Article

Digitalisation of Indirect Tax

Indirect Tax Matters | March 2022

We have seen an increasing trend in the last number of years of Tax Authorities worldwide introducing different methods of collecting taxes using information technology.

Several EU countries are taking the lead on modernising their VAT reporting systems in an attempt to prevent VAT evasion/avoidance and increase VAT compliance and, consequently, boosting their VAT revenues. Alongside the continuing move towards adopting approaches such as Standard Audit File for Tax (SAF-T) and Real time reporting (RTR), electronic invoicing has become a focus for many EU countries.

E-invoicing is not a new process and technology enabling it is widespread with e-invoicing in public procurement scenarios (B2G) already being harmonised across the EU. In 2020, EU Member States should have finalised transposing the so-called ‘e-invoicing Directive’ (2014/55/EU) in their individual legislations, although not all countries have done so just yet. Tax Authorities have introduced e-reporting for several different reasons, some of the drivers for include:

  • Trying to stop tax evasion and reduce the tax gap
  • The value of data and the possibilities around data
  • Simplification and measures to increase efficiencies

The Models

There are several different models of e-reporting, the five most popular systems in operation globally are considered below with examples of some countries where these are operational.

1. Real-time reporting:

Reporting of transactional data in near-time post issuance. This is the closest example to a live environment whereby invoices are issued to customers and within a very short period (five minutes in Hungary for example) invoices must be submitted to the tax authority. Almost instantly, the government will issue an electronic reference number against the invoice. However, this does not need to be printed on the invoice and is just a reference for potential future audits. Submissions should be ‘live’, at the time of the invoice’s creation.

Countries where Real time Reporting is in operation include Hungary and South Korea.

2. Clearance

This a quiet straight forward system whereby the taxpayer submits the invoice to the tax authority for pre-approval (usually in XML format) prior to dispatch to customers. Once validated by the tax authorities it then returns the e-invoice to the taxpayer for forwarding to the customer.

Countries where Clearance is in operation include Chile and Mexico.

3. Centralised Invoicing

Centralised Invoicing involves submission of the invoice to the tax authorities within a period (for example in Italy twelve days) after the paper invoice has issued. The tax authority then issues an invoice to the customer. This removes the requirement in Italy for example for sales and purchases reports to be filed as the tax authority already has the information on the platform.

Countries where Centralised Invoicing is in operation include Italy and Turkey

4. Interoperability

This system involves a full digital exchange of any transaction documents via interoperability. It is the basic ability of different products or digital systems to readily connect and exchange information with one another at customer and supplier level.

Interoperability is in operation in Finland

5. Post-Audit

Trading parties (taxpayer and tax authority) are free to agree on methods and technology most suitable to use. The technology system used can differ from one set of parties to another once there is an agreement between the taxpayer and tax authority that such a system is suitable.

Post Audit is in operation in USA and Japan.

European Commission 2022 Work Programme

The above models should be considered in light of The European Commission publishing its “2022 Work Programme”. With regard to VAT, the main initiative is “VAT in the digital age: Revision of the VAT Directive and of the Council Regulation on VAT administrative cooperation”.

This initiative aims to modernise the current VAT rules and considers key opportunities offered by digital technologies. The Commission’s action plan for fair and simple taxation underlined the need to reflect on how technology can be used by tax authorities to bridge the VAT gap whilst also helping taxpayers interact with Tax Authorities in a digital friendly and efficient manner. The action plan announced a legislative proposal for 2022 under the heading ‘VAT in the digital age’ covering:

  • VAT reporting obligations and e-invoicing
  • VAT treatment of the platform economy
  • Single EU VAT registration

The package is expected to harmonise and promote the provision of cross-border supplies in the single market, and to help improve tax collection. However, an important question arises, as to how, and whether, the e-invoicing models can be harmonised at EU level. It will be interesting to see how such a harmonised approach can be achieved.

We understand Irish Revenue have been reviewing the various reporting options however we would not expect any significant changes in the short term and would hope that a comprehensive consultation is undertaken with all stakeholders in advance.

For more information, please contact Patrick Doran @ pdoran@deloitte.ie
 

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