Companies have criticised suggestions for the gig economy, but the VAT discrepancies between the UK and the EU have narrowed in percentage terms.
Tomorrow, December 8, the European Commission will publish the long-awaited proposed VAT amendments to the EU VAT system.
The regulations were supposed to be released in November, but the deadline was pushed out to yesterday, and then to tomorrow.
These adjustments are expected to be part of larger legislative changes known as 'VAT in the digital era.'
The measures will be divided into three categories: 1) digital reporting requirements, 2) online platforms, and 3) the EU single VAT registration system.
While the scale of the proposals is ambitious, according to Alex Baulf, member of the European Commission's E-invoicing Technical Advisory Group and senior director for global indirect tax at tax technology firm Avalara in the UK, they will still require unanimous approval by the Council of Ministers before being passed into EU legislation.
“The proposal is for a new harmonised pan-European digital reporting requirement, which will ultimately replace the EC sales list,” he said, referring to a document that outlines intra-EU sales between VAT-registered businesses.
Cross-border B2B transactions in products and services throughout the EU would be impacted by a digital reporting standard.
“That’s going to be done through the introduction of mandatory e-invoicing for intra-Community supplies, so every business will have to issue an invoice in a structured data format. A standard PDF will no longer suffice,” he explained.
Before the customer could execute symmetrical reporting, suppliers would be required to disclose transaction data.
“It [symmetrical reporting] means tax authorities are going to be able to see both sides of the transaction,” he said.
According to Baulf, the new requirement will operate on a decentralised model, which means that each party to a transaction will report to their local tax authority, and the data will subsequently be shared upstream at a pan-European level.
“They’re already looking to get that visibility on each individual transaction; the big driver of this is to reduce the VAT gap, prevent and crack down on fraud,” he noted.
This digital reporting requirement is estimated to allow authorities to collect an additional €11 billion ($11.6 billion) in VAT annually over the next decade.
Baulf stated that he believes the measures will be beneficial in closing the VAT deficit in the EU bloc.
He emphasised the difficulties of tax authorities having little insight on cross-border transactions, the EC sales list, which is updated on a regular basis, and inefficient data, which inhibits authorities from detecting intra-Community fraud.
The passage of time
According to Baulf, EU member states should be on the lookout for major changes to e-invoicing.
“It is no longer a case of waiting for the local tax authority in your member state to decide to implement e-invoicing.”
He added that modifications for cross-border transactions were now mandatory at the European level, and the Commission aimed to remove many impediments to e-invoicing, including the requirement for member states to request authorization to adopt e-invoicing in their domestic markets.
"Member states will simply be free to implement domestic e-invoicing for B2B," he noted concerning the proposed directive.
National governments will also be required to meet all of the new requirements outlined in the most recent EU legislation. This will necessitate required e-invoicing as well as real-time reporting.
"We'll have a single standard," Baulf said of e-invoicing.
The European e-invoicing standard EN16931 is expected to be used by the Commission, and Baulf believes it will become the standard for intra-Community e-invoicing. It would also make the implementation process easier for EU taxpayers.
According to Baulf, the new ideas would necessitate e-reporting to occur as near to real time as possible.
“But it will not be pre-clearance,” he added.
According to Baulf, many people speculated that tax authorities would have to physically approve transactions and bills before live reporting could begin. However, it appears that the Commission has not pursued this path.
"It also implies that the Commission would end pre-clearance invoicing models within the EU," he added.
Concerns about compliance
The new measures are widely anticipated to reduce the compliance burden for taxpayers.
"We're going to transition away from periodic reporting, data aggregation, and a lot of manual work in terms of preparing EC sales lists," Baulf said.
He went on to say that the EU was working toward an alignment of traditional business and finance procedures, as well as tax, necessitating the completion of all three processes at the same time.
"There will almost certainly be an initial investment in terms of technology, implying that there is adequate granular data," he said, "but that can only offer broader economic benefits."
This also implies that firms should consider investing in a single e-invoicing solution. It would allow businesses to generate appropriate invoices that fulfil European standards while also delivering data to tax authorities and an invoice to the client.
VAT disparities between the UK and the EU are narrowing.
The nominal VAT deficit in the United Kingdom increased to £10 billion ($12.2 billion) in the fiscal year 2021-22, whereas the EU witnessed a large decrease to €93 billion ($97.6 billion).
HM Revenue and Customs stated in a preliminary report on November 17 that this year's gap expanded from £9 billion to £10 billion, however there was a decrease in percentage terms from 7% last year to 6.9% this year.
The VAT gap is the difference between what was expected to be collected and what was actually received.
Meanwhile, the EU's VAT gap fell 31% year on year, from €136 billion in 2019 to €93 billion in 2020. This was due in part to the exclusion of the United Kingdom from the measurement following Brexit, as well as the influence of the COVID-induced fall in corporate activity.
According to Gorka Echevarria, worldwide VAT leader at a technology business in Geneva, the numbers suggest that VAT fraud remains a major issue for tax authorities.
“Looking at the VAT gap statistics in the last few years, it seems that VAT fraud is widespread,” he said.
However, he cautioned against drawing the conclusion that VAT fraud was on the rise.
The reverse charge mechanisms, which shift the duty of charging and reporting VAT to the customer rather than the provider, have effectively been expanded to a wide range of products, thereby eliminating trade in certain goods.
According to Echevarria, another factor contributing to the huge VAT gap is unpaid import VAT from non-EU internet vendors. However, the adoption of the EU's VAT e-commerce package, which attempts to ensure overseas merchants pay their fair amount of VAT, has solved this issue.
“Another part of the VAT gap is explained by the many existing loopholes,” he added.
EU VAT lower rates, SME regimes, and VAT exemptions are among them.
According to Echeverria, the EU VAT Rates Directive allows member states to apply their own individual lower rates.
"Clearly, this deepens the VAT difference," he said.
Some enterprises are free from the levy under the SME regime, and VAT exclusions eliminate the collection of the levy in the sale of certain services.
"With the exception of shipping of commodities to other countries or supplies of services to foreign companies, all transactions in an ideal VAT system should be taxed at the same rate," he stated.
India's GST collections are surging as the deadline for digital filing approaches.
According to the Ministry of Finance, India's goods and services tax receipts increased by 11% year on year in November to Rs 1.46 lakh crore ($17.7 billion) due to enhanced compliance by taxpayers and increasing consumer expenditure.
According to the report, GST collections were above Rs 1.4 lakh crore for the ninth straight month.
November's GST receipts were lower than the Rs 1.52 lakh crore collected in October, the second highest monthly total on record, and the lowest since August of this year.
Strong GST receipts, according to Mohan Nusetti, senior vice president and head of indirect tax at pharmaceutical giant Lupin India in Mumbai, could indicate that a new monthly baseline of Rs 1.4 lakh crore has been created.
Revenue from imported commodities increased by 20% during the month, while domestic transactions, including imported services, increased by 8%.
Separately, India's taxpayers and tax officials will undoubtedly be counting down the days until the deadline for digitally authenticating their GST sales invoices on January 1, 2023.
The yearly barrier for taxpayers to electronically authorise bills has been reduced from Rs 10 crore to Rs 5 crore.
By raising the number of organisations necessary to register for the levy, the policy is intended to bring smaller businesses into the GST net.
According to Nusetti, this will push small firms to embrace technology in addition to supporting the government's aim of plugging GST leakage surrounding tax compliance and tax evasion.
"Transitioning to e-invoicing paves the way for the tax administration to generate pre-filled returns, lessening the compliance load for taxpayers," he added.
Implementing e-invoicing has also offered the country's revenue service a much-needed boost in GST enforcement by allowing it to access transaction-level data from firms.
He believes that reducing the threshold will assist firms in properly reconciling their tax credits. This would also assist tax authorities in weeding out fraudulent input tax credit claims and increasing revenue collection.
Airbnb and Uber have reacted angrily to New Zealand's GST guidelines for the gig economy.
Airbnb and Uber have criticised the New Zealand government's proposal to make gig economy companies accountable for the goods and services tax of its online platform suppliers.
In submissions to the New Zealand Parliament's Finance and Expenditure select committee, which were released on November 3, the accommodation provider stated that the proposals would cost the country up to NZ$500 million ($316.6 million) per year and would stymie the country's economic recovery efforts.
In its contribution, Airbnb stated, "The rapid adoption of this idea would create a complex, multi-tiered tax system that will hinder the return of tourism."
The company emphasised the necessity of hosting for communities dealing with the cost-of-living issue, as well as how implementing the Inland Revenue recommendations would make it more difficult for people to make ends meet.
According to Michael Crosby, Airbnb's head of public policy for Australia and New Zealand, applying GST on all platform lodging bookings would result in a NZ$500 million drop in New Zealand's GDP. This represented the possible revenue loss that would have resulted from tourists staying in Airbnb listings.
Meanwhile, Uber stated that it opposes the planned GST adjustments. However, if the government insists on going with its plans, the firm has proposed a 12-month delay in implementing the rules.
The Taxation (Annual Rates for 2022-23, Platform Economy, and Remedial Matters) Bill (No. 2) introduced by the New Zealand Inland Revenue proposes to levy GST on ride-sharing, housing, and food and beverage delivery companies for the first time in April 2024.
Simultaneously, the draught bill would put the OECD's information sharing and reporting rules on digital platforms into effect.
The measure aims to guarantee that all gig economy suppliers, even those who previously fell below the NZ$60,000 barrier, register for GST.
Eugen Trombitas, partner at PwC New Zealand in Auckland, believes the government should wait and see before passing the draught bill.
“New Zealand should assess how successful these rules are in other countries like Canada and India,” he argued.
He also expressed concern about the possibility of the tax authority imposing double GST on suppliers, the need for sufficient lead time to allow businesses to adapt - ideally 12 months or more - and the need for system changes to manage compliance disclosures as well as the cashflows of underlying platform sellers who are not GST-registered.
Separately, the Inland Revenue looks to be moving forward with plans to digitise GST invoices beginning April 1, 2023.
This programme aims to go beyond e-invoicing compliance by granting the tax authority access to taxpayers' transaction data, including ERPs, accounting systems, and contract agreements. This will also give the Inland Revenue Department access to supporting data to back up taxpayer GST returns.
While transaction data would be preferred over invoices, the Peppol-based e-invoicing system is unlikely to eliminate the requirement for invoices entirely. Instead, paper invoices are set to become obsolete.
By fLEXI tEAM