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Sovos Report Reveals Tax Compliance Trends Impacting Multinational Companies 

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Sovos Report Reveals Tax Compliance Trends Impacting Multinational Companies  1
  • 12th edition of annual report shows VAT reporting processes stricter and more frequent across EMEA
  • Mandatory e-invoicing could be on the cards and varied tax controls are here to stay

Global tax software leader Sovos today releases its report on value-added tax (VAT) mandates and compliance. ‘VAT Trends: Toward Continuous Transaction Controls’ provides a comprehensive look at the regulatory landscape, as governments across the world are enacting complex new policies to enforce VAT mandates, obtain unprecedented insight into economic data and close revenue gaps.

This year’s edition focuses on four key trends that could transform the way organisations approach regulatory reporting and manage compliance. Authored by a team of international tax compliance experts, the Sovos Trends Report includes extensive recommendations on how companies can prepare for and thrive through these changes.

This year, the EMEA region in particular has experienced huge shifts in government-enforced initiatives around tax enforcement and momentum is set to continue into 2021. For specific country profiles, see relevant pages within the report.

“Continuous transaction controls have emerged as the primary concern for multinational companies looking to ensure compliance despite growing diversity in VAT enforcement approaches,” said Christiaan van der Valk, lead author of the report and vice president of strategy at Sovos. “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 for the aftermath of COVID-19, when governments are expected to face unprecedented budget shortfalls.”

Key EMEA trends:

  • VAT reporting processes stricter and more frequent – Existing VAT reporting is becoming more granular and more frequent in many EU Member States.
    • Since 2017 in Spain, all companies have to report inbound and outbound invoices within four days.
    • In Hungary, suppliers have had to report their sales invoices in real time since 2018.
  • EU E-commerce package and digital services – Changes are being made to existing “one-stop shop” (OSS) legislation established in 2015, extending the system to facilitate reporting for taxable persons and intermediaries such as marketplaces for both intra-EU and external low-value goods and digital services sold to European consumers online.
  • Public procurement standards will play a major role in the design of various continuous transaction control (CTC) models – Frameworks such as PEPPOL are increasingly adopted by public administrations as large buyers of goods and services – the standards and platforms used for these transactions will increasingly be repurposed for VAT digitisation including CTCs.
  • “Own the Transaction” CTC model becomes more popular – More tax administrations aim not only to receive data from business transactions but use legislation to become the invoice exchange platform themselves.
    • This trend is gaining traction, spreading eastward – Turkey, Russia and Italy have it as core concepts in their CTC legislation.
  • SAF-T is here to stay – The OECD’s Standard Audit File for Tax (SAF-T) will remain an inspiration for European tax administrations not only to enforce VAT via real-time or near-real-time controls, but to obtain copies of taxpayers’ entire accounting books on their own systems as well.
  • Mandatory e-invoicing could be on the cards – The Italian treasury has been able to successfully recoup as much as EUR1.4 billion in VAT revenue in the first six months after mandatory e-invoicing was introduced in Italy.
    • More European countries are determined to follow suit, such as France and Poland.
  • Varied tax controls are here to stay – Different forms of continuous VAT controls will often co-exist to form an end-to-end audit package, allowing tax authorities to match data about transactions from different periodic, real-time, and near-real-time sources.
    • Spain favours a near real-time reporting approach; Sweden periodic reporting.

Key overarching global trends:

  1. 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.
  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. E-commerce marketplaces but also 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.
  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.

The 12th edition of the ‘VAT Trends: Toward Continuous Transaction Controls’ report also 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 report also examines how governments have embraced digital transformation in order to speed revenue collection, decrease fraud and narrow VAT gaps. This digitisation enables regimes to increase time to enforcement and enact stricter protocols, and consequently, businesses are forced to react with more stringent processes of their own to remain compliant.

“Sovos’ team of global regulatory experts exists to help businesses respond to the digitisation of tax. We focus our efforts on simplifying the multiple layers of complexity so that you can focus on growing your business,” said Filippa Jörnstedt, manager, regulatory analysis and design, Sovos. “Our mission is to provide the information that organisations need to address their tax challenges and ensure compliance with tax laws, no matter where they operate.”

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Sterling gets vaccine boost to hit 8-month high vs euro

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Sterling gets vaccine boost to hit 8-month high vs euro 2

By Joice Alves

(Reuters) – Sterling rose to a fresh eight-month high against the euro on Wednesday as Britain’s faster COVID-19 vaccine rollout than in the European Union offered support to the pound.

Although Britain’s deaths from the coronavirus pandemic passed 100,000 on Tuesday, its faster initial vaccine rollout has fuelled hopes for economic recovery.

Sterling was up 0.3% at 88.28 pence at 1049 GMT, after hitting a fresh eight-month high of against the single market currency.

Graphic: Sterling 27 Jan, https://fingfx.thomsonreuters.com/gfx/mkt/jbyvrnbbbve/Sterling%2027%20Jan.png

Geoffrey Yu, senior EMEA market strategist at BNY Mellon, said “the general theme of UK doing well with vaccinations is playing a role” in lifting the pound, which is “not expensive and not over-owned yet”.

On the other hand, “the euro is clearly being undermined by ongoing concerns over vaccine rollout speed and supply,” Yu added.

Versus the greenback, sterling was flat at $1.3736, not far off a May 2018 high of $1.3759 touched earlier.

Hopes for a large U.S. fiscal stimulus package has fuelled risk sentiment in markets in recent weeks, benefiting sterling. Market participants are expecting Federal Reserve Chair Jerome Powell to renew a commitment to ultra-easy policy.

“It’s FOMC today so the adjustment in dollar positions may be playing a role as well,” Yu said.

As Britain left the bloc in December, the City of London said the capital’s loss of some financial business due to Brexit has not been catastrophic and it will thrive even if the European Union “irrationally” blocks access.

“For now Sterling continues to trade more on hope, vaccines, than current reality,” said Jeremy Stretch, head of G10 FX Strategy at CIBC Capital Markets.

(Reporting by Joice Alves in VARESE, Italy. Editing by Alexander Smith and Andrew Cawthorne)

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Dollar advances as investors shy away from risk

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Dollar advances as investors shy away from risk 3

By Saqib Iqbal Ahmed

NEW YORK (Reuters) – The dollar edged higher against a basket of currencies on Monday, as a burst of volatility in stock markets around the globe sapped investors’ appetite for riskier currencies.

Concerns over the timing and size of additional U.S. fiscal stimulus sent major U.S. stock indexes briefly more than 1% lower before they recovered to trade little changed on the day.

The sharp move in stock markets soured FX traders’ appetite for risk, Karl Schamotta, chief market strategist at Cambridge Global Payments in Toronto, said.

“Your high beta currencies – currencies that are highly correlated with equity markets and global risk appetites – are tumbling in synchrony with equity indexes,” Schamotta said.

Market sentiment turned more cautious at the end of last week as European economic data showed that lockdown restrictions to limit the spread of the coronavirus hurt business activity.

The U.S. Dollar Currency Index was 0.19% higher at 90.396, after rising as high as 90.523, its strongest since Jan. 20.

The euro was down around 0.28% against the dollar. German business morale slumped to a six-month low in January as a second wave of COVID-19 halted a recovery in Europe’s largest economy, which will stagnate in the first quarter, the Ifo economic institute said on Monday.

The Australian dollar – seen as a liquid proxy for risk – was 0.16% lower against the dollar.

U.S. stocks have scaled new highs in recent sessions even as concerns about the pandemic-hit economy remain. Investors are trying to gauge whether officials in U.S. President Joe Biden’s administration could head off Republican concerns that his $1.9 trillion pandemic relief proposal was too expensive.

Despite the dollar’s recent rebound – the dollar index is up about 1.3% since early January – analysts expect a broad dollar decline during 2021. The net speculative short position on the dollar grew to its largest in 10 years in the week to Jan. 19, according to weekly futures data from CFTC released on Friday.

The U.S. Federal Reserve meets on Wednesday and Chair Jerome Powell is expected to signal that he has no plans to wind back the Fed’s massive stimulus any time soon – news which could push the dollar down further.

Sterling strengthened on Monday against the weaker euro as Britain’s COVID-19 vaccine rollout over the weekend offered support to the British currency.

(Reporting by Saqib Iqbal Ahmed; Editing by Andrea Ricci and Sonya Hepinstall)

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London and New York financial services treated the same, EU says

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London and New York financial services treated the same, EU says 4

By Huw Jones

LONDON (Reuters) – An EU forum for discussing financial services with Britain will be similar to what the United States has, and it must be in place before market access will be considered, the bloc’s financial services chief said on Monday.

Britain’s Brexit trade deal with the EU from Jan. 1 does not cover financial services, leaving its City of London financial center largely cut off from the EU.

Both sides are committed to creating a forum for financial regulatory cooperation by March, but talks have not started yet, the EU financial services commissioner told the European Parliament.

“What we envisage for this framework is similar to what we have with the United States, a voluntary structure to compare regulatory initiatives, exchange views on international developments and discuss equivalence related issues,” Mairead McGuinness told the European Parliament.

U.S. and EU regulators took about four years just to agree on rules on cross-border derivatives.

Trading in euro shares has already left London, along with a chunk in swaps trading. That questions the value of any future EU access given that many banks and trading platforms from the UK have opened units in the bloc.

McGuinness said regulatory cooperation will not be about restoring market access that Britain has lost, nor will it constrain the EU’s unilateral equivalence process.

Equivalence refers to EU access when Brussels deems a non-EU country’s rules are similar enough to the bloc’s.

“Once we agree on our working arrangements, we can turn to resuming our unilateral equivalence assessments… using the same criteria as with all third countries, including anti-money laundering and taxation cooperation,” she said.

Britain plans to amend some EU rules.

“The United Kingdom intention to diverge requires a case-by-case discussion in each area. Equivalence and divergence are polar opposites,” McGuinness said.

“I am optimistic that over time, through cooperation and trust, we will build a stable and balanced relationship with our UK friends.”

(Reporting by Huw Jones; Editing by Dan Grebler)

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