Tax authorities stage a coup d’etat of taxpayers’ VAT returns – EU VAT in the Digital Age next?
What’s the hottest topic in tax authorities’ minds? Live reporting? VAT on digital services? E-invoicing. No! It’s a much more fundamental shift of tax reporting control from taxpayers to the tax authorities – it’s no less than a coup d’état of the VAT return, armed with digitisation of transaction reporting – as seen with the proposals for the EU’s VAT in the Digital Age which includes the option of pre-filled draft VAT returns as an inventive to 2028 Digital Reporting Requirements.
It’s sounds like a great leap forward in tax compliance; but finance and tax teams should now be wary of tax authorities controlling the source data for tax liability estimates and the efforts required to challenge any errors.
Pre-completed VAT or GST returns are part of a wider Death of the VAT Return movement, including e-invoicing, SAF-T and other transaction-level reporting. If you want live updated on this or other VAT / GST news, sign-up here. for free email news updates.
Tax authorities roll out pre-completed VAT returns
It’s government pre-filled VAT / GST returns. Draft filings prepared by the tax authorities for taxpayers to review, challenge and approve. It started in South America but is now catching on in Europe and beyond. Tax authorities are now largely able to have a first stab at draft returns based on the increasingly popular transactional level based VAT reporting: e-invoices; control statements; invoice listing; online cash registers; and SAF-T.
The attractions are obvious:
- Compliance becomes easier and cheaper for most taxpayers and tax authorities, particularly as based on issued invoices already verified by the tax office through their pre-clearance systems
- Countries with e-ledger requirements may withdraw these since they will be held by the tax office.
- Speeded-up returns process, which would not face the same disruption to the likes of COVID-19 crisis
- Live economic and tax liability estimated for the tax authorities and governments to help better manage the economy
- Significant cost reductions for tax authorities in post-return audit activities
- Increased collections, underpinning the tax base
- As part of a wider transactional reporting cross-checking between suppliers and their customers, tax authorities can automate fraud detection – and reduce the VAT Gap!
Who has implemented draft VAT returns?
Efforts around pre-completed tax returns started in South America.
Pre-filled VAT / GST returns
|- Chile 2017 implementation|
|- Mexico with CFDI e-invoicing|
|- Bolivia with SFE e-invoicing 2021|
|- Spain extension of pre-completed returns 2022 with SII|
|- Portugal 2018 SAF-T used for draft annual VAT return|
|- Italy 2023 first pre-filled returns available|
|- Suspended Hungary pre-filled VAT returns|
|- Albania 2021 with e-invoicing|
|- India 2021 GSTR 3B summary transaction form|
|- Greece myDATA 2022 pre-completed filings|
|- France live invoice reporting returns|
|- Peru and Ecuador|
|- Australia limited sales transaction reporting profiled returns|
|- China profiled returns for sales and purchases certain taxpayers|
|- 2020 Indonesia e-Factura pre-filled VAT returns|
|- Angola limited prefilled sales transaction VAT returns|
|- South Korea|
|- Tajikistan purchase and sales transactions precompleted returns|
|- Uzbekistan sales and transactions prefilled returns|
|- Armenia purchase and sales transactions precompleted returns|
EU 2028 e-invoicing drive to promote pre-filled VAT returns
EU VAT in the Digital Age reforms include a channel for harmonised Digital Reporting Requirements (DRR) and Continuous Transaction Controls (CTC) by EU states. This grew from the 2020 Tax Action Plan proposals for a fairer and more efficient EU tax regime.
Such measures will support the creation of draft EU standard pre-filled invoice