Turbulence Ahead: The Evolution of VAT Compliance and Reporting

January 30, 2018 Sara Canatario

As tax authorities move to technology-driven value-added tax (VAT) reporting requirements, businesses operating in Europe will need to strap on their seat belts and prepare for turbulent times ahead, according to a new study by Sovos that examines the compliance-related disruptions that are sweeping across the globe.

In the report – The Evolution of Value-Added Tax Compliance and Reporting: The Definitive Guide to the New Wave of Technology-Driven VAT Disruption in Europe – Sovos took a detailed look at the VAT reporting requirements currently in place and how they will evolve. The results were clear: The pace of change is going to continue to accelerate during the next decade, with countries evolving to even more complex compliance measures over time.

The survey examined eFiling, eAccounting and eLedger requirements in 37 countries in Europe and discovered that many are moving toward real-time VAT reporting, automated audits, eInvoicing and eReceipts. In addition, several countries are adopting a standard e-filing protocol – SAF-T – that will improve transparency between companies and tax authorities by maintaining data on a real-time basis.

Already six countries included in the Sovos survey have implemented some version of SAF-T, and at least three more implementations are anticipated in the near future.


Minding the VAT Gap

Tax gaps stemming from fraud, errors, and time-consuming, manual processes are fueling these compliance changes. The European Union reported a 2015 study that showed a VAT gap of €151.5 billion in Europe – money that could have helped struggling economies, funded infrastructure projects or supported welfare programs.

To mind this gap, countries are leveraging technology to drive new reporting and auditing requirements that will enable them to:

  • Forecast and maximize VAT collections
  • Improve cash flow
  • Perform efficient and effective audits
  • Improve cooperation and exchange of information among countries
  • Make better informed public investment  

In fact, of the 37 countries included in the report, 89% currently have enabled electronic tax filing or reporting processes, and 32% are expected to shift into more complex compliance measures in the near future.

Because each country has its own unique requirements and legislative frameworks, these compliance changes will pose quite a challenge for businesses operating throughout Europe, but they also present an opportunity for businesses to reinvent their processes, making them more intelligent, efficient and accurate while meeting their legal obligations.

Take Action

The Sovos report offers a country-by-country break down of evolving tax regulations and insights into what businesses of all sizes need to do to success in this new era of compliance. Download the report here.

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