With economic challenges spreading across the globe, it’s fair to say 2023 is likely to be an unpredictable year for tax; and, for that matter, almost all fiscal levers available to governments.
Nonetheless, I’m going to attempt to predict the unpredictable by sharing with you three trends that I expect to define the next 12 months.
1) Digital reporting requirements will continue to strengthen
I know this might seem an obvious one (bear with me), but there will be no slowdown in the number of new digital reporting requirements in 2023.
Before you accuse me of jumping on the bandwagon, I just feel this trend is so significant and wide-reaching that it must be included. We all know it’s happening, but do we truly know what it means for us and our businesses?
Tax professionals have become accustomed to an increasing number of countries implementing mandatory digital reporting in recent years and it’s already clear many more intend to do so this year and beyond.
The expansion of digital tax in 2023 will revolve around three main systems:
SAF-T is an internationally recognised file in XML format that is transferred between relevant parties to apply the correct treatment to and exchange of tax data.
It has been in place for several years in Norway and Poland and will also become mandatory in Romania and Portugal in 2023. In Portugal, foreign businesses will be required to comply from January 2023, while in Romania a more phased approach is being taken and overseas companies will not be required to use SAF-T until 2025.
E-invoicing involves issuing, transmitting and receiving invoices in a standardised XML format.
While it has already been adopted by a large number of tax authorities, many have only mandated it for B2G transactions to date. The implementation of B2B e-invoicing regulations is moving at a slower pace, but will continue to ramp up in 2023 and in the years to come.
Portugal and Italy are among those to have already introduced mandatory e-invoicing for B2B transactions, while Poland and France are close to following suit and Spain and Germany are also in the process of doing so.
While real-time reporting is currently a less common legal requirement than SAF-T and e-invoicing, it has been introduced by countries including Spain and Hungary.
It involves important tax data being automatically reported to the tax authority in real-time via an online portal.
Real-time reporting is central to the future of digitalised tax and we expect to see more tax authorities reveal plans to make it mandatory in 2023.
2) Frequent VAT changes will be used to tackle inflation
High inflation became a feature of almost all major global economies in the latter part of 2022. Many countries have already leveraged VAT as a tool for the fight against this trend.
Take a look around Europe and you’ll see temporary reductions in VAT have been introduced in Spain, Poland, Ireland, Luxembourg and several other nations. Most have focused on gas and electricity, while some have extended the VAT reduction to cover items such as food and healthcare.
With the Bank of England predicting inflation will peak in mid-2023, we expect to see frequent changes to VAT rates across a multitude of goods and services in most European countries throughout next year – and especially in the first six months.
However, it’s worth noting that lowering VAT rates is not the only way countries will choose to combat inflation. For example, Romania and Switzerland have already confirmed rate rises will come into effect in 2023.
Businesses need to prepare for differing strategies to be deployed by European countries and be flexible enough to implement new rates at short notice.
3) Simplification of US sales tax filing system will accelerate
Everybody knows about the immense complexities and nuances of the US sales tax system – so don’t worry, we won’t go into that now!
We – like all tax professionals – have been looking for change for a long time. We need the system to be simplified; and in 2022 we saw fresh hope that a transformation could be imminent.
That’s because one of the most interesting developments of last year came in the case of online sellers suing two US states – Louisiana and Colorado – for creating an impediment to interstate commerce by imposing their own tax obligations.
Several states operate the home rule system, allowing home rule cities to administer their own sales taxes and define bespoke tax bases.
With cities able to create individual tax rules, businesses selling to multiple states can be forced to complete extra registrations, as well as determine and apply thousands of different rates and regulations if they are to comply in each and every one.
With the case against Louisiana and Colorado still ongoing, we think its very existence could pave the way to a more streamlined approach to sales tax filing requirements in the US.
At long last, could this be the change we are looking for? After economic nexus and the Wayfair ruling, it just feels like the next landmark moment for US tax is on the horizon.
That’s all for now, but stay tuned for all the latest tax news and trends throughout 2023 at innovatetax.com.