Global tax software leader Sovos has released its 13th annual Trends report, the industry’s most comprehensive study of global value-added tax (VAT) mandates and compliance controls. The report, “Trends,” is a comprehensive look at the world’s regulatory landscape, highlighting how governments across the world are enacting complex new policies and controls to close tax gaps and collect the revenue they are owed. These policies and protocols affect all companies conducting business in a market introducing them no matter where they are headquartered.
This year’s Sovos report examines how large-scale investments in digitization technology in recent years have enabled tax authorities in much of the world to move away from legacy reporting and ad hoc audits to real-time data analysis and always-on enforcement. Empowered by new technology and capabilities, government authorities have inserted themselves into every aspect of business operations and are ever-present in company data.
Through a rapid succession of new laws in this area tax administrations are increasingly requiring businesses to send them what amounts to all their live sales and supply chain data as well as the entire content of their accounting systems. This level of access to company finance ledgers creates unprecedented opportunities for tax administrations – and other parts of government, including law enforcement and competition authorities – to triangulate a company’s transaction source data with their accounting treatment.
After years of Latin America leading with innovation in these legislative areas, Europe is starting to accelerate the digitization of tax reporting. The report highlights the key developments and regulations that will continue to make an impact in 2022, including:
· VAT reporting processes become digital and more frequent – Existing VAT reporting is becoming more granular and more frequent in many EU Member States, with the majority quickly evolving towards real-time controls with or without electronic invoice mandates.
· Italy has mandatory e-invoicing via a data exchange platform previously introduced for public procurement messaging.
· Since 2017 in Spain, all companies must report inbound and outbound invoices within four days.
· In Hungary, suppliers have had to report their sales invoices in real-time since 2018.
· Public procurement standards will play a major role in the design of various 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 electronic invoicing as a key enabler of VAT digitization.
· “Own the Transaction” CTC model becomes more popular – More tax administrations aim not only to receive reporting data from business transactions but use legislation to become the invoice exchange platform themselves. This trend is gaining traction after Turkey and Italy introduced it as core concepts in their CTC legislation, while countries like France and Poland are introducing similar models.
· 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 for broader tax controls and audit support as well.
· EU E-commerce VAT package and digital services – Changes introduced in July 2021 to the One Stop Shop (OSS) and the launch of an Import One Stop Shop (IOSS) concept have drastically changed requirements for all e-commerce vendors and marketplaces selling low-value goods or digital services to European consumers.
MORE REAL TIME REPORTING
“Governments increasingly have all the evidence and capabilities they need to drive aggressive programs toward real-time oversight and enforcement,” said Christiaan van der Valk, lead author of the report and vice president of strategy and regulatory at Sovos. “We have already seen these programs envelope most of South and Central America and are quickly spreading across countries in Europe, such as France, Germany and Belgium, as well as Asia and parts of Africa. We are seeing firsthand the pace at which governments are establishing and operationalizing new standards of oversight and just how quickly they are moving to enforce these standards.”
With always-on enforcement, data contained in systems such as ERPs, accounts payable/receivable, procure to pay, order-to-cash, supply chain and logistics, and HR and payroll have to comply with local standards and mandates as the information traverses IT infrastructure. Failure to comply may lead to business disruptions or even stoppages.
“This new level of imposed transparency is forcing businesses to adapt how they track and implement e-invoicing and data mandate changes all over the world. To remain in compliance, companies need a continuous and systematic approach to requirement monitoring,” said Steve Sprague, chief strategy officer and general manager of global VAT, Sovos. “Bottom line: governments are in your data, and if you don’t comply with their mandates, they can shut you down.”
To download your complimentary copy of the report, click here.