In this new working climate, we are seeing diverse responses to specific challenges countries are facing. Some countries have temporarily stalled their plans for the introduction of mandatory e-invoicing – but not for long – while others announced new plans, sometimes with very short lead times. Over the last few months, changes to e-invoicing mandates and tax law around the world have illustrated the increased focus governments are placing on tax collection and regulatory compliance.
While e-invoicing initiatives have been affected by COVID-19, ensuring adequate levels of tax collection, in the long run, remains an existential necessity for any government. Below, we’ve highlighted the major events and changes in regulatory compliance that have emerged in recent months.
Countries Announcing New Invoicing Mandates
1. China moves forward with plans to move to e-invoicing for special VAT invoices
In their Circular of March 6th, the Chinese State Tax Administration (STA) provided a public update on multiple tax-related topics, including a development plan allowing for electronic special VAT invoices (invoices with deductible input tax). While e-invoicing for general VAT invoices has been allowed for several years already, special VAT invoices are still subject to the Golden Tax Rule and were to be issued on paper. The plans indicate considerable movement from today’s practice. The electronic tax invoice will be represented in an OFD format, a Chinese-specific file format that requires a reader that is available from the Tax Office. The invoice must the archived in the format it was created in.
The timelines are short. Pilots will be run with a limited number of major taxpayers until the end of 2020, after which a decision will be taken to extend the programme to all taxpayers. Not that the ‘e-Fapiao” programme will be voluntary.
2. Greece set to implement invoice pre-clearance plans
In a bid to fight indirect tax evasion, the Greek government is adopting an invoice pre-clearance model. In a pre-clearance model, suppliers must declare invoice information to a government platform to obtain a ‘permission to create the tax invoice and submit’. The original plan was to implement a model that is somewhat similar to Mexico’s current setup where accredited service providers act as a proxy to the government and generate a unique identifier for each invoice (“Mark”). This is not longer the case in the latest government plans – authorised service providers will indeed connect to the MyData platform on behalf of suppliers but will not create the unique identifier. Note that e-Invoicing remains voluntary, even though the government will be actively stimulating the use of e-invoicing.
The timelines: voluntary invoice reporting will be implemented from October 2020 and will become mandatory from January 1st, 2021.
3. Egypt mandates the issuance of electronic invoices.
The Egyptian Ministry of Finance recently issued a decree on the mandatory issuance of electronic invoices in the country. The decree states that registered taxpayers must issue an electronic invoice containing the issuer’s electronic signature and a Unified Code for each good or service supplied – all of which should be authorised by the Head of the Tax Authority.
Earlier information on the e-invoicing obligation reported that taxpayers are to provide all invoice-related information regarding their sale and purchase transactions along with their e-VAT returns. Failing to do so would be considered tax evasion by the tax authorities.
4. Poland takes steps towards further reduction of its VAT gap
While Poland has been quite successful in driving down its VAT gap, it is considering the implementation of e-invoicing and invoice clearance in 2021 (or 2022 latest). It is likely that Poland’s plans are modeled on the Italian SdI clearance, which would mean that it will replace the current SAF-T monthly reporting (which will be implemented this year). It is likely that the implementation will be phased and that initially, usage will be voluntary.
Major Tax Changes in 2020
Several governments continue to put fiscal measures in place in response to the COVID-19 crisis which is reflected in the latest updates from Germany, Belgium, and Saudi Arabia.
Germany Reduces VAT Rates
The German Government has disclosed plans to temporarily reduce German VAT rates as part of their very substantial economic support programme. It is the Government’s intention to reduce the standard VAT rate from 19% to 16% and the country’s reduced VAT rate from 7% to 5%. The reduction will apply for the period from 1 July 2020 to 31 December 2020. Even though there is no draft bill, a retrospective law can pass legislative procedures in time Tungsten Network has therefore already started preparations to implement the necessary changes in a timely manner.
In the same vein as Germany, the Belgian government has confirmed a reduced VAT rate. Effective 8 June 2020 to 31 December 2020, a reduced VAT rate of 6% will apply to restaurant and catering services in Belgium.
Conversely, Saudi Arabia is tripling its value-added tax (VAT) as part of austerity measures to support its coronavirus-hit economy. The kingdom first introduced VAT two years ago as part of efforts to cut its reliance on world crude oil markets. Saudi Arabia’s state news agency reported an increase in VAT from 5% to 15% as of 1 July, while the cost of living allowance will be suspended from 1 June.
India Delays Invoice Mandate
In March 2020, the Indian government decided to postpone the effective date of the mandate until 1 October 2020, which is 6 months later than their initial April 2020 deadline. As we are writing this update the most recent GST Council meeting is just behind us (14th June) and it may be that further changes have been discussed. At the same time, we learned that India’s GST collections have dropped steeply by 55% compared to earlier months in the year, which leads us to assume that the Invoice Registration implementation is still on track for October of this year.
The Latest Update on Changes to Italy’s FatturaPA
On 20 April 2020, Italy decided to delay the implementation of version 1.6 of the technical specification of the Italian Tax Invoice, Fattura, mainly because of the impact of the COVID-19 crisis. Version 1.6 will now be applicable for voluntary use from 1 October 2020 and mandatory from 1 January 2021. Taxpayers can continue to use the 1.5 technical specifications until 31 December 2020.
Originally, the 1.6 (as per ruling 99922/2020) version was planned for voluntary implementation on 4 May 2020, and mandatory implementation by October 2020.
In the meantime
While we monitor all the various mandates and changes occurring globally, you can learn more about what these recent trends in the ever-changing compliance landscape mean for global businesses. Watch our Quarterly Compliance Update webinar, where I share insights on the key considerations finance professionals need to consider when analyzing the shifting regulatory landscape.