Navigating the Complex World of International VAT Regulations
For those involved with the financial and taxation processes within organizations, it’s safe to say their plates are pretty full at the moment. Sweeping, digitized changes towards a real-time future have permeated Europe from Latin America, with even tighter controls starting to emerge from Asia and the Middle East in countries such as India, Singapore and Saudi Arabia.
It’s clear to those working within the field that the rate of change is also accelerating; probably more has been seen in the last five years than the previous fifteen.
The focus of this digital change has been mainly based on the invoice function of business. This makes sense, as the vast majority of expenditure takes place through invoices; it does mean however that the wider expense side of taxation is often an afterthought when it comes to discussions on developments. And, in particular, for multinational companies and those people that travel on their behalf, there is a huge fiscal need to understand the shifting sands of regulation.
Reporting—the Shifting Time Frames
To understand this from a wider perspective, it makes sense to look at where we were in the U.K. 10 years ago, when it came to value-added tax (VAT) reclamation on both expenses and invoice expenditure. For companies, the process was entirely paper-based, involving a trip into archive facilities for expense reports that may or may not have line items that were eligible for VAT reclamation. In essence, those in charge of the process didn’t know what they were looking for and, even after the process was complete, were unsure of whether their claim was successful, partially or otherwise.
Traditionally, the adoption of technology for financial institutions like tax authorities can be relatively slow in comparison to other sectors: it was only in 2013 that digital invoices were accepted in the U.K.
Fast-forward to the present day and the process may have been made more transparent and digital, but in some ways can actually place more strain on a company’s infrastructure when it is looking to reclaim VAT.
Innovation has been continuous, and the overall shift by tax authorities to real-time, or as close to real-time as possible, reporting has resulted in a huge strain being placed on the financial infrastructure of companies that need to comply with this. Italy has introduced controls on invoicing, Spain has Immediate Supply of Information (SII) with a three-day window for reporting, and other similar schemes have been implemented across Poland and Hungary.
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Joe Healy is Director of Strategic Partnerships, Taxback International and Martin Leonard is Director of Business Development, FSI, EMEA, SAP Concur.