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As 2021 draws to a close, I’d like to pause and reflect on what has been a landmark year for the tax industry.
From Brexit dominating the headlines at the start of the year to more recent initiatives such as the launch of e-invoicingElectronic invoicing - widely referred to as e-invoicing - is the exchange of a digital document between a supplier and a buyer. E-invoices are issued, transmitted and received in a structured data format that enabled automatic and electronic processing. They contain data in a machine-readable format so that an AP system can read an invoice without manual data entry, leading to faster and more efficient invoicing. in Saudi Arabia, there has been an unprecedented level of unpredictability and change for businesses to manage.
Nonetheless, many of the changes implemented in 2021 will surely serve the industry well over the years to come. In this piece, I’ll be looking at the defining trends from the last 12 months and what they mean for tax professionals:
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Where else can we start but… Brexit
The EU’s E-Commerce VAT Directive
And it’s not just the EU where e-commerce is making waves
The birth of optional VAT as a realistic concept?
1) Where else can we start but… Brexit
Although Brexit was officially realised on 1st February 2020, the UK spent the rest of last year in a transitional phase during which it was still treated as an EU state for VAT purposes.
But from 1st January 2021, that all changed. The UK is now a separate entity to the EU when it comes to VAT – and that means:
- The movement of goods between the UK and the EU is no longer deemed an intra-community supply/dispatch as it once was. Instead, businesses must apply VAT as they would when trading with other non-EU nations.
- Northern Ireland has a special status on VAT compared with England, Scotland and Wales. This means goods transactions between EU countries and Northern Ireland will be subject to the EU’s VAT rules, until at least the end of 2024.
- New administrative obligations now exist. For example, UK businesses that want to register or are already registered for VAT in an EU country may now be required to appoint a fiscal representative.
One thing’s for sure: 2021 was the year when the UK and the EU rewrote the rulebook when it comes to VAT.
2) The EU’s E-Commerce VAT Directive
The EU’s new E-Commerce VAT Directive came into effect on 1st July 2021 and triggered several major changes for businesses making B2C sales to consumers in the bloc. These include:
- The launch of a new One-Stop Shop EU VAT return.
- The end of low-value import VAT exemptions.
- Making online marketplaces liable for supplier VAT.
The EU’s believes the directive will provide a boost to cross-border trade while tackling the €5 billion e-commerce VAT fraud gap.
It is the largest and most significant e-commerce VAT scheme to date – and likely a sign of things to come globally.
3) And it’s not just in the EU where e-commerce is making waves…
That’s because a staggering 14 non-EU countries also implemented VAT on e-commerce in 2021.
Bhutan, Cambodia, Canada, Georgia, Kenya, Nigeria, Oman, Pakistan, Paraguay, Tajikistan, Thailand and the UK also introduced tax on online sales. What’s more, we already know Armenia, El Salvador, Israel, Kazakhstan, Panama, Peru and Ukraine are planning to do exactly the same in 2022.
VAT on e-commerce is here to stay, so if your business is affected you need to prepare now.
4) The rise of carbon taxes
The COP26 event in Glasgow in October and November brought climate change into the spotlight perhaps more than ever before, with countries around the world pledging to do more to tackle emissions.
One trend we’ve seen all year has been the rise of carbon taxes, which have been implemented in nations across the world.
According to the Organisation for Economic Cooperation and Development, approximately half of all energy-related CO2 emissions in G20 economies are now covered by a carbon price and several countries also have carbon taxes and emissions trading systems.
Carbon taxes are undoubtedly on the rise and businesses will have to increasingly account for them in their books.
5) E-invoicing is here to stay
The days of manually determining, calculating and reporting on tax are (almost) over. More countries are making digital methods such as e-invoicing mandatory and within the next five years I believe almost every country in the world will insist on it.
In 2021, we’ve seen Albania, Moldova, Uganda, the UK, Egypt, Portugal, Turkey, Kenya, Greece, Romania, Bolivia and Saudi Arabia become the latest countries to either adopt or announce plans to implement e-invoicing or an alternative real-time reporting system.
6) The birth of optional VAT as a realistic concept?
France and Poland have announced plans to grant an option for the taxation of the financial services industry.
Although the EU’s VAT Directive states that financial services are exempt from VAT, member states have the chance to offer taxable persons an option to place a levy on financial transactions. This will potentially act as an incentive for financial institutions to base new operations in France or Poland.
With a monetary perk available to banks and other organisations that move into countries where optional VAT is available, we could see more tax authorities open up the possibility of this innovative form of taxation in the years ahead.
7) Split payments
Split payments involve invoices paid to a supplier’s account being divided into two parts: the net price of the commodity goes into the supplier’s bank account and the VAT amount is deposited in the supplier’s dedicated VAT account.
This process has been successfully introduced to combat fraud in some countries.
Italy and Poland have already adopted split payments; indeed, in 2021 Poland reduced the threshold at which the mechanism applies. It is reported that the UK and Slovakia are currently assessing a possible introduction of split payments.
