance premiums across Europe.

Download the Indirect Tax Rules for Insurance Across Europe guide

Get the guide

The guide provides a useful reference of indirect rules across Europe including:

Albania, Andorra, Austria, Belarus, Belgium, Bosnia and Herzegovina, Bulgaria, Croatia, Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Georgia, Germany, Gibraltar, Greece, Guernsey, Hungary, Iceland, Ireland, Isle of Man, Italy, Jersey, Kosovo, Latvia, Liechtenstein, Lithuania, Luxembourg, Malta, Moldova, Monaca, Montenegro, Netherlands, Norway, Poland, Portugal, Romania, San Marino, Slovakia, Slovenia, Spain, Switzerland, United Kingdom.

Insurance Premium Tax compliance

The digitization of tax is a trend that will undoubtedly continue. Organisations need to prepare for any changes to reporting as this will impact compliance obligations for the countries they operate in.

Tax authorities have increased their focus on the insurance industry to ensure IPT and parafiscal taxes are collected correctly, accurately, and on time.

Operating in multiple countries inevitably means also having to comply with many local regulations in line with IPT statutory and parafiscal filing. Compliance regimes can be simple or complex, but the difficulty is that they’re varied.

Download our guide to ease this burden.

As a result of the 2020 Finance Law implementation, which transfers the management and collection of import VAT from customs to the Public Finances Directorate General (DGFIP), France has implemented mandatory reporting of import VAT in the VAT return instead of having the option to pay through customs as is typically the process. This change came into effect on 1 January 2022, with additional VAT reporting changes in France, including the Declaration of Exchange Goods (DEB) split where the Intrastat dispatch and EC sales list are now separate reports.

This new import procedure is mandatory for all taxpayers identified for VAT purposes in France. Registered taxpayers may no longer opt to pay import VAT to customs and must report all import VAT via the VAT return. This is a departure from the prior process, where taxpayers needed to receive prior authorisation to implement a reverse charge mechanism to pay import VAT through the VAT return. Now, this process is automatic and mandatory, and no authorisation is required.

Consequently, taxpayers with import transactions into France must now register for VAT purposes with the French tax authorities. Additionally, the French intra-community VAT number of the person liable for payment of import VAT must be listed on all customs declarations.

Changes to the VAT return

Changes to the French VAT return include (see Figure 1):

France Implements Mandatory Postponed Accounting on Imports

Figure 1: Draft extract of 2022 FR VAT Return

Impact on Taxpayers

From 31 December 2021, “foreign traders” who imported goods and then made local sales under the domestic reverse charge are now required to register as a result of the import portion of the transaction and will still apply the reverse charge to their sales. This will now require a new VAT declaration to be submitted.

Additionally, until 31 December 2021, a foreign company that imported goods into France and made local sales under the reverse charge had to recover the import VAT paid under the Refund Directive (EU companies) or the 13th Directive (non-EU companies). For Refund Directive claims, there would have been a cash advantage for France because either companies did not submit claims (small value) or because claims were rejected for non-compliance. For claims under the 13th Directive and the two previous considerations, there was also the issue of “reciprocity” which prevented claims from some counties such as the US, for example. Under the new regime, all import VAT is reclaimed, leading to a potential budget shortfall.

Take Action

To find out more about what we believe the future holds, download Trends and follow us on LinkedIn and Twitter to keep up-to-date with the latest regulatory news and updates.

TRENDS AND UPDATES ON VAT COMPLIANCE

Trends 13th Edition 2022

TRENDS AND UPDATES ON VAT COMPLIANCE

Trends 13th Edition 2022

Welcome to the 13th edition of Sovos’ annual Trends report where we put a spotlight on current and near-term legal requirements across regions and VAT compliance domains.

This report provides a comprehensive look at the regulatory landscape as governments across the globe are enacting complex new policies to enforce VAT mandates. It examines the demanding and unprecedented insight now required into your economic data so that regulatory authorities enforce standards and close revenue gaps.

This year’s report examines the evolution of law and practice around the four emerging megatrends that Sovos experts identified in the 12th edition. These trends, many of which revolve around tax compliance and controls being ‘always on’, have the potential to drive change in the way organizations approach regulatory reporting and manage compliance.

Authored by a team of international tax compliance experts, we provide extensive recommendations on how companies can prepare for and thrive through these changes.

Get the report

 The four mega-trends that we examine are:

  1. Continuous Transaction Controls (CTCs) – Countries with existing CTC regimes are seeing improvements in revenue collection and economic transparency. Now, other countries in Europe, Asia and Africa are moving away from post-audit regulation to adoption of these CTC-inspired approaches. The report highlights how countries like France and Hungary have accelerated their transition to CTCs, and how many jurisdictions are combining invoice controls with CTC transport documents, thereby expanding their real-time reach from financial to physical supply chains.
  2. A shift toward destination taxability for certain cross-border transactions – Cross-border services have historically often escaped VAT collection in the country of the consumer. Due to a large increase of cross-border trade in low-value goods and digital services over the past decade, administrations are taking significant measures to tax such supplies in the country of consumption or destination.
  3. Aggregator liability – With the increase of tax reporting or e-invoicing obligations across different taxpayer categories, tax administrations are increasingly looking for ways to concentrate tax reporting liability in platforms that naturally aggregate large numbers of transactions already. Ecommerce marketplaces and business transaction management cloud vendors will increasingly be on the hook for sending data from companies on their networks to the government, potentially even inheriting liability for paying their taxes. The report notes how the July 2021 introduction of sweeping changes in e-commerce VAT legislation via OSS and IOSS are confirming this trend.
  4. E-accounting and e-assessment – Combining CTCs with obligations to synchronize entire accounting ledgers makes onsite audit necessary only in cases showing major anomalies across these rich data sources. Over time, the objective is for VAT returns and other tax reports to be prefilled by the tax administration based on taxpayers’ own, strongly authenticated source system data. A brief deep-dive into the origins and potential future of SAF‑T shows how this trend is evolving to become a solid companion to CTCs globally.

CTCs have emerged as the primary concern for multinational companies looking to ensure compliance despite growing diversity in VAT enforcement approaches. Tax authorities are steadfast in their commitment to closing the VAT gap and will use all tools at their disposal to collect revenue owed. This holds especially true in the aftermath of COVID-19, when governments are expected to face unprecedented budget shortfalls.

The potential costs and risks associated with the trends highlighted in the report cannot be effectively mitigated with a reactive or opportunistic approach. The digital transformation of tax administration can – if approached as just an evolution of the legacy ‘post audit’ VAT world – significantly contract the digital transformation of businesses. This report suggests an analysis framework that companies can use to ensure ongoing VAT compliance whilst maximizing the opportunities of modern information and communication technologies for their own benefit.

In addition, Trends includes a major review of the country and regional requirement profiles. These profiles provide a snapshot of current and near-term planned legal requirements across the different VAT compliance domains.

The Northern Ireland Protocol regarding goods moving from Great Britain to Northern Ireland continues to cause problems, leading to calls to suspend it via Article 16. But at the same time, some NI politicians are looking to capitalise on the possibility of inward investment by companies that can benefit from being in both the UK and the Single Market at the same time. This will be an interesting circle to square.

For goods moving from Great Britain to the EU, it has been necessary to review supply chains and VAT compliance, especially where the GB supplier is required to import the goods. Here we have the issue of theory clashing with reality, requiring plans to be revised.

Many UK suppliers selling goods into the EU decided that a good approach would be to obtain a VAT number in the Netherlands and then import the goods under an Article 23 licence to defer the import VAT to the VAT return – a straight-forward scheme to set up and manage. However, under the Union Customs Code, anyone who imports goods into the EU is required either to be established in the EU or to appoint an “indirect customs agent” who is established in the EU. 

Upon accepting such an appointment, the EU entity becomes jointly liable with the importer for the VAT and duty that is due. Not surprisingly, it is difficult to find businesses that will offer such a service. In 2020, the body representing freight forwarders in Germany suggested that no such appointments should be accepted because of the financial risk. For many UK businesses, the only solution has been to establish a company in the EU, often the Netherlands, to import in their name.

Brexit also caused issues for GB businesses that supply equipment required to be installed in factories or other premises – such as parts of manufacturing production lines.

Within the Single Market there is a simplification for such supplies. The vendor can move the goods to another Member State to install them with the customer accounting for the acquisition tax due on the goods. This is because there is no need for the supplier to have a local VAT number in the Member State where the goods are installed.

Following Brexit, suppliers shipping goods from Great Britain to the EU for installation are no longer able to use this simplification. Instead, the GB supplier must now import the goods into the EU and then make a sale. If the goods are imported and installed in a Member State where the extended reverse charge applies to the sale, there will be a cash flow issue regarding the paid import VAT. Claims need to be made under the 13th Directive and, if the Member State concerned applies the concept of “reciprocity”, then the claim may be denied. 

“Reciprocity” allows a Member State to refuse VAT refunds to taxpayers from third countries which do not allow VAT refunds to taxpayers of the Member State. The Member State normally publishes a list of third countries that can submit claims where reciprocity is invoked.

Pre Brexit, there was no need for the UK to be on such a list, so this now represents a real risk. Some Member States, including Spain, added the UK to their list immediately following Brexit. If these subtle complexities are not considered before a transaction is agreed the cashflow consequences could be severe – so planning is essential.

Businesses also have to ensure that they are prepared for changes which came into effect on 1 January 2022.

Under the EU-UK Trade and Cooperation Agreement, goods exported from Great Britain to the EU with a UK origin are free of import duty. In some situations, exporters require information from their suppliers about the origin of the goods they are supplying.

Until 31 December 2021, an exporter of goods from Great Britain to the EU did not need to hold a supplier’s declaration when making a statement on origin to be used by the customer to claim the zero-duty rate on imports into the EU. It is enough that the exporter is confident that the origin rules are met and make every effort to get supplier declarations retrospectively.

Suppose a UK exporter finds that a supplier statement is not available retrospectively. In that case, they must inform the EU customer who will have to consider the impact on the imports they have made.

If an exporter cannot comply with an official request for verification of the origin of the goods being the UK, the EU customer will be liable to pay the full duty rate retrospectively.

From 1 January 2022, an exporter must hold a supplier’s declaration, when required, when making the statement on origin declaration to the customer or the full rate of Customs Duty is payable. This significant change to the rules will impact all businesses exporting to the EU, including e-commerce retailers selling goods above EUR150.    

Take Action

Get in touch about the benefits a managed service provider can offer to ease your business’ VAT compliance burden.

In a blog post earlier this year, we wrote about how several Eastern European countries have started implementing continuous transaction controls (CTC) to combat tax fraud and reduce the VAT gap. However, it’s been an eventful year with many new developments in the region, so let’s take a closer look at some of the changes on the horizon.

Latvia

Latvia has recently revealed its new CTC regime plans. The Latvian government approved a report prepared by the Ministry of Finance to implement an electronic invoicing system in the country. The concept described in the report envisages the introduction of electronic invoicing as mandatory for B2B and B2G transactions from 2025 under the PEPPOL framework. The details about the system, including the legislation and technical documentation, are expected in due course.

Serbia

Serbia is another country moving rapidly towards a CTC framework, and apparently, various stakeholders find this movement rather quick. The Ministry of Finance recently announced that upon the request for a transition period to adapt to the new system of e-invoices, they have decided to postpone the date for entry into force of CTC clearance for B2G transactions until the end of April 2022. It must be noted that there has been no delay concerning B2B transactions.

According to the revised calendar:

Slovenia

Slovenia is also looking to introduce CTCs. In June 2021, the Ministry of Finance submitted a draft law to the Slovenian parliament, aimed at introducing mandatory B2B e-invoicing in the country. According to the draft regulation, all business entities would be obliged to exchange e-invoices exclusively in their mutual transactions (B2B). In the case of B2C transactions, consumers could opt to receive their invoices in electronic or paper form. However, the Ministry of Finance withdrew the draft law due to disagreement with various stakeholders but intends to review it by simplifying the process and reducing the administrative burden on businesses.

Discussions around the introduction of CTCs in the country continue among various stakeholders, e.g., the local Chamber of Commerce. However, seeing as national elections are expected in Slovenia in April 2022, the CTC reform is not expected to gain much traction until summer 2022 at the earliest.

Slovakia

Earlier this year, we reported that the Slovakian Ministry of Finance had prepared draft legislation to introduce a CTC scheme. The aim was to lower Slovakia’s VAT gap to the EU average and obtain real-time information about underlying business transactions. Public consultation for the draft law was completed in March 2021. However, no roll-out timeline was published at the time.

Over the past months, the Slovakian government has launched the CTC system and published new documentation. The CTC system is called Electronic Invoice Information Systems (IS EFA, Informačný systém elektronickej fakturácie) and is a unified process of electronic circulation of invoices and sending structured data from invoices to the financial administration. The timeline for the gradual roll-out of entry into force looks as follows:

Poland

There have been serious developments regarding Poland’s CTC framework and system, the Krajowy System e-Faktur (KSeF). The CTC legislation was finally adopted and published in the Official Gazette on 18 November 2021. Starting from January 2022, KSeF goes live as a voluntary system, meaning there is no obligation to use this e-invoicing system in B2B transactions. It is expected that the system will be mandatory in 2023, but no date has been set yet for the mandate.

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

Romania

With the largest VAT gap in the EU (34.9% in 2019), Romania has also been moving towards introducing a CTC regime to streamline the collection of taxes to improve and strengthen VAT collection while combating tax evasion. In October 2021, Government Emergency Ordinance (GEO) no. 120/2021 introduced the legal framework for implementing e-Factura, regulating the structure of the Romanian e-invoice process and creating the framework for basic technical specifications of the CTC e-invoicing system. While the Romanian e-Factura went live as a voluntary system on 6 November 2021, no timeline has yet been published for a mandate. Suppliers in both B2B and B2G transactions may opt to use this new e-invoicing system and issue their e-invoices in the Romanian structured format through the new system.

For more information see this overview about e-invoicing in Romania or VAT Compliance in Romania.

Take Action

Contact us or download VAT Trends: Toward Continuous Transaction Controls to keep up with the changing regulatory landscape.

Sovos SAF-T Solutions

Save Time and Effort Preparing Audit-Proof SAF-T Files that are Complete and Submission Ready

Data extraction, analysis and file generation

Automate the process of preparing robust, accurate and compliant SAF-T files

SAF-T (Standard Audit File for Tax) is an international standard for electronic exchange of reliable accounting data from organizations to a national tax authority or external auditors. Tax administrations use it to gather more granular data from businesses on either an on demand or periodic basis. Sovos can manage all SAF-T requirements across multiple jurisdictions through automated processes that seamlessly extract required data, map data accurately to SAF-T structures in the latest legal formats and perform deep analysis on SAF-T output generated.

Sovos provides certainty with a future-proof strategy for tackling compliance obligations across all markets as indirect tax (VAT) regulations evolve toward continuous e-reporting and other continuous transaction controls (CTCs) requiring increasingly granular data. Sovos’ solution for SAF-T combines extraction, analysis and generation providing our customers with the certainty they need.

Experience end-to-end handling for compliance peace of mind with Sovos’ SAF-T triple play

Enhance decision-making with full visibility of system data through an intuitive and user friendly interface.

Assess accuracy, integrity and quality of data to ensure compliance with each country’s distinct SAF-T obligations.

Perform cloud-based platform diagnostics of your financial and tax health.

Review ERP source data to determine if errors originate with extraction/mapping or system configuration.

Conduct forensic tests to pinpoint possible anomalies in your data.

Analyze syntax accuracy to ensure file compliance and the integrity and quality of the data.

Maximize operational efficiency by identifying tax anomalies that may cause business problems.

Ensure alignment between SAF-T data and financial statements in advance preparedness for inevitable inspections.

The EU e-commerce VAT package was introduced in July 2021. The new schemes, One Stop Shop (OSS) and Import One Stop Shop (IOSS) bring significant changes to VAT treatment and reporting mechanisms for sales to private individuals in the EU.

In the last of our series of FAQ blogs, we answer some of the more common questions asked on the IOSS.

In previous pieces, we’ve looked at understanding marketplace liability, understanding OSS and understanding IOSS and imports

Q: What is IOSS VAT?

IOSS VAT is the VAT collected at the time when the supply takes place and subsequently remitted to the tax authority in the Member State of Identification (MSI).

Under the old rules, when goods imported from third countries were sold to private individuals, the normal steps would require the supplier to account for import VAT, then account for the VAT on the subsequent supply (the sale to the private individual) then deduct the import VAT.

Instead, with IOSS, the VAT on the import is exempt and only the VAT on the subsequent supply is to be collected and remitted to the tax authority.

Q: What is IOSS?

IOSS is short for Import One Stop Shop. This is a special scheme that simplifies the registration obligations for taxpayers who carry out distance sales of goods imported from third countries to private individuals in the EU.

Similar to the OSS, the IOSS scheme allows taxpayers to register in a single EU Member State where they account for VAT that was actually due in other Member States.

Here’s an example. A business registered for IOSS in the Netherlands, can account for its sales to German, French, Italian, Polish etc. customers in its Dutch IOSS return thus avoiding the requirement to register in multiple jurisdictions.

Other advantages of using the schemes are:

The scheme, however, is restricted to consignments of up to €150. Additionally, signing up for the scheme requires careful analysis of the taxpayer’s profile, the way the supply chain is structured and other factors. All of these would affect the business’ eligibility for the scheme, and the requirements to appoint a special type of representative for the purposes of the scheme that is required in certain cases.

If such representative is required, they will be jointly and severally liable with the taxpayer’s IOSS obligations. It’s also important to note that such representative must be established in the EU.

Q: What is an IOSS number?

An IOSS number is the specific identification for the IOSS scheme that is designated by the MSI (the country where the taxpayer is eligible or decides to register for the scheme) to the taxpayers that have decided to make use of this mechanism.

Although IOSS identification is a type of VAT identification it’s not an actual resident VAT registration in the MSI.

Instead, it’s an IOSS number specifically for the purposes of the scheme. In this sense only the eligible type of supplies can be accounted for using the IOSS number and the IOSS registration. In case the taxpayer will carry out other type of supplies which require a regular VAT registration the latter should be obtained for the purposes of being compliant.

Q: How much does IOSS cost?

The cost of IOSS compliance can vary depending on multiple factors. This would be ultimately affected by:

Q: Who needs an IOSS number?

An IOSS number is required for any taxpayer that wants to make use of the IOSS special scheme. This mechanism isn’t mandatory hence there’s no obligation to apply for an IOSS number.

However, it is advisable that any taxpayer that carries out supplies eligible to be reported using IOSS should consider this option as it has some considerable advantages. Of course, the consideration should also include the numerous requirements and conditions that must be met if a person opts to use the IOSS scheme.

Q: What’s the difference between IOSS and OSS?

Both are special schemes used to simplify the registration obligations for taxpayers involved in B2C supplies. They provide an option to account for VAT, that is due in multiple EU VAT jurisdictions, using a single registration and only one IOSS or OSS return.

The difference between both schemes is the different types of supplies that can be accounted for. More precisely:

Considering the above, the main difference is that with IOSS the goods are located in a third country (outside the EU customs territory) at the time of the sale, whereas with OSS the goods are located within the EU’s territory.

Q: Do I need to register for IOSS?

No, IOSS is currently an optional scheme for taxpayers. If not used, the taxpayer’s supplies are subject to the normal rules and depending on the way the supply is structured normal VAT registration/s may be required instead.

Q: What is IOSS tax ID?

IOSS tax ID is the special IOSS VAT number assigned to a taxpayer that has chosen to opt in for the IOSS scheme. It‘s not a regular VAT number that is assigned in the course of a normal VAT registration but is instead used to identify a taxpayer specifically for the purposes of the scheme.

Also, in more practical terms, the IOSS number must be indicated in a specific way on each shipment/supply in order to identify it as eligible under the IOSS as this would allow for:

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Need more information on the changes, and how to comply with the EU e-commerce VAT package? Access our webinar on-demand, and download our e-book on the New Rules for 2021.

In our previous blog, we completed the compliance cycle with tax authority audits. However, that’s not the end of the challenges businesses face in remaining compliant in the countries where they have VAT obligations. VAT rules and regulations change as do a business’s supply chains – these need to be carefully reviewed and appropriate action taken so that the business remains complaint.

Changes in supply chain

Supply chains develop over time for a variety of reasons: changes are made to improve efficiency, provide a better customer experience in delivery times or because of entry into new markets. Sometimes, these changes are instigated by the business seeking optimisation, whereas others are forced by external changes such as Brexit forcing businesses trading between the UK and EU to alter supply chains following the UK’s exit from the EU.

Whatever the reason for the change, it’s essential to review the impact on the VAT position of the business. This involves determining the VAT obligations that arise from the new transactions – which we covered in our previous blog. An early warning system of impending supply chain changes is required so they can be reviewed before the new transactions commence. Key to this is awareness of the importance of VAT within the business; the supply chain changes cannot be reviewed if the finance team is not aware of them.

Also, it’s not possible to undo a transaction once it’s taken place so the business must deal with the consequences even if they are adverse. Proactive action can ensure that the business goes into the new supply chain prepared and aware of all the consequences.

There are different ways to structure a supply chain to achieve the same commercial aim; they can have differing VAT implications so consideration of the consequences should form part of the evaluation process to determine the appropriate strategy.

Changes in legislation

Whilst businesses can control some element of when their supply chains change, responding to changes in legislation is much more difficult.

The first step is to be aware of what has changed. Changes can happen on a pan-EU basis or in an individual Member State so a mechanism needs to be in place to identify changes as soon as they are announced. Often this will require external support, especially if there are obligations in multiple territories.

Once the change has been identified, the next step is to determine the impact on the business. Some changes will have minimal impact whereas others will require proactive action to be compliant with the new rules. Significant changes may require a redesign of the supply chain. An action plan with clear responsibilities and timescales should be put in place to manage the necessary changes.

Managing new mandates

The EU has seen the introduction of numerous new mandates over recent years, often in respect of continuous transaction controls (CTCs), and this is set to continue as Member States seek to reduce the VAT gap.

The latest information published by the European Commission is for 2019 where the VAT gap was €134 billion. Whilst this showed a reduction from the previous year, it still represents 10.3% expressed as a share of the VAT Total Tax Liability.

Governments need to generate revenue in a post-pandemic world and addressing the VAT gap provides one solution without imposing additional tax burdens as it involves collecting tax that should already have been charged. Based on current trends, it will take 13 years to eradicate the gap so new initiatives are needed, hence the increase in CTCs.

Managing these new mandates will be a critical challenge for business in the coming years as they are introduced in more Member States. A clear strategy is essential to avoid becoming overwhelmed by disparate local requirements.

Over this series of blogs, we’ve looked at the key aspects of ensuring ongoing VAT compliance. Once the necessary processes and controls are in place, businesses can focus on trade knowing that VAT compliance is assured. However, maintaining VAT compliance is a continuous process which should be constantly reviewed to maximise efficiency and minimise risk.

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The EU e-Commerce VAT Package is nearly six months old and businesses should have submitted their first Union One Stop Shop (OSS) return by the end of October 2021. Union OSS provides a welcome simplification to the requirement to be registered for VAT in multiple Member States when making intra-EU B2C supplies of goods and services.

Whilst a simplification, there are several conditions that need to be met on an ongoing basis to continues its use. The European Commission produced a number of guides on the application of Union OSS prior to its introduction which provided guidance on its operation. However, there are still several questions about how Union OSS interacts with other compliance obligations in place for e-commerce sellers around the EU.

Union OSS – interaction with Intrastat

Intrastat is the EU’s mechanism to provide details of intra-EU trade in the absence of customs borders. It’s made up of two components: dispatches declarations submitted in the Member State where the transport starts and arrivals declarations in the Member State of delivery.

E-commerce businesses selling intra-EU goods have long had to comply with Intrastat obligations when they exceeded the reporting thresholds. For lots of businesses an obligation arose in the Member State from where the goods are dispatched given that goods were delivered to multiple other EU countries, so thresholds were often exceeded.

In addition, larger e-commerce sellers also had obligations to submit arrivals declarations in the country of delivery of the goods even though they were not the purchaser of the goods. The very largest may also have had obligations to submit dispatches declarations in the Member State of their customer because of returned goods.

There is no mention of Intrastat in any of the European Commission’s guides about OSS so no guidance is provided on how it will apply when a business adopts Union OSS. Furthermore, many Member States do not currently seem to have a finalised position on the interaction with Union OSS.

The position in the Member State of dispatch of the goods seems clear but there are potentially complexities when goods are dispatched from more than one Member State especially if there is no VAT registration in that country. Whilst this is unlikely, there are circumstances where no VAT registration is required or even allowed.

The real complexity is with regards to Intrastat arrivals declarations. The principle of Union OSS is that no VAT registration is required in the Member State of the customer for intra-EU supplies. There may be other reasons for a VAT registration there but for many e-commerce sellers, they will not have to be registered in the Member State of delivery.

This raises the question of whether arrivals declarations are required in those territories. Some Intrastat authorities have provided guidance and those that have are taking different routes. Some are clear it is not required for arrivals when using Union OSS whilst others still require declarations to be made even though there is no local VAT registration in place.

We continue to monitor the situation and will update further as more information is available.

Unions OSS and other declarations

E-commerce sellers of goods can have other compliance and tax obligations in the countries to which they deliver goods. These include meeting local country rules with regards to environmental taxes. For example in Romania there is a requirement for e-commerce sellers to submit Environmental Fund returns even if the business has opted to use Union OSS. This creates complexity as the Romanian VAT number is normally used to file the returns. A separate registration seems to be possible to ensure compliance with the environmental regulations.

There is also potentially an issue in Hungary with the retail tax that is payable by businesses with a turnover in excess of HUF 500 million. There is still a liability to pay the tax even if there is no VAT registration because of Union OSS. Affected businesses will need to ensure that they remain compliant.

Teething problems can be expected with any new regime but there is an argument that some of these should have been predicted and clear guidance provided, especially for Intrastat. It is clear that some authorities have not considered the matter at all prior to Union OSS’s introduction. We will continue to monitor the situation and provide further updates when more information is available.

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In our previous blog, we looked at the challenges that businesses face in submitting VAT and other declarations on an ongoing basis. However, the compliance cycle doesn’t end there as tax authorities will carry out audits for a variety of reasons to validate declarations.

Why do tax authorities carry out audits?

When VAT returns consisted of only numbers, audits were carried out to obtain more information about the business activities taking place behind those numbers. The increased amounts of transaction data provided to tax authorities via SAF-T, local listings and continuous transaction controls (CTCs) means this is changing. Audits are still carried out even with the additional VAT information, mainly to determine that VAT declarations accurately reflect the activities of the business.

Whilst the frequency of audits varies considerably between Member States, it is common across the EU for an audit to be carried out if the business requests a repayment of VAT. In some countries, this will happen whenever a repayment is requested, whereas others will take a more risk-based approach and only audit if the repayment is higher than expected from a business that regularly receives repayments.

Speed is of the essence for audits as cashflow is impacted until the repayment is made. This needs to be at the forefront of whoever is managing the audit but careful consideration of the questions being asked by the tax authority and responses being made by the business remains essential.

Preparing for an audit

Audits can either be done in-person or via correspondence although In-person audits are currently less common due to Covid-19. The audit is normally carried out via correspondence if the taxpayer is not established in the country of registration, which in some countries requires a local advisor.

This leads to a key question: whether to handle the audit in-house or bring in external expertise. Whilst managing an audit in-house will save fees, it is essential to consider the consequences of the audit. An external advisor could be brought in at a later stage but they may be hampered by responses provided to the tax authority at the outset of the audit. Proper consideration should be given to utilising specialist external advisors, especially if there is a significant amount of VAT or complex issues are involved.

The priority for any audit is to successfully resolve it as quickly as possible with no detrimental impact to the business. This will minimise the amount of management time, fees and exposure to penalties or interest.

Managing the audit process

Many audits will start with the tax authority asking some specific questions – this could be about the business generally or about specific transactions. The questions are asked for a reason so businesses need to consider why they’re being asked to determine how to respond and minimise the risk of problems later in the audit.

Managing deadlines is important as failure to do so can have detrimental effects. Some tax authorities impose very short deadlines so prompt attention is required. It may be possible to agree an extension, but this is not always the case. Providing clear unambiguous answers and supporting documentation is essential to obtain the desired outcome.

Once the audit has been concluded, any corrective action needs to be taken. In the ideal situation, nothing must be done and the business can continue to trade successfully. If an adverse decision or payment request has been issued by the tax authority, consideration needs to be given as to whether to appeal the decision; again, strict deadlines must be met.

Even without such a decision, the audit may have highlighted areas where work is required to avoid problems arising in the future. An action plan should be created with clear responsibilities and deadlines.

Once all work has been done, the business can return to the normal compliance cycle of submitting VAT returns and other declarations. An ongoing challenge is making sure the business successfully manages changes in their VAT position, and we will be looking at this in our final blog in this series.

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As we inch closer to the implementation date of 1 January 2022 for Norway’s new digitized VAT return, let’s take a second look at the details.

Norway announced its intentions to introduce a new digital VAT return in late 2020, with an intended launch date of 1 January 2022. With this update comes the removal of box numbers, which will be replaced by a dynamic list of specifications. The report will also repurpose the Norwegian Standard Tax Codes from the SAF-T financial file to provide more detailed reporting and flexibility. It’s important to note that the obligation to submit a SAF-T file will not change with the introduction of this new VAT return.

This change is for the VAT return only – with the SAF-T codes being re-used and re-purposed to provide additional information. Businesses must still comply with the Norwegian SAF-T mandate where applicable and must also submit this new digital VAT return. With the new VAT return, the Norwegian Tax Administration (Skatteetaten) seeks to simplify reporting, better administration, and improved compliance.

Details on technical specifications

Skatteetaten has created many different web pages with detailed information for businesses to look through over the next few months, including the following:

Submission method

Norway is encouraging direct ERP submission of the VAT return where possible. However, the tax authorities have announced that manual population via the portal will still be available.

Login and authentication of the end user or system is carried out via the ID porten system. Originally, Norway didn’t allow for XML upload; however, the tax authorities have recently updated their guidance to ensure that XML upload will be accepted. Changing numbers or notes in the uploaded XML file will not be possible, but it will be possible to upload attachments.

Additionally, Norway has provided a method for validation for the VAT return file, which should be tested before submission to increase the probability that the file is accepted by the tax authorities. The validator will validate the content of a tax return and should return a response with any errors, deviations, or warnings. This is done by checking the message format and the composition of the elements in the VAT return.

Please note that Norway is not allowing for any grace period for the submission of this newly designed return.

What’s next?

In addition to the new VAT return, Norway has also announced plans to implement a sales and purchase report by 2024. The proposal is currently in the mandatory public consultation phase, which ends on 26 November 2021.

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Update: 3 January 2024 by Inês Carvalho

Romania Issues Last-Minute Amendments to B2B E-invoicing Regulations

After the implementation of Romania’s new B2B e-invoicing regulations, effective January 2024, the country introduced Government Emergency Order No. 115/2023 with last-minute amendments.

We can summarise the key amendments from the new legislation in three categories:

1. Exemptions from the e-reporting and e-invoicing mandate are clarified

The e-reporting mandate explicitly excludes the following transactions:

2. New five-calendar-day deadline to report e-invoices from July 2024

From July 2024 onwards, the requirement to issue e-invoices for transactions between established entities persists. The amendment states that in the event of a taxpayer’s failure to generate an electronic invoice, they are obligated to submit it to the RO e-Factura platform within five calendar days.

3. Penalties for businesses in the scope of e-invoicing

From July 2024, established entities that fail to comply with the issuance and receipt of e-invoices will receive a fine equal to 15% of the total invoice amount.

Additionally, those who fail to report the invoice which was not issued and automatically transmitted to the RO e-Factura within the additional five calendar days will be fined:

Read our dedicated Romania e-invoicing page for more information on the mandate or VAT Compliance in Romania.

 

Update: 20 September 2023 by Inês Carvalho

Romania Publishes Draft Legislation For B2B E-invoicing Mandate

The Romanian Ministry of Finance has published draft legislation proposing new budgetary measures, among which is the implementation of the highly anticipated electronic invoicing mandate.

Even though the draft legislation maintains the January 2024 roll-out date previously approved by the EU Council, it proposes an invoice reporting system to operate in the first six months with the electronic invoicing system (RO e-factura) being fully implemented in July 2024.

Additionally, a three-month grace period – from January 2024 to March 2024 – is foreseen where penalties are not imposed.

For more information see this overview about e-invoicing in Romania.

 

Romania’s new B2B e-invoicing mandate timeline:

The first phase of implementation where taxpayers report invoices to the RO e-factura system – instead of issuing the invoices directly through that system – is an addition of the draft law.

This reporting obligation is a transitional measure to help businesses prepare and adapt their systems to the new e-invoicing requirements. Between January and June 2024, the draft legislation also foresees an obligation for the supplier to send the cleared invoice out-of-band to the buyer whenever the latter is not registered with the RO e-factura system.

The scope of the new B2B draft mandate applies to all B2B transactions carried out by established or VAT-registered suppliers deemed to take place in Romania.

Looking to better understand e-invoicing regulations ahead of Romania’s mandate? Our guide can help.

 

Update: 28 July 2023 by Enis Gencer

Romania Authorised to Implement Mandatory B2B E-Invoicing

The EU Council has approved the proposal from the EU Commission to authorise Romania to introduce mandatory e-invoicing starting from January 2024. The decision was adopted on 25 July and published in the Official Journal of the EU on 27 July.

Romania’s e-invoicing journey

Romania has been progressing towards implementing a continuous transaction controls (CTC) e-invoicing regime for some time now. The country introduced the e-invoicing requirement for B2B transactions of high-fiscal risk products in December 2021 and B2G transactions in May 2022, both implemented as of July 2022.

In addition to these requirements, Romania aims to make e-invoicing mandatory for all B2B transactions. To this end, the country applied to the European Commission on 14 January 2022, requesting authorisation for a special measure to derogate from articles 218 and 232 of Directive 2006/112/EC, which was granted on 25 July. This measure would allow for the introduction of mandatory electronic invoicing for all transactions carried out between taxable persons established in Romania.

Key takeaways from the derogation decision

What’s next?

The Romanian authorities will need to make the necessary amendments to local legislation to implement mandatory e-invoicing, following the derogation decision received by the EU Council.

The Romanian tax authority, ANAF, is expected to issue an order within 30 days from the date of the derogation which will define the scope and timeline for the implementation of the mandate. The order will provide more specific details about the upcoming mandate.

Considering the mandate could come into effect as early as January 2024, it’s crucial that taxpayers start preparing their systems for mandatory e-invoicing from now.

Looking for guidance to comply with Romania’s upcoming e-invoicing mandate? Our expert team can help.

 

Update: 28 July 2023 by Enis Gencer

Romania Authorised to Implement Mandatory B2B E-Invoicing

The EU Council has approved the proposal from the EU Commission to authorise Romania to introduce mandatory e-invoicing starting from January 2024. The decision was adopted on 25 July and published in the Official Journal of the EU on 27 July.

Romania’s e-invoicing journey

Romania has been progressing towards implementing a continuous transaction controls (CTC) e-invoicing regime for some time now. The country introduced the e-invoicing requirement for B2B transactions of high-fiscal risk products in December 2021 and B2G transactions in May 2022, both implemented as of July 2022.

In addition to these requirements, Romania aims to make e-invoicing mandatory for all B2B transactions. To this end, the country applied to the European Commission on 14 January 2022, requesting authorisation for a special measure to derogate from articles 218 and 232 of Directive 2006/112/EC, which was granted on 25 July. This measure would allow for the introduction of mandatory electronic invoicing for all transactions carried out between taxable persons established in Romania.

Key takeaways from the derogation decision

What’s next?

The Romanian authorities will need to make the necessary amendments to local legislation to implement mandatory e-invoicing, following the derogation decision received by the EU Council.

The Romanian tax authority, ANAF, is expected to issue an order within 30 days from the date of the derogation which will define the scope and timeline for the implementation of the mandate. The order will provide more specific details about the upcoming mandate.

Considering the mandate could come into effect as early as January 2024, it’s crucial that taxpayers start preparing their systems for mandatory e-invoicing from now.

Looking for guidance to comply with Romania’s upcoming e-invoicing mandate? Our expert team can help.

 

Update: 24 January 2022 by Enis Gencer

Romania’s B2B E-invoicing Mandate for High-risk Products and E-transport System

With the most significant VAT gap in the EU (34.9% in 2019), Romania has been moving towards a CTC regime to improve and strengthen VAT collection while combating tax evasion.

The main features of this new e-invoicing system, e-Factura, are described further down in this blog. Here, we’ll take a closer look at the roll-out for B2B transactions and the definition of high-fiscal risk products, as well as the new e-transport system that was introduced through the Government Emergency Ordinance (GEO) no. 130/2021, published in the Official Gazette on 18 December.

What are high fiscal risk products?

According to GEO no. 120/2021 (the legislative act introducing the legal framework of e-Factura), the supplier and the recipient must both be registered with the e-Factura system. The recently published GEO no. 130/2021 establishes an exception for high fiscal risk products and ensures that taxpayers will use the e-Factura system regardless of whether the recipients are registered.

In line with the GEO no. 130/2021, the National Agency for Fiscal Administration has issued an order to clarify which products are considered high fiscal risk products.

The five product categories are as follows:

High fiscal risk products are defined based on the nature of the products, marketing method, traceability of potential tax evasion and degree of taxation in those sectors. Detailed explanations, as well as product codes, can be found in the Annex of GEO no. 130/2021.

The enforcement timeline of this requirement means that businesses that supply these types of products must be ready to comply with the new Romanian e-Factura system as follows:

Looking ahead: introduction of an e-transport system

Another reform that shows the intention of the Romanian authorities to combat tax fraud and evasion is the introduction of an e-transport system.

Taxpayers will be required to declare the movement of goods from one location to another in advance. Once declared, the system will issue a unique number written on the transport documents. Authorities will then verify the declaration on the transport routes.

Moreover, it is stated in the justification letter that the e-transport system will interconnect with the Ministry of Finance’s current systems, Romanian e-invoice, and traffic control, much like similar initiatives in other countries, such as India, Turkey and Brazil.

The introduction of the e-transport system is still pending as the Ministry of Finance has not yet issued the order regarding the application procedure of the system. According to GEO 130/2021, the Ministry of Finance had 30 days to do so after GEO 130/2021 was published in the Official Gazette. However, the deadline expired on the 17 January, and no announcement has been made yet. Therefore, the details of the system are still unknown.

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Update: 16 November 2021 by Joanna Hysi

E-Factura – Romania’s New E-invoicing System

In March 2020, Romania launched an e-invoicing pilot program, e-Factura, to streamline the collection of taxes to improve and strengthen the collection of VAT whilst combating tax evasion.

The decision to launch e-Factura was taken after closely monitoring the Italian e-invoicing model and analysing the economic impact and efficiencies that electronic invoicing has had for both B2G and B2B transactions in Italy.

E-Factura is to implement a new e-invoicing system for B2G transactions but also lays the foundation for the extension of the platform for further developments and provides the necessary know-how to develop an e-invoicing system in B2B.

In October, Government Emergency Ordinance (GEO) no. 120/2021 introduced the legal framework for implementing e-Factura, regulating the structure of the Romanian e-invoice process and creating the framework for achieving basic technical specifications of the e-invoice system.

Further documentation regulating the use and operation of e-Factura and technical documentation such as API specifications and draft e-invoice schemas have also been published.

According to published documentation, the B2B e-invoicing process is not expected to differ from the B2G e-invoicing process, whose framework and relevant requirements are defined to a clearer standard.

Taxpayers can expect the same requirements to apply to B2G and B2B e-invoicing. However, certain aspects for B2B e-invoicing must still be clarified, such as the authentication process and requirements for accessing and using the e-invoicing system through the API for taxpayers and their service providers.

Main features of e-Factura

The Romanian e-Factura went live as a voluntary system on 6 November 2021, just six months from the announcement of the Ministry of Finance of the roll-out of a new e-invoicing system and only one month after publication of enacting legislation. Suppliers in both B2B and B2G transactions may opt to use this new e-invoicing system and issue their e-invoices in the Romanian structured format through the new system.

The Romanian e-Factura is a clearance system where e-invoices are sent, cleared, and received through the central platform. The structured invoice is issued in XML format and sent to the central platform for validation. The validation checks relate to the compliance of the structured invoice with the schema requirements, the authenticity of the origin regarding the identity of the issuer who is authenticated in the system and the integrity of the invoice content after transmission. An XML invoice that passes validation and is signed by the Ministry of Finance is considered the legal invoice.

Final remarks

The initial implementation timeline must be – by international comparison – considered short for the roll-out of an extensive new CTC system. This could be explained by the fact that the roll-out of the voluntary system is not as disruptive as that of a mandatory system.

If, or when, a mandate is announced or relevant e-invoicing incentives are introduced, a longer implementation timeline is likely to follow to facilitate for taxpayers to comply with the new requirements in time.

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Need to ensure compliance with the latest Romania e-Factura requirements? Speak to our team.

Update: 6 November 2023 by Dilara İnal

Additional Information Released for Germany’s B2B E-Invoicing Plans

In October 2023, The Federal Ministry of Finance (MoF) released additional information regarding electronic invoicing, one of the proposed tax measures included in the Growth Opportunities Act.

If the MoF’s proposal, with the details provided in the preceding updates, becomes law, the following will be applicable:

Besides MoF clarifications, the upper house of the German Federal Parliament, Bundesrat, addressed the Act during its session on 20 October. While the Bundesrat supports the introduction of mandatory e-invoicing, it has proposed a two-year delay so the mandatory receipt of electronic invoices commences on 1 January 2027.

In the next steps of the process, the lower house of the Parliament, Bundestag, is expected to vote on the Growth Opportunities Act in mid-November. The upper house’s vote should take place in mid-December.

Looking for more information on the global adoption of e-invoicing? Read our definitive E-invoicing guide.

 

Update: 20 September 2023 by Dilara İnal:

Federal Government Approves Mandatory B2B E-Invoicing and Extends Voluntary Phase

On 30 August, the German Federal Government approved the draft act known as the “Growth Opportunities Act,”. The act consists of several provisions on different tax matters, including the introduction of a nationwide B2B e-invoicing mandate.

Key dates for implementation of the mandate include:

The draft bill approved by the government does not change the previously communicated framework, however it extends the voluntary phase by one year. The voluntary phase will last until January 2027 for small companies with annual turnover of 800,000 EUR or less in 2025.

 

Next steps for the e-invoicing mandate

The Federal Parliament and the Federal Council are expected to give their approval to this reform by the end of 2023.

Looking for additional guidance on invoicing in Germany? Speak with our team of experts.

 

Update: 4 August 2023 by Dilara İnal

German Regulatory Changes For Mandatory E-invoicing

The German Federal Ministry of Finance (the Ministry) shared the draft “Growth Opportunities Act” with significant German business associations on 14 July 2023. This act introduces amendments to VAT law to implement mandatory e-invoicing, along with other national and international tax-related proposals.

Currently, issuing an electronic invoice requires the buyer’s consent. Proposed amendments will change this, with invoices for transactions between German resident taxpayers – known as domestic B2B transactions – required to be electronic.

The act also introduces a new definition for e-invoices. An electronic invoice is defined as an invoice issued, transmitted and received in a structured electronic format that enables electronic processing. An e-invoice must also comply with the eInvoicing standard of the European Committee for Standardization (CEN), EN 16931.

The Ministry previously shared its plan to roll out mandatory e-invoicing as of January 2025. This date remains the same in the amendment proposals, with transitional measures giving taxpayers some time and flexibility to comply with the new requirements:

Even though this act does not include any provisions for a transaction-based reporting system, it notes that such a reporting system for B2B sales will be introduced later.

European Council issues derogation decision

The European Council authorised Germany to introduce special measures regarding mandatory electronic invoicing with its decision dated 25 July 2023.

Germany received the derogation from the VAT Directive from 1 January 2025 to 31 December 2027 or, if an EU directive is adopted earlier than planned, until the national transposition of the VAT in the Digital Age (ViDA) directive into German law.

Looking for additional guidance on invoicing in Germany? Speak with our team of experts.

 

Update: 21 April 2023 by Anna Norden

Germany Takes Another Step Towards CTC by Proposing an E-Invoicing Mandate

The German Federal Ministry of Finance sent a discussion proposal for the introduction of mandatory B2B e-invoicing in Germany on 17 April to significant German business associations.

The business associations are requested to provide their opinion on matters such as the following by 8 May:

The proposed e-invoicing mandate is a step toward implementing a real-time transaction-based reporting system for creating, verifying and forwarding e-invoices. This system is not part of the current proposal, but – as this is directly related to an e-invoice mandate – the ideas for such a system are laid out at a high level by the Ministry of Finance.

The final aims to provide a uniform electronic transaction-based reporting system for national and cross-border B2B transactions. The invoice exchange would be done via a central or private platform.

No verification of the full invoice content would be performed or interruption of forwarding of the invoice – however, the issuer’s platform would check (“Plausibilitätsprüfungen”) that all mandatory fields are present, whether structure and syntax are EN-compliant and so on.

The reporting of the invoice would be in real-time at the same time as the invoice is sent so that the supplier would not have to initiate two transactions.

The Ministry of Finance states the aim is for the new system to be aligned with ViDA but that Germany counts on having to use a derogation from the provisions of the VAT Directive to introduce the e-invoice mandate, should ViDA not be adopted in time.

While many have speculated around Germany going down the path of the Italian e-invoicing system, the message from the Ministry of Finance seems rather to be that the cues are taken from the French system, with the use of a centralised platform complemented with private service providers who serve to channel the invoices.

Need to discuss how Germany’s proposal to introduce continuous transaction controls could affect your business? Speak to our tax experts.

 

Update: 3 November 2021 by Joanna Hysi

Germany Steps Closer to Introducing Continuous Transaction Controls

There’s been increased discussion among different institutions about the introduction of continuous transaction controls (CTCs) in Germany to combat tax fraud and boost the competitiveness of the German market in Europe.

Supporters of a CTC reform

Proponents of the introduction of CTCs in Germany include, among others: the parliamentary group of the business-friendly Free Democratic Party (FDP), the German Association for Electronic Invoicing (VeR) and an independent judiciary body, the German Bundesrechnungshof (Federal Audit Office).

Recently, we’ve seen this topic included in tax policy negotiations of the coalition partners that emerged from the recent German government elections (the Social Democratic Party (SPD), FDP, and the Green Party).

While the discussions remain at a conceptual level, the new potential coalition parties display political will for reform in this area.

Proposals on CTC reform

Specifically, the German Bundesrechnungshof proposed to the Ministry of Finance a real-time reporting system leveraging blockchain technology as an efficient system to combat VAT fraud. However, their proposal wasn’t accepted on the grounds that a cost-benefit analysis is required before such measures are proposed and implemented.

As part of a parliamentary process the FDP called  for “an electronic reporting system comparable to the Italian SDI to be introduced nationwide as quickly as possible, for the creation and testing and forwarding of invoices”. The leading German industry association, the VeRwelcomed this proposal recognising its numerous advantages to companies and the German economy.

A VeR study on whether the Italian model can be used as a blueprint for Europe explains that although it doesn’t seem to have contributed significantly to reducing Italy’s VAT gap, the advantages of e-invoicing to companies and the Italian economy are convincing. It concludes that the Italian clearance system can serve as a model for the digitization of VAT in Germany, if not in Europe. In addition, the VeR experts offer their knowledge to develop such a CTC system in Germany.

Conclusion: Will Germany be the next EU country to introduce CTCs?

It seems that the idea of introducing a CTC system in Germany – following in the footsteps of fellow Member States like Italy, France and Poland – is gaining traction and might not be far from becoming reality if the coalition partners indeed manage to reach a coalition agreement to succeed the currently ruling party.

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To find out more about what we believe the future holds, download VAT Trends: Toward Continuous Transaction Controls. Follow us on LinkedIn and Twitter to keep up-to-date with regulatory news and updates.