TaxTech –March 03rd, 2020
European Union – Implementation of VAT e-commerce rules
As of 1 January 2021, the EU VAT rules for e-commerce businesses will dramatically change. Where businesses perform B2C supplies of goods or services, they will have to charge local VAT in the country of the recipient. In order to reduce the administrative burden for businesses, these supplies can be reported via the so-called One Stop Shop mechanism. This “OOS” mechanism takes away the need for local VAT registration in every EU country the foreign business performs a B2C sale. Instead, the registration and reporting will be performed from one EU Member State.
The main goal of the new legislation is to simplify the VAT reporting obligations for e-commerce businesses and by that also increase compliance with the VAT rules by the Sellers. However, to accomplish this, it will be necessary that the EU Member States are also able to technically implement this One Stop Shop mechanism.
This is challenging for several Member States. Germany and the Netherlands will probably not be able to set-up a working and reliable system before 1 January 2021, due to the outdated IT systems. Therefore, the question is whether the deadline will be met or the new VAT rules for e-commerce will have to be postponed.
The European Commission is still positive on this matter as can be read on their website HERE.
European Union – Payment service providers to report payment data
The European Council adopted new measures to transmit and exchange payment data to fight e-commerce VAT fraud. The measures include an obligation for payment service providers, such as banks, to share payment data with the CESOP database (Central Electronic System Of Payment information). As of 2024, CESOP will keep records of cross-border payment information within the EU, as well as payments to third countries or territories for a period of five years.
This information will help tax authorities to properly control the correct fulfilment of VAT obligations on cross-border B2C supplies of goods and services. The new measures will apply as of 1 January 2024.
The full text of the new rules can be found HERE.
European Union – Recent list of the VAT Committee guidelines published
On 25 February 2020, the VAT Committee published its most recent list of guidelines. The VAT Committee was set up to promote the uniform application of the provisions of the EU VAT Directive. It consists of representatives of Member States and of the Commission. Because it is an advisory committee only and has not been attributed to any legislative powers, the VAT Committee cannot make legally binding decisions. It can, however, give guidance on the application of the EU VAT Directive which is not, however, in any way binding on the European Commission nor on Member States. Still, the guidelines provide a good insight on how the different Member States and the EU Commission deal with the VAT legislation in practice. In the guidelines now published, among others, the topics ‘Quick Fixes’ and Brexit are addressed.
The guidelines can be found HERE.
European Union – Strategic plan on Data and AI
In a recently published plan, the European Union proved that they look ahead and do think about the future. Critics believe that the EU waited too long to take a position and create a plan in a wave of global digitisation. In their strategic plan to shape Europe’s digital future, they present their aim to create a European society empowered by digital solutions, provide new opportunities for businesses, have a human-centric approach as a basis, and encourage the design of trustworthy technologies.
The plan shows that the EU wants to become a global leader within the agile data economy while simultaneously respecting European values such as fairness, privacy, data protection, and adopting a human-centric approach.
More information on the EU Strategic Plan can be found HERE.
Although the plan does not specifically mention tax-related measures, the message from the EU is clear: they see a digital future, where technology plays an important role in collecting, sharing and using information and data.
A recent report from the confederation of Swedish Enterprises and Deloitte Sweden shows an overview of some of the current trends in digital reporting from businesses to governments. Amongst other things, the report covers Italian e-Invoicing, Spanish SII Real-time reporting, and SAF-T in Norway.
The report on the digitalisation of business reporting can be found HERE.
European Union – Czech Reblubic – Reverse charge reversed?
The Czech Republic planned the introduction of a general reverse charge system for all supplies of goods and services in the Czech Republic worth over EUR 17,500 (approx. CZK 450,000). In such cases, the obligation to declare VAT would automatically shift from the supplier to the customer.
Due to delays in the legislative process, the general reverse charge mechanism and for that matter, the ‘Quick Fixes’ have not yet come into effect, and it is not expected to happen before April 2020. It is even possible that the implementation of the general reverse charge is not going to be implemented at all.
More information can be found HERE.
European Union – Spain –Lease of a warehouse can create a fixed establishment
A hot topic for VAT is the Fixed Establishment. As mentioned in earlier editions of our TaxTech newsletters, tax authorities in various countries are approaching foreign businesses more often and more aggressively, arguing that the business has a fixed establishment in their respective country.
Having a fixed establishment for VAT purposes is not always as bad as it sounds. In some countries, it may actually even be an advantage, for example, if a fixed establishment is being regarded as a locally established business, it might be able to request and receive VAT refunds more quickly.
A recently published consultation in Spain shows that for a foreign business to create a fixed establishment for VAT, the mere conclusion of a warehouse lease agreement can be sufficient. In the specific case, the foreign business stored goods in a locally leased warehouse (in which it had a dedicated space), and it used the staff of the local logistics company to arrange for the transportation of the goods from the warehouse.
According to the Spanish General Tax Directorate, this constituted an ‘adequate structure in terms of human and technical means, own or subcontracted, with a sufficient degree of permanence’.
The consultation can be found HERE.
Global – Israel – Real-time reporting may become a reality
Countries such as Brazil, Chile, Portugal, Spain, Poland and Hungary have already implemented some type of real-time reporting obligation. Isreal may be next. The Israeli Tax Authorities are considering implementing a regime whereby every business owner issuing an invoice for over NIS 5,000 (approx. EUR 1.250) will have to obtain immediate online approval from the Tax Authorities when the transaction takes place. Deduction of VAT from an invoice for which approval has not been obtained will not be permitted.
The new rules are proposed as part of the fight against VAT fraud. By controlling and understanding the flows of money between businesses, and to prevent fictitious invoices, the Israeli tax authorities aim to reduce VAT fraud significantly.
More information can be found HERE.
Global – Big Data questions and the effect on tax
To fight VAT fraud more effectively, tax administrations have placed high hopes in the use of new technologies. However, the mass amount of structured and unstructured data available from multiple sources and channels is overwhelming and often proves too complex to analyse properly.
Not just tax authorities, but also businesses struggle to effectively find the needle in the haystack – the Big Data. Most of the Big Data projects fail, often because executives cannot accurately assess project risks at the outset. For a successful Big Data project, there are four important components: Data, Autonomy, Technology, and Accountability.
More information on D.A.T.A. can be found in this interesting article HERE.
Global – Understanding risks in Artificial Intelligence in financial services
The financial services industry wants to use artificial intelligence (AI) to enhance their business and provide better services. They are convinced that this is the future; if used and deployed responsibly.
Deloitte and the World Economic Forum recently published a report highlighting the risks associated with deploying AI within financial institutions and present strategies to mitigate those. Some of the questions covered in the report are the algorithms that could destabilise the financial system and whether AI could be trusted as a fiduciary.
Although the report does not cover tax matters, it is an interesting development to follow. Especially in the light of the continuous evolvement of tax authorities to use new technology (such as AI) to make tax reporting obligations and complying with the tax rules more digital.
More information can be found HERE.
In addition to the above, Gartner also added to the observation of this trend by saying that over 40% of privacy compliance technology will rely on artificial intelligence (AI) by 2023, up from 5%, according to Gartner, Inc.
More information can be found HERE.
Global – How to excel at both strategy and execution.
According to Gartner’s ‘Top Insights for the C-Suite’ eBook, three common problems delay strategy execution.
- Managers lack insight into how their decisions impact other teams. Therefore, well-intentioned managers tweak execution plans, for example, in ways that completely derail others downstream.
- Unexpected events are disconcerting for managers, diverting their focus when they most need to act. Execution veers off course as managers try to evaluate and weigh the trade-offs created by new scenarios.
- Pivots are underresourced and often fail because these shifts in the execution plan are made by senior leaders who take too long to decide and are too far from operational realities, or by middle and frontline managers who understand the execution issue but lack the insight to know that the pivot will damage another part of the business.
Legal and compliance leaders are also facing a new and uncertain environment. More than 60% of general counsel (GC) report that they are more frequently providing guidance on unfamiliar risk areas and facing an environment where the organisation’s risk posture changes frequently and in that environment the majority report that business risk tolerance is undefined or unclear.
“The gap between strategy and execution is not a new problem, but closing that gap (or not) in today’s highly uncertain economic, market and competitive environments can make or break a company’s top and bottom line. Investing in disciplined execution now will reduce the risk that strategic”
Marc Kelly VP, Team Manager Gartner Research & Advisory
Download the full report HERE.
VAT as a Career: Part 4 of 5 of VATBox’s ”Industry Leaders Reveal” interview series
New technologies, wide-reaching regulatory reform and a dynamic global marketplace have transformed the once staid tax profession. Tax professionals have a wide variety of career options to choose from, including joining a professional services firm as a tax consultant, working in the public sector, joining the private sector in a corporate tax office or combining financial knowledge with technology in the up-and-coming FinTech and RegTech industries.
With so many opportunities available, we asked VAT experts from multiple industries why they chose – and continue to choose – to make a career out of VAT. The interviews are moderated by Remco Dewaerheijt, VP Tax & Product Strategy at VATBox and form a part of VATBox’s thought leadership series of interviews with industry leaders about their personal views on global VAT developments.
The full article can be found HERE.
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