Ongoing challenge of VAT compliance in business today

VAT compliance is an ongoing challenge in today’s economic climate and contradicting interpretations of VAT rules across the EU can have an adverse effect on the efficiency of a business.

Despite harmonisation of the VAT rate, the system is beset by inefficiencies and shortcomings.

According to Stefanie Dreher, EMEA VAT Manager, UPS Europe NV, Belgium the different local interpretations and implementations of VAT rules are causing headaches for businesses. Dreher is a speaker at the marcus evans Indirect Tax: Compliance and Efficiency Conference taking place on 9-11 February in Amsterdam. 

Dreher explains that it is a huge difficulty for companies to achieve international compliance on VAT.

“The challenge is enormous. One the one hand we have a harmonised VAT framework – one set of rules for all. But at the same time countries still get a sufficient level of freedom to implement the rules differently or individually. The use and enjoyment rules are a clear example of this. Countries may individually adopt use and enjoyment for services covered by the listed articles. However, there is no further guidance as to how this should be set-up and there are no limitations (besides the fact that it can only be adopted for the services covered by the articles listed).

“As long as you need to monitor these rules from the billing country’s perspective, compliance can be managed. However, in the case of cross-border billing to business customers in other EU countries, as the service provider, you should also be aware of what is required in the customer country ie should the customer should reverse charge or not,” she explains.

Furthermore, there is still a lack of uniform interpretation but the laying down of Directive 2006/112/EC by The Council Regulation will hopefully eliminate some of these interpretation issues. However, the European Court of Justice (ECJ) will still need to clarify the situation, she adds.

“A good example is the VAT treatment of storage services. Several countries announced they will treat active storage services under the general rule. However, some others tend to stick to a strict qualification as services related to immovable property.

“All these issues make it more difficult to get your compliance 100 per cent correct. In the current environment as a business you just cannot be 100 per cent compliant if there is not always clear direction and the rules are so diverse despite the harmonised framework.”

Following the introduction of the e-invoicing directive last year, Dreher believes it hasn’t been stretched enough to benefit businesses.

“They could have taken this much further. I think it will get better but it’s a missed opportunity. What we will have is the freedom to choose how we issue the electronic invoice without being bound by EDI or digital signature. Nevertheless, the guarantees are now explicitly requested for paper and electronic invoices. It creates difficulty for businesses.”

The marcus evans Indirect Tax: Compliance and Efficiency Conference will take place on 9-11 February in Amsterdam.