VAT Compliance Update, Part 1: Real-Time Reporting Requirements
Value Added Tax (VAT) compliance is undergoing a massive change in the European Union (EU). Many countries are implementing new VAT reporting obligations that will supplement – or even replace – traditional VAT returns, and some are even experimenting with new methods for VAT remittance. What’s more, tax authorities are deploying new tools to cross-check transactional-level data with VAT returns without needing to perform tax audits.
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Given the significant variability of compliance requirements across Europe and the EU, along with the fact that VAT legislation never stands still, it is difficult for multinational companies to ensure their systems and processes remain compliant and current. In this VAT Compliance Update post, I’ll review real-time reporting requirements in select EU countries and assess the likelihood of their adoption by other EU Member States. In a follow-up post, I’ll offer a similar assessment of split payment requirements.
Spain was the first country to implement (nearly) real-time reporting of transaction data. On July 1, 2017, Suministro Inmediato de Información (SII) went into effect and requires taxpayers submitting monthly Spanish VAT returns, those using the monthly refund regime, and members of VAT Groups to report their sales and purchase invoices within four days of issuance or receipt.
An evaluation of SII conducted over a three-month period showed positive results. The SII covered 75 percent of the total turnover of VAT taxpayers in Spain. Additionally, the data supplied through SII matched the information in the VAT returns in 84 percent of cases. However, it is important to note that there were initially 64,000 companies obliged to join the new regime, but 10,000 companies left the monthly VAT refund regime or VAT grouping in order to avoid the SII, both of which are optional. Among 54,000 companies that remained within the SII scope, 90 percent complied with the SII within the first three months it was in effect.
One year after the SII took effect, Hungary implemented real-time reporting of transaction data. The Hungarian regime differs significantly from Spain’s approach. Hungary’s requirements apply only to B2B sales above HUF 100,000, whereas the SII covers both sales and purchase transactions.
Several countries appear ready to follow Spain and Hungary’s lead. Greece has repeatedly expressed its intention to do so but has yet to enact legislation. Recently, the Irish Revenue chairman described real-time VAT reporting as “inevitable.” It is important to keep in mind that implementing real-time reporting does not require authorization by the European Commission (EC). As a result, it is easier for countries to introduce real-time reporting than mandatory split payment or mandatory e-invoicing, both of which require EC approval.
While real-time reporting helps tax authorities detect suspicious transactions at an early stage and prevent fraudulent activities, some countries want to go further by implementing real-time VAT remittance (split payment).
VAT Compliance Update, Part 2: Split Payment
Real-time reporting means tax authorities can detect suspicious transactions at an early stage and prevent fraudulent activities. However, this may not occur at all if fraudsters never receive value added tax (VAT) from their customers in the first place. In Part 2, we'll explore the split payment system and what it seeks to achieve to address this challenge.
Please remember that the Tax Matters provides information for educational purposes, not specific tax or legal advice. Always consult a qualified tax or legal advisor before taking any action based on this information.
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