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Digital issues and EU VAT reform take centre stage at ITR’s Indirect Tax Forum

Delegates discuss the impact of artificial intelligence

The OECD’s David O’Sullivan opened ITR’s Indirect Tax Forum by talking about the role which web companies can play in collecting VAT and GST. Subscribers and delegates can download his presentation – and those of other speakers, including the EU’s Maria Teresea Fábregas – here.

International Tax Review hosted its Indirect Tax Forum in Amsterdam on March 22, in association with WTS. ITR editor Joe Stanley-Smith, who chaired the conference, highlights the key topics of the day.

The interactive one-day event featured presentations from David O’Sullivan, VAT policy adviser in the consumption taxes unit within the OECD’s Centre for Tax Policy and Administration, Maria Teresa Fábregas, director for indirect taxation and tax administration at the European Commission, as well as a host of indirect tax experts across the WTS network, and tax professionals from Lloyds Banking Group, Ascom, VdA Portugal and Sovos, among others.

While opinions and experiences varied on certain tax matters, many of the panellists agreed that indirect taxes are becoming an increasingly popular regime for governments worldwide as they try to balance tax revenues when corporate tax rates are falling.

O’Sullivan, who was the first speaker to take to the stage, emphasised the increasing importance of VAT/GST to governments in his presentation, showcasing figures that value-added taxes now make up 20.1% of revenue for OECD countries – more than that of taxes from corporate income, corporate gains, property and payroll combined. Taxation of goods and services is also a particularly important contributor to government revenues in low- and middle-income countries.

All G20 countries operate a VAT/GST, with the exception of the US, and 170 countries globally have implemented either a VAT or GST regime.

The VAT policy adviser also talked about how digital platforms could play a key role in collecting VAT/GST on online sales. According to O’Sullivan’s presentation – which can be downloaded in full at LINKLINK – the market dominance of multi-sided platforms “creates challenges for administrations (tax and customs) in terms of collection”.

With 1.6 billion online shoppers worldwide – a number which is forecasted to rise to 2.2 billion by 2022 – global online retailers could have a key role to play in collecting tax in the future, said O’Sullivan. Countries are already acting on this, and tax authorities now need guidance to ensure consistency.

The OECD’s Working Party 9 (WP9) is analysing “the functions performed by digital platforms in online sales and delivery chains”, and “the possible role of platforms performing these functions in the collection of VAT/GST on online sales including an overview of approaches implemented or considered by tax authorities around the world”, the OECD presentation states.

This work will result in the release of an OECD report on the topic this year that will include possible guidance and approaches based on good practice, O’Sullivan said, but he assured delegates that this is not intended to “delay or impinge on jurisdictions’ current domestic policy development and implementation strategies”.

He also outlined how important it is that any strategy’s impact on the value chain should be as limited as possible, and respect neutrality principles. The business and academic community is being consulted through the technical advisory group to WP9.

Download David O’Sullivan’s presentation here.

Maintaining a global outlook at the event, Jürgen Scholz, global head of indirect tax at WTS, gave delegates an update on VAT around the world, noting how some countries are achieving high revenues from the regime. He humorously spoke about the tendency of European crime agencies to hunt tax criminals nowadays, drawing attention to the EU’s unsustainable VAT gap.

The EU VAT gap (the difference between expected VAT take and the actual amount collected) stood at €151.5 billion ($185 billion) for 2015, the most recent year for which data is available. This represents a loss of 12% of the total expected VAT revenue across the EU’s 27 member states, with the gaps ranging from -1.4% in Sweden, to 37.18% in Romania.

While a large portion of this is down to missing trader fraud, the system is simply not built to cope with types of commerce that didn't even exist in 1993 when the EU's temporary VAT system entered into force.

Scholz told delegates that the need to chase down missing revenues is leading to more compliance obligations for companies, whether this be the mini one-stop shop, more transactional reporting requirements, or split payment procedures of electronic declarations.

Download Jürgen Scholz’s global VAT update presentation here.

During the first panel discussion of the day, the higher compliance burden was discussed in more detail by Mario Fernandez, head of indirect tax at Lundgrens, WTS Denmark; Conceição Gamito, head of indirect tax at VdA Portugal; Marco de Weerd, VAT solution principle at Sovos; Tamás Laszlo, VAT manager at WTS Budapest; and Joel Wessels, partner at Atlas, WTS Netherlands.

The panel discussed how, in the Netherlands, Denmark and Portugal, the requirements of VAT declarations, as well as EC sales lists (ESLs), the Intrastat, VAT ledgers and split payment processes are keeping tax directors busy.

In Hungary, where VAT declarations have to be monthly, and the ESL, Intrastat and VAT ledger obligations also apply, there will be more tax reporting from July. Companies will be required to comply with live VAT invoice reporting from July 1 2018, which will apply to invoices with VAT chargeable above HUF 100,000 ($390). This will eventually replace the existing domestic sales invoice filings.

Download merged presentations from our four panellists from the Netherlands, Hungary, Denmark and Portugal here.

Forum: Can artificial intelligence simplify the VAT world?

The topic of artificial intelligence (AI) and indirect tax spurred lively discussions across the room, where, after an introductory presentation on the topic by Scholz, delegates on each table debated AI and its use in tax.

Scholz explained that AI has the potential to increase compliance and reduce tax risks, standardise routine activities and proactively provide information. On the cost side, it can also improve resource utilisation and increase productivity.

Whether tax professionals prefer paper or not, tax functions are going digital and the development of AI and robotics is an issue of global significance. Tax management tools and robots have the ability to replace difficult, repetitive or even dangerous activities and encourage efficiency. But people are concerned that these technological developments will require clear legal definitions to avoid unfair taxation on the use of robotics in the future as they replace some human tasks and risk higher unemployment.

The way to succeed, according to some, is for there to be a good blend of interaction between governance and processes, technology, tools and data analysis.

Download Jürgen Scholz’s presentation on AI here.

The new EU proposals on the future of VAT

One of the highlights of the day was Maria Teresa Fábregas, director for indirect taxation and tax administration at the European Commission, who talked openly above the EU’s VAT reforms in what was the final session of the day.

She spoke through the progress the Commission has made on the definitive VAT system package in the past year, including the introduction of the concept of a certified taxable person and four “quick fixes” proposed in October 2017.

On the subject of VAT rates, Fábregas wants to give more flexibility to member states, which are currently bound by EU-mandated minimum and maximum standard and reduced rates. She believes that reform is necessary because “current rules do not fully take into account technological and economic developments”. She also identified that the system was designed for taxation at origin even though the world is transitioning to tax at destination, and the “rules are too restrictive for a destination-based VAT system and do not respect the subsidiarity principle”. Reform, she asserted, will give more freedom and put an end to unnecessary litigation.

As well as outlining the objectives to reduce VAT compliance costs for SMEs and shielding them from distortions of competition, she discussed how there can be greater administrative cooperation and data exchange not just between member states, but with other law enforcement bodies such as OLAF, Europol and the European Public Prosecutor’s Office.

Fábregas’s speech came just one day after the EU released its digital tax package on March 21, and while perhaps not everyone in the room was able to digest the proposed measures – which controversially includes either a 3% digital turnover tax or a virtual permanent establishment concept – it was a great chance for attendees to ask questions on the subject.

“Global corporate tax rules have not kept pace with the digital economy,” said Fábregas in her presentation. “Many digital companies make profit from new services created largely from users’ input and data – huge user and consumer bases within the EU.”

She also touched on less well publicised parts of the package, including a recommendation from the EU to member states to make certain amendments to their double tax treaties so that the same rules apply to EU and non-EU countries.

Ultimately, the event offered great insight and clarity for tax professionals on the VAT plans of the OECD and EU over the coming year, and the direction and trends of indirect taxation matters to provide tax directors with the knowledge they need.

Once her presentation was finished, she faced comments and questions from Stijn Vastmans, partner at Tiberghien, WTS Belgium; Charlene Adline Herbain, lawyer at Law Square in Belgium and also lecturer at the University of Luxembourg; Cendrine Chappuis, senior manager of global indirect tax at holiday rentals website Homeaway, and Greg Lockhart, tax principal at Irish firm Matheson.

Members of the audience were then also able to ask questions – and so many were asked that the post-event drinks reception had to be delayed by 15 minutes.

Download Maria Teresa Fábregas’s presentation on EU VAT reforms here.

International Tax Review would like to thank all of the day’s attendees, speakers, sponsors and staff for making the 2018 Indirect Tax Forum a success.

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