5 minute read 16 Mar 2022
How to make the financial close more efficient and rewarding?

What will the future of VAT and tax compliance look like?

Authors
Dries Mazereel

EY EMEIA Indirect Tax Compliance & Reporting Leader

Passionate about building a better working world for our teams and clients. Husband and father of two boys.

Danny Vermeiren

EY Belgium Tax Associate Partner – EY VALITAX Lead

VAT lawyer turned techie. Entrepreneur. Father. On the beach with good wind.

5 minute read 16 Mar 2022

The latest CFO barometer reveals the current market trends concerning VAT and what this means for CFOs.

VAT or Value-added Tax is still the most important consumption tax. It is also gaining in importance as our society furthers its digitalization. In fact, some countries are only just now introducing VAT. What other trends do we see in the market? And what does this mean for the CFO? The recent CFO Barometer provides answers and benchmarks.

  • CFO Barometer

    The CFO Barometer is an independent research initiative of the editors of CFO Magazine in cooperation with EY Belgium. A questionnaire concerning a relevant CFO topic was answered by a representative sample of around two hundred Belgian CFOs from medium-sized to large multinational companies.

    The focus of the CFO Barometer is local, so the results are very representative of the Belgian market and as such the CFO Barometer becomes a benchmark tool for the CFO active in Belgium.

The VAT challenges companies face

While VAT compliance is a challenging business, it is not made any easier by the fact that it is not as neutral as it is made out to be. In reality, tax weighs more heavily on organizations. For one, the burden of VAT compliance is a responsibility of companies only and the intensive labor that comes with it is not accounted for. The deadlines are often short and the amount of data that needs to be processed is huge. 

For companies that think about expanding internationally, it is advisable not to take Belgium as the standard for measuring VAT compliance.
Dries Mazereel
EY EMEIA Indirect Tax Compliance & Reporting Leader

Moreover, the fines for non-compliance can be very steep. In Belgium, late submission is only fined 1000 euros, but in other countries the risk is much higher. For example, in France, you are fined 10% of the VAT payable. So, for companies that think about expanding internationally, it is advisable not to take Belgium as the standard for measuring VAT compliance. But for companies without ambitions abroad: be warned, as it is expected that tax compliance will become much stricter in Belgium as well.

VAT will become more complex

If we look at current VAT trends, it is clear that they add more complexity to the work of the CFO and finance in general. The main trend we see is that there is a demand for more data and faster delivery of that data. In countries like France and Luxembourg, tax authorities require an SAF-T audit report, a detailed report of sales and purchases in a digital format. Other countries like Norway and Portugal dictate that data sets are provided systemically so that the tax authorities can perform a VAT audit whenever they want. Tax authorities in Spain require companies to yield their declarations at a much higher frequency – mostly just a few days. Here they also compare data sets with those of customers and suppliers. Finally, you have countries like Italy where e-invoicing is the norm. This means that the tax authority collects data in real time.

For now, companies in Belgium have it “easy” when it comes to VAT compliance. But once authorities get the ball rolling, it will become faster, stricter, and more complex in a heartbeat. CFOs will need to acquire new skills, people who know tax regulations through and through and who are also proficient with technology and data. Those profiles are hard to find, and they are not necessarily needed fulltime. That is why outsourcing or co-sourcing makes for a good alternative. Shared service centers are also growing in popularity.

Graph: Do you have the necessary in-house tax & VAT skills, or do you outsource some things?

Tax Technology & automation is a must

Are Belgian companies ready to follow the new trend? Well, organizations that are active internationally have one big advantage: they are already being confronted with it in other countries. Companies that only operate nationally will experience the new way of reporting more intensely. It can quickly take over half a year to get accustomed to it. This has everything to do with the implementation of technology and finding the right people.

When it comes to technology, it is advised to invest in tax technology and automation. However, the results from the CFO Barometer show that over 85% of Belgian companies do not invest in said technology, nor do they have any plans to do so. When we compare that figure to the global one, we again see that Belgium is far behind on the rest of the world. 80% of global respondents to an EY survey stated that they are investing in tax technology.

Graph: Did you invest in tax technology & automation?

There is no going around it, Belgian companies will need to follow suit and automate their tax compliance management. They have two options: either they look for possibilities to integrate extra modules into their accounting/ERP package, or they look for the opportunities that other specialized tools can offer. EY VALITAX is an example of such a tool. It automatically calculates VAT and validates tax codes. It also discovers risks and opportunities and intuitively visualizes them.

More and more tax authorities want to see proof that the company controls the tax and VAT processes.
Danny Vermeiren
EY Belgium Tax Associate Partner – EY VALITAX Lead

Mastering tax control & continuity

More and more tax authorities want to see proof that the company controls the tax and VAT processes. That is why they focus on tax control frameworks. This includes having a VAT continuity plan. Continuity is very important with VAT. It is not enough to produce a single, good VAT declaration. You must guarantee that you can keep producing these reports, regardless of whether someone leaves the company or not. However, a staggering 75% of the respondents state that they do not have a continuity plan in place.

Graph: Do you have a VAT continuity plan for your organization?

Finally, you need to have a good overview of where the VAT is located in your organization. This includes checking whether the VAT was correctly applied by suppliers. Because if you paid VAT, it does not necessarily mean you can deduct it! Control is everything with VAT.

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Summary

The CFO barometer shows a lack of continuous tax control with Belgian companies. They need to invest in a VAT continuity plan that is supported by technology and automation. The best way is to have the necessary skills in-house, but it is easier to outsource it. VAT audits will digitize in our country the way it did in our neighboring countries. So, even enterprises without foreign branches need to prepare a better tax control framework. EY can help with that.

About this article

Authors
Dries Mazereel

EY EMEIA Indirect Tax Compliance & Reporting Leader

Passionate about building a better working world for our teams and clients. Husband and father of two boys.

Danny Vermeiren

EY Belgium Tax Associate Partner – EY VALITAX Lead

VAT lawyer turned techie. Entrepreneur. Father. On the beach with good wind.