Introduction to Tax Compliance
What is tax compliance and why should businesses be aware of the topic? At Unifiedpost Group, we are helping businesses, both large and small, navigate the complex world of global tax compliance. We want to help businesses understand what tax compliance can mean for them and how they can be prepared.
We are hosting a Navigating Global Tax Compliance webinar series to introduce tax compliance, e-invoicing regulations and to keep you informed on the ever-changing global mandates. Read on for a write-up of the first webinar in our series hosted in June 2022, An Introduction to Tax Compliance.
Why is tax compliance an important topic?
Governments across the world are re-evaluating their tax collection strategies as a result of post-COVID governmental debts and to fight against their country’s VAT fraud. VAT fraud which according to research has amounted to a global €500 billion. This is also well known as the VAT gap.
Based on the local situation in each country, governments are adopting different approaches to help their governmental debts.
Even in the relatively small European zone there are a range of mandatory specifications for the taxpayer. Ranging from B2G invoicing mandates to real time reporting to the so-called CTC (continuous transaction control) which can be described as a government’s full control of invoice issue and delivery.
But why should businesses be aware of this topic?
If you are already an international business player you may already be aware of the complications and the variety of regulations in different countries. If you are considering expanding your business internationally, tax compliance is then a topic you should be aware of.
Tax compliance regulations and their implementations can challenge daily business activities and shift the focus of a company's core business. The non-compliance of tax regulations can lead to financial and legal consequences and can create longer, time consuming tax authority audits. Therefore it is vital to keep up to date on a country’s e-invoicing requirements.
How does tax compliance and e-invoicing relate?
A large number of governments worldwide recognise the electronic invoice as a legal document and therefore apply the local VAT regulations to the invoice. Recognised by the European Commision, an e-invoice is seen as more trustworthy than a paper invoice due to the authenticity and integrity of the invoice. E-invoice electronic signatures and seals help improve the transparency and traceability of vital VAT information even further, especially compared to a paper invoice.
E-invoicing may be a government initiative but it also creates benefits for businesses too. E-invoicing reduces the time and effort used in procure-to-pay and order-to-cash processes. E-invoices are easier to handle, archive and the automatic processes help reduce the risk of mistakes.
E-invoicing is favorable for the public sector as well. E-invoicing underpins public policy priorities such as:
- Helping to reduce public sector deficit
- Provide increased financial transparency
- Promote sustainable development initiatives
Finally, e-invoicing can act as a catalyst for future-proofed digital processes, opening up opportunities for digital transformation.
What is the role of e-invoicing around the world?
The tax compliance roadmap shows an increase in the number of mandates during 2022 compared to previous years. The trend shows further increases in 2023 and 2024.
In Europe, the mandates are not the same and the requirements for each country can differ entirely.
Several years ago the European Committee for Standardisation developed a European standard file format as a basis for electronic invoicing for all European member states. This is called EN (European Norm) 16931. European countries have adapted the standard file format and created local versions specific to their country’s VAT requirements. As a result there are many public platforms and country specific e-invoicing formats, which can be a challenge to keep track of.
Looking at even a handful of countries in Europe shows how unharmonised the requirements are. Mandates cover not only e-invoicing to public bodies but in some cases extend to the private sector too. A handful of European countries can include several portals/access points and several file formats. Which can be a real challenge for many businesses to understand, especially those trading internationally.
European e-invoicing mandates on the horizon*:
Luxembourg’s B2G mandate rollout:
- May 2022: large companies
- October 2022: mid-sized companies
- March 2023: small and newly created companies
France’s B2B e-invoicing mandate rolling out from July 2024 based on the company size:
- July 2024: All taxpayers to receive e-invoices and large companies to issue e-invoices
- Jan 2025: Mid-sized companies to issue e-invoices
- Jan 2026: Small companies to issue e-invoices
From the 1st of July 2022, e-invoicing will be extended to include the reporting of cross-border invoices to SdI, also reducing the current threshold to include smaller companies.
From January 2024 Poland will see a clearance mandate, already in a voluntary phase.
Looking at the situation on a European Union level is important. On the 10th of March 2022 the European Parliament issued a resolution with recommendation to the European Commission on fair and simple taxation, supporting the recovery strategy where e-invoicing is seen as a key element. This can be expected to be adopted by all member states by the end of 2023.
But this is not the end. There are further candidates supporting mandatory e-invoicing in the B2B sector. Countries include Belgium, Germany, Spain and Slovakia who all have mandates on their roadmap but with no set dates as of yet.
What about outside of Europe?
Interesting developments include countries such as Australia and Mexico.
Australia’s Business E-invoicing Right is in consultation. Businesses will legally be required to send an e-invoice upon receipt of a valid request from any other business covered by the BER. The expected rollout, although still to be confirmed, will be for large businesses in July 2023, medium businesses in July 2024 and small businesses in July 2025.
Mexico, a pioneer in the e-invoicing movement, is making amendments to the XML schema from January 2023 (originally July 2022). There will be a new version of the local XML schema, CFDI 4.0.
Keeping up to date
Keeping up to date can be the most challenging part when navigating global tax compliance. But we are here to help. Updated quarterly, our tax compliance roadmap shows the latest developments around the globe. From changes that have happened over the last quarter to foreseen changes over the next few years.
If your business requires more in-depth information you can join our tax compliance webinar series. Webinars go into detail for specific sectors, business sizes and countries. Take a look at our upcoming webinars and register for free.
*Information correct as of June 2022.