most common stumbling blocks. Mike Parkes (GoSimpleTax) asks whether you should defer a client’s second payment on account

The shifting sands of compliance

Marco van der Veer considers tech-enabled VAT reporting and digitisation – the major forces reshaping VAT in the EU.

Marco van der Veer

Head of Technology, Accordance

Europe may only just be waking up after its coronavirus induced sleep, but there are major technology and legislative changes shifting the sands of compliance and accounting practices that have taken no time off at all.

Digitisation is coming to Europe. It’s not coming at the same speed in all places, and the approaches across the bloc are significantly different, often contradictory and usually complex to manage. But over the next decade, tech-enabled VAT reporting and digitisation will reshape VAT in the EU. There is much that businesses and accounting professionals need to be doing to prepare themselves for the seismic shifts in both mindset and practice that will occur in the coming years.

The need for digitisation

Though the coronavirus pandemic has caused an unprecedented lull in business activity across a range of sectors, it may conversely heighten the need for and interest in digitisation. With a global recession predicted and many EU countries set to be hit hard, tax authorities may streamline their plans to move towards digitisation, and the unparalleled and at times unfettered access to business data it offers –

which helps to limit fraud, lessen the VAT gap and generally boost a nation’s coffers.

Europe sits some way behind other parts of the world in terms of digitisation, and indeed EU tax authorities may look to the control afforded to their Latin American counterparts with significant envy. Chile is widely recognised as the gold standard of digitisation. Under the complex Chilean invoicing system, all invoices go to the tax authority for clearance before the customer sets eyes upon them. This means that there is no capacity for businesses to forget or wilfully mislead the authorities with regards to their income, and the state has a full and frank appraisal of the sales made by companies.

Information is power

Information is power – and in the case of finance related information, it is potential income. Though approaches to adopting digitisation practices differ and some countries are at a more advanced stage than others, we should be under no illusions that digitisation is the trend in the EU. Italy has introduced an e-invoicing system, under which invoices are sent to customers and tax authorities simultaneously. France has signalled its intentions to adopt an e-invoicing system, marking 2023 as the implementation date.

The closest thing the EU has to Real Time Reporting (RTR) is the Hungarian system, in which reporting and invoicing are due within an eight-hour window of one another. Though enhanced reporting requirements are usually initially rolled out for larger businesses, the trend in Hungary and elsewhere is to extend requirements to businesses and transactions of all sizes. From 1 July, all B2B transactions of any value need to be reported to the Hungarian authorities, and all B2C transactions from 1 January.

Other systems, like Polish SAF-T and Making Tax Digital in the UK, may not reflect pure digitisation, but do reflect the requirements for greater data on the part of tax authorities, and for tech enabled filing, which in turn requires streamlined digitisation on the part of businesses.

A piecemeal approach

As the above examples illustrate, the movement towards digitisation and tech-enabled VAT reporting in the EU could best be described as piecemeal. Member states respond to their own needs and initiatives, which are in no small measure affected by political tendencies and requirements. All of this at times sits at loggerheads with the overall aims of the EU, which is to harmonise the VAT system across the bloc.

For businesses and accounting professionals, the impact is one of immense complexity. There are different systems in each nation, different timelines for new interventions and different reporting requirements, both in terms of time and information, to attend to. Compliance is an increasing burden, and with greater requirements for information there are fewer corners to be cut.

The One Stop Shop

However, the EU has thrown a lifeline to cross-border businesses by way of the One Stop Shop (OSS). OSS is an expansion of the existing Mini One Stop Shop (MOSS) for digital services, and has been introduced to mitigate new e-commerce directive changes to the rules on intra-EU B2C supplies of goods and services. OSS will allow businesses to register and file a single VAT return in one member state, reporting the relevant B2C supplies for all member states – thus significantly lessening the administrative burden.

But OSS is not without its own teething problems and there are various issues to be aware of. Significantly, the EU reached preliminary agreement for a six month postponement on implementation of the e-commerce directive in light of the pandemic to 1 July 2021. Whether this affects the timelines for national implementation of digitisation plans remains to be seen.

Digitisation is coming

Yet whether sooner or later, digitisation is coming. As a result, businesses and accounting professionals must get ready. Preparing for digitisation requires not just a change in procedures, but a paradigm shift in the way accounting is embedded into wider processes.

The time of handing an accountant a stack of invoices and a spreadsheet at the end of each billing cycle is over. Tech-enabled VAT reporting requires not just VAT experts – to whom work can always be outsourced – but expert IT professionals working hand in glove with them. Many multinational firms are already beginning to shape the way they work and how systems are designed with digitisation in mind, involving advisors, IT staff and process teams in the design of internal processes so that they work for later digitisation.

Key to systems redesign is to recognise that, no matter how onerous in the early stages, what you get out is what you have put in. If systems are badly designed, then there is a higher risk that data sent to tax authorities in the future will contain errors, which in turn increases the risk of non-compliance and its related sanctions.

There is a clear imperative for companies to review how their accounting takes place and the relationship it has with IT and wider processes, to ensure seamless compliance in the long term. A wholescale redesign and fundamental mind shift are time consuming and potentially expensive – but staying wedded to old processes as a digital revolution happens is a risky strategy that could lead to problems down the line. Getting internally ready for tech-enabled VAT reporting and digitisation is a process that businesses of any size cannot afford to miss out on. ●

Author bio Marco van der Veer specialises in VAT and technological change management, and is responsible for futureproofing VAT compliance offerings.