European countries are overhauling their tax systems. Following examples in certain Latin American nations, European Union (EU) member states are moving towards digitised tax controls, with electronic invoicing, real-time reporting and online tax returns becoming increasingly commonplace.
In 2019, for instance, Italy introduced a scheme to reduce the high levels of VAT evasion by requiring invoices to be uploaded to a central system soon after issuance. Businesses which miss the deadline can be fined anywhere between 90% to 180% of the VAT due. Similar initiatives to digitise operations have followed in Greece, with the scheduled introduction of electronic book-keeping requirements in 2020. The French Government has also laid out plans to mandate that all business-to-business invoices must be electronic from January 2023.
While all these are positive steps, the regulation changes are not consistent. Now a patchwork of complicated and nuanced digital tax regulations exists within the EU. The situation becomes even more complex when the introduction of some initiatives, such as the UK's Making Tax Digital (MTD), aren't straightforward leaving many organisations unsure as to what's needed. All this is before we even start to think about the potential regulatory repercussions of the UK's exit from the EU.
For businesses across Europe, navigating this evolving space is challenging. As technology becomes woven deeper into the lax landscape, there is growing pressure for companies to identify and become compliant with legislation in a short timeframe.
To shine a light on the issues faced, VATGlobal commissioned research among tax professionals in the UK, Germany and Sweden – all significant centres of business in Europe – to understand how organisations are responding.
The challenges for businesses
For tax professionals across the three countries, managing invoicing and e-invoicing was found to be the most relevant and pressing tax issue from a list of seven, suggesting a lack of knowledge and confidence in new systems and a reliance on older processes.
Moreover, 58% of overall respondents identified a lack of comprehensive understanding of VAT rules in different countries as the biggest tax challenge – which is unsurprising given the different tax regulations across Europe.
At 29.4%, respondents in the UK cited real-time reporting as the biggest tax issue. This could be partly down to MTD's introduction, which is not as complex or future-facing as many other reporting structures across Europe. Regardless, the scheme, which sees information uploaded recorded in as close to real time as possible was, arguably, not sufficiently explained and around 10% of businesses missed the deadline.
It's hardly surprising, then, that 46% of overall respondents described their confidence levels regarding compliance with various real-time e-invoicing controls across Europe as being merely ‘so-so'.
While operating within a tricky landscape, some organisations are making life even more difficult for themselves. Almost half of businesses (46%) surveyed don't have a dedicated VAT expert as part of their finance team.
Not knowing where to turn for advice on specific tax-related matters left more than one in five (23%) admitting they search the internet for clarification. Effectively, Google has become a tax expert. This approach is clearly unreliable and could be hugely problematic for businesses if they don't receive the accurate information or can't apply it in the correct way.
Simply put, finance teams are struggling. The shortages of resources and knowledge are making it extremely difficult for them to manage tax matters, while also remaining compliant with international regulations.
So, how can an organisation overcome this?
Despite the issues and the repercussions of not overcoming these challenges, it's clear that, for some, tackling tax regulation isn’t necessarily considered a priority. Around half of those surveyed (51.3%) admitted they weren't looking to invest in relevant resources over the next 12 to 24 months. Of those that are, fewer than a half (44%) will invest in technology, despite its growing importance and entrenchment in regulatory compliance.
The disparity between teams' needs and businesses' willingness to invest significantly in tax processes must be addressed. Employees must also have access to up-to-date information on real-time VAT in order to ensure ongoing compliance, without the cost of larger, enterprise-size, all-encompassing solutions or expensive consultation.
As such, there is a growing appetite for comprehensive and streamlined learning resources that can be used to simply navigate this space – 46% of those surveyed believe it to be the easiest way of learning. Providing a vault of real-time data, these resources offer users the opportunity to check legislation quickly and apply it to their activity. They have the potential to become powerful tools to enable firms to better traverse the sea of ever-evolving regulations.