Prepare for the shift
Tax, Finance professionals and business owners should start preparing for changes in the world of VAT compliance as we see a shift from periodic (summary) reporting towards (near) real-time VAT compliance/transactional reporting. This means mandatory electronic reporting for certain sales and/or purchase transactions and/or mandatory eInvoicing with or without a clearance model. These changes are also referred to as digital reporting, and they are becoming increasingly common across the world.
Tax Authority Benefits
Tax authorities are in favor of these changes as they allow their tax officers to verify invoices earlier (where for example there is a pre clearance model) and detect fraud more quickly. Additionally, digital reporting systems increase VAT collection and make audits easier for tax authorities, instead of lengthy post audits). The data collected by tax authorities can lead to a pre-filled VAT return, which is what Italy has recently announced. More countries are expected to follow this trend.
However, from a taxpayer perspective, these changes present some challenges! Businesses will need to prepare for changes in their VAT compliance processes. Checking data at the end of a period and having the possibility to correct potential mistakes in master data or tax coding before the periodic VAT return is submitted is a thing of the past. With digital reporting and eInvoicing, tax administrations will have access to transactional data at an earlier stage, making it even more important to be accurate on a transactional level. Corrections after month end will most likely trigger questions or potentially audits.
Data challenges when implementing digital reporting solutions
From our experience we expect quite some data challenges for businesses when implementing digital reporting solutions, topics to consider are;
- What is needed to make a proper VAT decision for your business?
- Where are the required transactional elements stored/available in the ERP system, and how can these data fields be subtracted and taken into account to make the correct VAT decision or be reported digitally?
- On a transactional level more data will be required, not only to make the proper VAT decision, but also to meet the digital reporting requirements. We see more data elements are requested by the countries that already impose digital reporting requirements.
- We expect more transactional details are required to be added to an electronic invoice.
- Businesses should also be aware of the purchase side of digital reporting. With purchase invoice bookings we often see mistakes made in tax coding, and without the possibility to adjust tax codes before reporting a transaction to the tax authority, this topic requires further thought.
Questions to consider when preparing for digital reporting
With digital reporting developments scheduled for July 2024 in some EU member states, and the VIDA proposals at an EU level, businesses should start looking at these developments today. Questions to raise are:
- Where can data be retrieved to use more elements to make the proper VAT decision at a transactional level (e.g. ship from, product details)?
- How can data be validated to apply the proper VAT decision, and how can the required data elements of a transaction be reported?
At Pincvision, we offer an eInvoicing and eReporting solution where we work with standard processes and can add additional VAT validations before reporting to tax authorities.
Pincvision's VAT RegTech solution: take your VAT management to the next level!
If you're a tax professional looking for a reliable eInvoicing and eReporting solution to prepare for the upcoming digital reporting developments, look no further than Pincvision. We help you get ahead of the upcoming changes in EU countries. Our team of experts can help you navigate the complex world of VAT compliance and take the burden off your hands. With our new VAT RegTech solution, we offer a one-size-fits-all solution that covers all your VAT compliance obligations for both PTC and CTC.So, wait no longer and let us help you streamline your processes and ensure that you are fully prepared for the changes ahead!
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Daniëlle van der Meulen-Idema
Sr. VAT Specialist
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