1. What is the most significant change to your region’s/jurisdiction’s tax legislation or regulations in the past 12 months?
Generally, tax law is subject to frequent changes, particularly in the Central European (CE) countries. Authorities in some jurisdictions, such as Poland or Romania, tend to enter into a dialogue with businesses and other involved parties before implementing new regulations. However, final regulations often come as a surprise to taxpayers and are published very shortly before entering into force.
Usually, legislation adopted by the CE countries is stricter and more complicated than other comparable tax legislation, even when based on the same international laws. For example, mandatory disclosure rules (MDR) in Poland, resulting from the DAC6 implementation, are very complex and challenging to interpret. The explanatory notes to the MDR law issued by the Polish Ministry of Finance comprise over 100 pages. In addition, the reporting obligation has been extended by VAT settlements.
The same applies to SAF-T [Standard Audit File for Tax] reporting, which is based on the OECD rules. In some countries of the region, such reporting is very detailed and, unlike in Western Europe, covers many areas, such as VAT compliance, warehouse movements, general ledger, etc.
Currently, however, the most significant changes that are being adopted gradually in various countries of the region are e-invoicing and real-time reporting systems. Electronic invoicing is based on Directive 2014/55/EU and means that the invoice has to be issued, transmitted, and received in a structured data format, which allows for its automatic and electronic processing. Still, what is visible is that non-EU countries, such as Albania, also tend to adjust to these rules and be compliant with EU legislation as much as possible.
For example, e-invoicing will be mandatory for all B2B transactions in Poland starting from 1 July 2024. As of that date, all taxpayers handling B2B transactions (excluding non-established entities) will be required to issue invoices using the National System of e-Invoices (KSeF); i.e., the central government platform. Similarly, suppliers’ invoices will also be downloaded from the KSeF. It will become the only possible way of exchanging invoices. In fact, like Italy, Poland will implement real-time reporting in terms of domestic B2B and B2G transactions. Naturally, the tax authorities will have immediate access to transactions performed by taxpayers, which will allow them to react even quicker to eliminate potential inaccuracies.
However, Poland is not the pioneer of this invoicing method (although the system adopted in Poland is regarded as one of the most complex ones). Albania introduced e-invoicing on 1 January 2021 (1 September 2021 for B2C transactions). Not being an EU member state, Albania relatively quickly adapted its VAT regulations to EU standards. Other countries in the region that have implemented e-invoicing are Hungary and Serbia.
In some countries, the implementation of the e-invoicing system is gradual and mandatory only for operations with public entities (B2G). This is the case in Spain, Austria, Croatia, and Turkey. Elsewhere – for instance, in Romania – certain products are at an increased risk of being subject to fraud at the moment.
Overall, looking at the legislative pipeline, most European countries want to introduce mandatory e-invoicing in the coming four to five years. The main reason for such regulatory changes is to limit VAT leakage, which, according to EU Commission estimates, amounted to €93 billion in 2020.
2. What has been the most significant impact of that change?
The e-invoicing obligation affects basically each taxpayer. Almost all businesses will need to review their invoicing models with a view towards adjusting them to the new regulations. Most countries that have introduced these rules require that each invoice be issued in one structured format; e.g., XML.
Such a solution can result in some limitations. For example, it eliminates the possibility of including additional marketing data on invoices, such as graphs, special layouts, commercial statements, etc. Attachments (with additional specifications, calculations, etc.) can no longer be sent through central systems, so alternative communication needs to be worked out. Under some legislation, payments need to refer to a unique number obtained from the central e-invoicing register. Also, the logic behind the VAT point (when based on the invoice date) may need to be reworked as, in some cases, the date on which the VAT becomes due would be the moment when an invoice gets approved in the central system.
All the above-mentioned aspects require that businesses take a closer look at their systems, processes, and agreements, and make necessary adjustments.
It is noteworthy that, with the new rules in place, not only would tax reporting be affected but also core business processes. Thus, as a valid invoicing process is one of the main elements of running a business activity, non-compliance on the part of enterprises may significantly impact cash flow or even the financial stability of the business. Needless to say, taxpayers should take all necessary measures well in advance and prepare themselves properly for the change. Thus, in Poland, implementation processes in many big organisations have already started and, in some cases, are well advanced.
3. How do you anticipate that change impacting your work and the market moving forward?
Countries from the region have been observing a visible push towards digitalisation of tax processes in recent years. Currently, most tax returns are filed electronically. In some jurisdictions, VAT reporting is possible via SAF-T only; thus, tax authorities receive monthly or quarterly detailed VAT ledgers of all taxpayers with all transactions reported. Such measures are meant to increase the transparency of the tax situation of individual businesses, with tax authorities having immediate access to the key transactional data of taxpayers.
E-invoicing is a further step towards automating tax processes. Even tax returns can be prepared automatically by central administration systems.
Given the above, tax advisers will need to develop new skills to work with IT or ERP systems implementation departments. Our role is not only limited to explaining new regulations, giving tax advice, etc., but also to help with setting up proper processes, often automated, to enable efficient performance of everyday operations. In some cases, tax advisory firms develop their own solutions that are provided to clients as tax engines, supporting some tax compliance processes such as VAT, SAF-T reporting, or even the e-invoicing process. As such, a skillset comprising analytical, technical, and process capabilities will be most desired on the market in the near future.
4. How has this changed the way you offer tax advice?
As mentioned earlier, given the complexity of regulations, frequent changes, and increased accuracy and adequacy of tax audits (resulting from the revenue needs of the state), ‘traditional’ tax advisory services will still be needed. For example, the greater knowledge and technical skills of tax authorities will require that tax advisory firms build strong tax controversy teams. Unlike several years ago, nowadays, litigation often requires negotiation skills apart from technical knowledge. The same applies to M&A, restructuring, or international tax advisory services. It will take a while before these areas get automated. Therefore, highly experienced, analytical, and tech-savvy professionals will be in great demand.
However, it is noticeable that our clients turn less to our indirect tax teams for theoretical advice, help with writing a memo, or tax authority rulings. Rather, they increasingly seek assistance with setting up the right business processes so as to achieve accurate VAT compliance and eliminate potential risks. Tax authorities react very quickly whenever inaccuracies in transactional settlements are identified – in particular in countries with real-time reporting or mandatory SAF-T compliance. Due to budget constraints and recruitment difficulties, businesses often cannot afford to maintain teams of people that would fulfil such demands. Therefore, more reliable and efficient tax and financial reporting is required – and we must be capable of delivering on such demands.
As a tax advisory firm, we must have specialists with the right skillsets on board to meet this demand. We also need to learn and adapt to the new reality faster than ever. Very often, our service team includes tax advisers, ERP implementation consultants, and IT specialists, all from one organisation. One of the biggest competitive advantages of large organisations like Deloitte is our ability to put together, quickly and easily, a team equipped with all the required competencies using in-house resources.
5. What potential other legislative/regulatory changes are on the horizon that you think will have a big impact on your region/jurisdiction?
There are many proposed legislative changes that may influence the businesses of our clients and our approach to tax advisory services. The most crucial changes from the indirect tax perspective would be the regulations arising under the ViDA (VAT in the Digital Age) initiative. Even though ViDA is not directly linked with tax technology, it is worth mentioning that in April 2022, the VAT Directive was amended by Council Directive (EU) 2022/542 (Directive 542), which enabled the member states to introduce an additional reduced rate, which can be lower than 5% VAT (including 0% VAT). The ‘super-reduced’ rate may be applied to selected goods and services; e.g., foodstuffs, supply of water, pharmaceutical products, medical equipment, and others. Member states may, but are not obliged to, implement the said rate.
Unpopular as it may seem, some countries are taking a closer look at Directive 542 as it opens the possibility of reducing the rate of VAT for products such as medical devices, which in most countries are subject to standard rates (unlike medicinal products, which usually get lower rates).
6. What are the potential outcomes that might occur if those changes are implemented?
When it comes to medical devices, such changes would lead to a reduction in prices offered to the healthcare system, which, in turn, may have a positive impact on pricing to patients. This would also be good news for suppliers, whose sales volumes could increase.
However, since a VAT reduction would impact the revenues of the member states, the introduction of these regulations would not be easy. Still, Romania has already taken some advanced legislative measures to implement 0% VAT for certain medical devices. Therefore, we should be aware that such legislation exists and enter into a dialogue with our clients and business organisations, informing them of such possibilities.
7. Are there any regulatory/legislative changes you believe should be implemented in your region/jurisdiction?
Looking at the progressing digitalisation of tax reporting in Europe and globally, we should expect further unification of tax reporting between member states. Assuming that ViDA regulations enter into force, the format of invoices documenting intra-community transaction invoices would be unified. Bearing in mind that, by that time, most countries would have introduced e-invoicing for local transactions, one of the potential results could be a unified tax return filed in the same format in all European countries. This could enable multinational companies to use the same form of VAT returns in each country, which, in turn, would increase efficiency and reduce the costs of implementing individual system solutions for each country’s legislation. For businesses planning expansion to other territories, it would increase reporting stability and accelerate the process of tracking their tax position in various countries, which is often needed for financial reporting purposes.
8. How do you believe those changes would help improve the tax landscape in your market?
Taking Central Europe as an example, when it comes to tax compliance, multinational businesses tend to treat our region as an exception requiring special attention, additional efforts, and investment. This is due to stricter, detailed, and sometimes difficult-to-interpret laws, as mentioned earlier. Obviously, this is not very helpful when considering further business expansion into these territories. Such unified reporting would be a positive step that would increase stability and trust towards local authorities and, simultaneously, reduce business costs. However, it might not happen immediately.
9. How are issues surrounding the taxation of the digital economy affecting your work?
It is noticeable that, for various reasons, businesses very quickly adapt to new requirements, even those requiring significant changes to their tax reporting or financial systems. Providers of financial or ERP systems try to prepare for the new regulations well in advance, which sometimes is quite a challenge, particularly in the case of multinational solutions. In such situations, companies can turn to a growing number of external IT providers that assist system users with adjusting to the new requirements by creating financial/ERP system add-ins or separate software, enabling compliance. This is noticeable, especially now, with many taxpayers in the DCE region [Germany, France, Central Europe, Austria, and Luxembourg] that are trying to adjust their systems to the demanding e-invoicing requirement. As previously mentioned, many tax advisory firms develop their own solutions to address such needs of their clients. The benefit of such solutions is that they are up to date with legal changes, flexibly adjustable to new requirements, and maintained by multidisciplinary teams, including tax practitioners.
Therefore, although the potential market impact of the regulations surrounding VAT in ViDA will be significant – particularly for e-commerce businesses – the implementation of ViDA will not be a revolution.
What many businesses see as a positive outcome of ViDA is the possibility of using a single VAT registration – the so-called one-stop shop (OSS) – in an increased number of situations. Currently, OSS is limited to certain activities, such as the provision of electronic or telecommunication services to private individuals. VAT registrations in various countries due to specific business or supply chain requirements can be truly burdensome. Not only does it impact the cost of business, but it also increases tax risks that can arise from interactions with local tax authorities that have their own requirements and language limitations. Thus, the possibility of wider OSS application is a move in the right direction.
Obviously, the impact on some industries, such as e-commerce and digital platform operators in particular, will be significant, and therefore such businesses should start preparations in advance.
Although the legislative process is still in progress, there is a high likelihood that those changes will be introduced. Thus, ViDA is becoming a priority topic placed higher and higher on the agenda of tax and finance teams.
10. How would you describe the tax authorities’ approach in your region/jurisdiction?
Over the past several years, tax authorities have significantly increased their effectiveness. The number of tax audits has been dropping, while tax assessments have been on the rise. The main reason is the already-mentioned digitalisation of indirect tax compliance. A tax administration is usually able to immediately identify transactions that may be subject to simple (but costly for the state revenues) mistakes, such as the recovery of VAT undeclared by a vendor, etc. In such cases, instead of lengthy proceedings, they simply contact taxpayers via email and, e.g., request the correction of inaccuracies. Such actions are simple and cost effective from the perspective of the tax administration but bring tangible results as the taxpayers usually correct their settlements without delay to avoid tax audits.
It is also apparent that tax audits have recently typically focused on particular areas such as VAT, withholding tax, or transfer pricing. In such circumstances, the appropriate resources are used to effectively run the proceedings. As a result, tax audits are sometimes quicker but rarely end up with no tax assessment.
Tel: +48 601 08 59 07
This document has been prepared solely for the purpose of publishing in the 2024 ITR World Tax Guide and may not be used for any other purpose. This document and its contents may not be reproduced, redistributed or passed on, directly or indirectly, to any other person in whole or in part without Deloitte’s prior written consent.
Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited (“DTTL”), its global network of member firms, and their related entities (collectively, the “Deloitte organization”). DTTL (also referred to as “Deloitte Global”) and each of its member firms and related entities are legally separate and independent entities, which cannot obligate or bind each other in respect of third parties. DTTL and each DTTL member firm and related entity is liable only for its own acts and omissions, and not those of each other. DTTL does not provide services to clients. Please see www.deloitte.com/about to learn more.
Deloitte provides industry-leading audit and assurance, tax and legal, consulting, financial advisory, and risk advisory services to nearly 90% of the Fortune Global 500® and thousands of private companies. Our people deliver measurable and lasting results that help reinforce public trust in capital markets, enable clients to transform and thrive, and lead the way toward a stronger economy, a more equitable society, and a sustainable world. Building on its 175-plus year history, Deloitte spans more than 150 countries and territories. Learn how Deloitte’s approximately 415,000 people worldwide make an impact that matters at www.deloitte.com.
This communication contains general information only, and none of Deloitte Touche Tohmatsu Limited (“DTTL”), its global network of member firms or their related entities (collectively, the “Deloitte organization”) is, by means of this communication, rendering professional advice or services. Before making any decision or taking any action that may affect your finances or your business, you should consult a qualified professional adviser.
No representations, warranties or undertakings (express or implied) are given as to the accuracy or completeness of the information in this communication, and none of DTTL, its member firms, related entities, employees or agents shall be liable or responsible for any loss or damage whatsoever arising directly or indirectly in connection with any person relying on this communication. DTTL and each of its member firms, and their related entities, are legally separate and independent entities.
© 2023. For information, contact Deloitte Global.
