The next two to three years should see, if all the agreed and proposed legislation is implemented, a great deal of substantial change. It was originally intended that the definitive VAT system should be origin based – VAT would be charged by the supplier based on the rate in their country. However, it has proved impossible to implement this in practice for a number of reasons and it is now accepted that the definitive VAT system should be a destination based system – VAT will be charged in the Member State of consumption at the relevant rate in that country. The EU made changes to the place of supply rules for services in 2010 with the implementation of the VAT package. As a result, the majority of B2B services are now taxed at the place of consumption via the reverse change mechanism. The latest reforms relate to the treatment of cross border supplies of goods. The core proposed reforms are:
January 2020 – 4 Quick Fixes These are a precursor to the ultimate July 2022 changes and aimed at helping to simplify some situations that currently are difficult to manage. The changes will aim to: 1. Simplify call off stock rules – the supplier will no longer be required to register in any Member State where call off stock is held. 2. Simplify chain transaction rules – certainty on which transaction is to be treated as the exempt intra-EU supply will be provided. 3. Increase use of VAT numbers – to apply the exemption to intra-EU supplies of goods, the supplier will have to obtain the recipient’s VAT number and verify it in the EU’s VIES system. 4. Require evidence to show that goods have moved from one Member State to another – hence the exemption that can be applied will be standardised.
January 2021 – B2C Mini One Stop Shop (MOSS) Currently goods delivered cross border on a B2C basis are taxed at the place of dispatch until thresholds of varying value are exceeded in the country of arrival. This often means that suppliers need to have multiple registrations across the EU. Instead, from January 2021 once a supplier exceeds €10,000 of cross border supplies they will be subject to VAT in the country of arrival. But instead of multiple registrations, all the VAT will be declared via the MOSS which involves the submission of a single VAT return and the payment of all of the VAT due to a single tax authority.
July 2022 – B2B One Stop Shop (OSS)/Definitive VAT System Cross border supplies of goods made on a B2B basis will be taxed only in the country of arrival (there will be no more dispatches and acquisitions as under the current system). The supplier will charge VAT at the relevant rate in the country of delivery and account for the VAT via the OSS portal. As with the MOSS, this will involve the submission of a single VAT return and a single payment.
In 2014, an EU Directive set the conditions for EU-wide B2G e-invoicing; this has now been widely adopted. Italy has taken this a stage further and has introduced compulsory e-invoicing for resident companies involved in B2B and B2C transactions. Before an invoice can be issued, the supplier must submit details to the tax authority relating to the supply. These will be verified by the tax authority and once that happens, the invoice issued to the recipient. The recipient will collect the invoice from the same tax authority run portal that the supplier used and use it to evidence a claim for reimbursement of any VAT costs.
Reporting This obligation involves providing information to the tax authority on each different transaction that the party has been involved with. SAF-T is a standardized audit file that is recommended for use by the OECD. However, the EU countries currently requiring this information use variations of the declaration which means businesses must bespoke each report that is required. All ask for it to be submitted as an addition to the regular VAT return, though Poland has announced its intention to drop the VAT return completely. Poland, France and Austria are just some of the countries to have added these obligations (the UK’s Making Tax Digital platform has the capacity to accept such reports but it is not yet a formal requirement).
Real Time Reporting (RTR)
This is the next evolutionary step for transactional reporting. It involves submitting transactional information to the tax authority in real time (or as close to it as required by the regulations). There are set templates to complete which dictate the information that is needed but again these vary, as does the submission process.
The EU’s key focus around digitisation has been on how to adapt the VAT system to make it modern, fair and efficient given the increasingly digital economy (i.e. marketplaces like Amazon, the use of bitcoin and general reliance on electronic data and communication). The EU is committed to making its tax system align with these external developments. This can most clearly be seen in the 2015 adoption of the MOSS to allow for the declaration of VAT on digital supplies. For the first time, this created a pan-EU solution which allowed for returns declaring VAT due across the Member States to be submitted via a single internet portal
One thing is for sure, the next three years will see unprecedented changes to the EU’s VAT landscape and all those involved will have to be ready to adapt. These changes will include those to the technology that is utilised, the processes that are employed and to the understanding of supply chains and the VAT treatments that apply to them. And as always, those that adapt earliest will most probably prosper the most with improved compliance positions and benefits from better data transparency.
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Irina is a Tax Consultant specialized in VAT compliance, Intrastat, Environmental Fund and Clawback reporting. Fluent in English and Spanish, Irina assists the clients in the process of VAT registration, VAT compliance and claw-back purposes, as well as other various advisory matters that may arise.