2nd July 2019
Here at 6CATS, we’re very vocal about the constantly increasing complexity of global tax systems. Recently, authorities around the world have been pulling out all the stops to crack down on evasion, with a particular focus on creating better solutions through tax technology. This was reflected last week in a piece in The Times’ Raconteur supplement, which listed the five countries that are shaking up international tax reporting. These countries are all contracting hotspots and any recruiters placing workers abroad should be aware of the latest measures being implemented. Here’s what you need to know about digital tax and contractor compliance.
Digital tax and contractor compliance – Five innovators
As one of the first countries to adopt compulsory state-sanctioned real-time reporting, Poland is an innovator in digital tax and contractor compliance. Since January 2016, it’s been obligatory for large VAT-registered companies in Poland to file electronic invoices. In 2018, this requirement was extended to all companies, regardless of size.
The Polish system is closely based on the OECD’s standard developed for real-time reporting, called Standard Audit File for Tax, or SAF-T. The file uses the regular XML format to mark up the relevant tax information. In case of a tax inspection, the authority can request the presentation of six additional SAF-T files related to accounting records, bank statements, warehousing information, sales invoices, tax registers of revenue & expenses.
Italy, an extremely attractive destination for contractors, is also driving innovation in digital tax in order to solve its extensive concerns around VAT evasion. At the heart of the new Italian regime is the Sistema di interscambio (system of exchange), or SDI. It’s an interface for receiving, processing and then transmitting invoices to the intended recipient. Under certain circumstances it also takes care of the storage of invoices for up to ten years.
These must be prepared in XML format and submitted to the SDI within ten days of the month following the date of issuance. E-invoicing is not optional and invoices not submitted through the SDI system are subject to penalties of between 90 per cent and 180 per cent of the VAT due. Authorities have also provided free advice services and a smartphone app, which enables small and medium-sized enterprises to create and transmit e-invoices.
While Spain has had its ups-and-downs since the 2008 financial crisis, it is safe to say that the country is now going strong. In fact, recent reports revealed that the country’s economy expanded 2.9% in 2018. The nation has also been swiftly digitalising its tax system. On July 1, 2017, the Spanish tax authority introduced a new obligation called suministro inmediato de información del IVA (immediate supply of VAT information), known as SII. It’s similar to SDI in Italy, but with a few notable variations. Filing invoices to SII is mandatory to all taxpayers who have the obligation to submit monthly VAT returns in Spain, but it is available to any taxpayer who wants to apply for it. SII files must be prepared in a specific XML format that contains information about sales and purchases invoices. There are four types of SII files required: register of invoices issued, register of invoice received, register of certain intra-community operations and register of investment goods.
The files must then be directly transmitted through the Spanish tax authority portal. In the case of sales invoices, they should be transmitted within four working days after the date the invoice was issued. Taxpayers under the SII obligation benefit from an extended deadline of ten days to submit their monthly VAT return. Additionally, they are exempt from submitting the annual summary VAT return, VAT ledgers return, and annual sales and purchase listings. In the case of incomplete or incorrect data, a penalty of 0.5 per cent of the amounts omitted can be applied, with a minimum of €300 and maximum of €6,000 per quarter.
Hungary’s economy is also steadily growing. As a result, optimistic businesses have upped their hiring, causing the number of vacancies to accelerate for five consecutive quarters. They are also making headway in digital tax. In 2018, the Hungarian tax authority introduced real-time invoice reporting, or RTIR. It is mandatory for all taxpayers registered in Hungary for VAT purposes and must contain information about invoices issued to companies with a VAT amount equal or higher than HUF100,000 (£280). The information in the invoices issued must be declared electronically using a specific XML-file format.
The report should be performed at the same time that the invoice is issued and should be reported to the National Tax and Customs Administration (NAV). The NAV performs a validation of each document and returns a message to the sender with the status of each invoice submitted. RTIR enables the Hungarian tax authority to acquire more detailed information about taxpayers’ operations and conduct cross-checks and audits more effectively. Failure to report invoices in real time is subject to penalties of up to HUF500, 000 (£1,400) per invoice
For those looking to work in the 7th largest economy in the world, at a time when 56% of employers are having difficulty filling jobs, compliance will need to be a top concern. India is moving fast towards electronic invoicing, with pre-approval of goods and services tax, or GST. The authority behind this has proposed mandating an entirely electronic system of filing to the state for approval as soon as September 1, for business-to-business transactions.
Introduction of an e-invoicing system would be a major upgrade for India’s tax inspection regime. This is on the back of the success of previous digital schemes, such as the biometric ID programme for citizens, known as Aadhaar. In fact, more than 99% of adults have been enrolled, helping to end identify confusion for banking, tax and other government services.
Finally, India’s big data tax program, ‘Project Insight’, will have the ability to thoroughly check hundreds of millions of social networking profiles, scouring through photos, events, and relationship details to find indicators of tax evasion. Anything that looks like spend that is not in line with earnings will be investigated. And, since it’s a machine learning system, it will slowly become more efficient over time as it is fed more and more data.
Recruiters should be careful
Ultimately, it’s clear that the worldwide movement towards tougher tax systems is not limited to any country or continent, and that nations are keen to implement the best technology as soon as possible. With the high risks that recruitment agencies can potentially face when placing contractors abroad, there really is no room for complacency. Despite this, recruiters shouldn’t be dissuaded from operating overseas by the challenges of digital tax and contractor compliance. By partnering with an expert contractor management consultancy that understands the tax system wherever you choose to do business, you can rest assured that compliance is being taken care of by those who know it inside out. Let us use our expertise to help you focus on yours.
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