October 2020 will be an important month in the VAT compliance calendar as three major changes in three different parts of the world are taking effect: (1) in Poland, the VAT return will be “replaced” by the JPK_V7 reporting obligation, (2) in Greece, invoice reporting will become mandatory for all companies, and (3) India will implement the invoice registration system. Let’s take a look at these three different approaches to VAT compliance.
The merging of the VAT return and the current JPK_VAT file into one report (the new JPK_V7) has been frequently referred to in the popular media as “the death of the VAT return”. This formulation is not entirely correct: the VAT return will still be alive after 1 October 2020, albeit in a different form. I have explained the new JPK_V7 reporting obligation in my previous article.
As from 1 October 2020, all companies that are subject to the Greek accounting standards will be required to transmit invoice and accounting information to the myDATA (my Digital Accounting and Tax Application) portal. They will need to report invoices issued, invoices received (if the issuer has not reported them, for example, in the case of imports or intra-Community acquisitions), payroll information, depreciation and other accounting information. Based on this data, myDATA will create and maintain two sets of electronic records: detailed books and summary books. The required information can be transmitted via the ERP system, accredited e-invoicing providers, or online cash registers. Taxpayers may also manually upload data to the myDATA platform. The deadline for uploading the records will depend on the filing frequency of the taxpayer. The new reporting requirement does not have any impact on the traditional VAT reporting obligations. The information in the myDATA portal will be cross-checked with VAT returns and any discrepancies detected may lead to tax audits.
As from 1 October 2020, all registered businesses whose annual turnover from supplies made to other GST-registered persons exceeds INR 5 billion will be required to transmit invoices for B2B transactions to the Invoice Registration Portal (IRP). Certain sectors, for example, insurance, banking, and passenger transport services, are exempt from the obligation to register invoices. It is estimated that about 48,000 taxpayers (contributing to over 45% of the tax revenue) will be affected by the new rules.
The new rules do not prescribe a particular format for issuing invoices. They merely require taxpayers to convert their invoices into the JSON format to submit them to the IRP. The IRP will check the invoice and if all validations checks are successfully passed, the invoice will be digitally signed and assigned a unique Invoice Reference Number (IRN). A Quick Response (QR) code will also be issued. The QR code (which can be printed on the invoice) will enable an offline verification of the fact whether the invoice has been registered with the IRP or not. Invoices that do not have an IRN will be considered invalid.
The IRP will make the validated invoice available to both the seller and the buyer in the Goods and Services Tax Network (GSTN) portal. The authenticated invoice data will also be used to pre-populate GST returns. The new rules do not prescribe any particular method for invoice transfer between the seller and the buyer. After the invoice has been registered in the IRP, the supplier may send it to the recipient in a pdf file or as a print copy. The PDF as well as the print copy must show the QR Code.
The Indian regime is completely different from the invoice clearance scheme in Italy (although both are frequently referred to as “mandatory e-invoicing”). India operates an invoice registration system and prescribes the format which must be used to register invoices with the government portal. The parties are free to exchange invoices in whatever format they like. In contrast, in Italy, an electronic invoice must be isseued in the FatturaPA format. The government portal (SDI) acts as an invoice exchange platform between the sellers and the buyers. Sellers are not allowed to produce paper invoices.
The right approach?
All three approaches clearly illustrate how fragmented the VAT compliance landscape has become. All three pursue the same objective: to reduce VAT fraud by providing tax administrations with more granular data. And all three claim to be business-friendly and to reduce compliance costs. Which one do you think will be most successful in attaining its objectives and could become a global standard? Or does the future of VAT compliance lie elsewhere?