By Avalara
Technology and international tax compliance are driving each other’s evolution. A sound understanding of how and why can help ecommerce sellers prepare for compliance challenges in the year ahead.
Avalara Tax Changes 2024 is a report covering many of the key compliance issues around the world. Let’s take a look at those affecting U.K. and European businesses selling overseas.
E-invoicing and the digitalisation of tax compliance
Global governments and tax authorities are ramping up their efforts to digitalise tax compliance and administration. Businesses selling across borders must keep up with these developments, particularly when it comes to e-invoicing and live reporting.
E-invoicing — the process of creating and providing an electronic invoice to exchange data between a supplier and a buyer — is central to the future of tax compliance, and the rollout of mandates shows no signs of slowing down. Dozens of nations in all global regions already have e-invoicing mandates and live reporting requirements in place, with many more planning to implement further mandates and regulations.
E-invoicing and live reporting enable governments to gain greater visibility into transactional data, putting them in a better position to tackle tax fraud and reduce the VAT gap — the estimated difference between expected VAT revenue and actual VAT revenue collected. Most recent figures from the European Commission show that EU countries lost around €61 billion in VAT in 2021.
Now that the EU’s plan to modernise VAT — VAT in the Digital Age (ViDA) — makes it easier for member states to mandate e-invoicing (by removing the requirement for permission from the European Commission), businesses must understand that making the switch to e-invoicing is a matter of when, not if.
Adapting to e-invoicing will almost certainly become necessary for a business to stay compliant and continue trading in markets and countries with e-invoicing mandates in place (as well as those they plan to enter in future).
Governments continue to announce their plans for e-invoicing mandates and live reporting requirements in advance. By planning ahead and using scalable e-invoicing as early as possible, businesses can reduce disruption to their operations when mandates emerge. A system that’s also compatible with the Peppol network would also be preferable.
Peppol has become the most common delivery network and standard for trading partners to exchange compliant e-invoices. More than 30 countries have either implemented or are in the process of implementing the Peppol framework.
By making the switch from paper invoices to e-invoicing, businesses can also save on paper handling costs such as printing and postage. They can enjoy faster processing times with reduced errors, more accurate invoices, and benefit from an improved level of efficiency as a result of streamlining the invoicing process. This can free up resources that would otherwise be tied up by manual processes.
Changes to customs processes, and the benefits to sellers
Sellers should look out for several changes to how goods are processed when moving through customs, particularly within the EU. These changes are being driven by issues of security and sustainability, and are facilitated by technology.
A new EU customs data hub, which will enable authorities to better respond to potential security threats, will help to speed up the customs process for goods arriving in the EU. How? By allowing sellers to submit data just once to a centralised system for multiple consignments, instead of having to submit data for each parcel.
On the subject of security, the release of the third and final phase of the EU’s security initiative — Import Control System 2 (ICS2) — means businesses sending goods to the EU by any routes and means will be required to submit additional safety and security information prior to their arrival.
The European Commission believes such customs reforms will become part of a wider and more modern approach to how ecommerce is conducted, and one that aids rather than hinders businesses selling across borders. Businesses should keep up with such changes to lessen the chances of unnecessary delays that can occur when new requirements are not understood and adapted to. Delays, after all, result in unhappy customers and bad reviews.
If taking advantage of Import One-Stop Shop (IOSS) — the EU scheme that makes it easier for businesses to sell into the EU by allowing them to register in a single member state — businesses previously had to declare and pay EU import VAT on goods with a consignment value below €150. As another benefit to businesses moving goods across borders, this threshold has been removed, lowering compliance costs.
Sustainability updates to keep in mind
Another way technology is being used to monitor goods moving across borders is to analyse the raw materials and production and transportation processes to calculate their carbon footprint.
The EU uses software to monitor the effectiveness of its Carbon Border Adjustment Mechanism (CBAM) — a levy on industries with significant emissions that aims to ensure the carbon content of imported goods is equivalent to those produced within the EU. More and more countries are implementing similar systems, aided by technology. Australia, for example, looks set to move ahead with a similar system in an effort to hit national sustainability goals.
Get Avalara Tax Changes 2024
The above is a snapshot of compliance updates and challenges affecting sellers for the year ahead. For more in-depth analysis of compliance issues and updates from around the world, get your copy of Avalara Tax Changes 2024.
The 160+ page report can be your go-to source for all things tax compliance, including what changes most impact retailers, and a chapter focused on international compliance, e-invoicing requirements, and the latest VAT updates.
Published 06/03/2024
