• 12^th 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 12^th 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.”