Electronic Invoicing obligations in Europe as of 2023
Italy was the first country to in force B2G (Business to Government) electronic invoicing (e-invoicing) in 2014. Italy was also the pioneer to introduce B2B and B2B in 2019, for almost all Italian companies. Currently, several EU countries have full E-invoicing mandatory only for B2G : Spain, France, Portugal, Croatia, the Czech Republic, Poland, Finland, Norway, Denmark, Sweden, Estonia, Lithuania, the Netherlands, Serbia and Luxembourg (on-going). Austria, Belgium and Germany have partial B2G obligations, mostly because of languages, differences between central and federal states or immediate payments. Italy is currently the only country with compulsory e-invoicing for B2G, B2B and B2C areas. But things are about to change, for 2 reasons: 1) Advantages of e-invoicing and 2) New Policies from the EU. 1) Advantages of e-invoicing 2) New Policies from the EU In 2023, the EU Directive in force the obligation that each invoice issued will have to comply with the regulatory and technological requirement of the Payeeâs country. In other terms, the only possibility to comply is to adopt electronic invoicing. If there are so many advantages to e-invoicing, why so many companies/countries did not adopt it so far? Itâs because of local Policies and because companies are generally lacking expertise in digitalization and underestimate the benefits of e-invoicing. Finally, there is no common technologic solution or platform and countries have been adopting self-standards. However, the use of an ERP could highly facilitate the integration of e-invoicing, with minimum efforts and costs (if you have the good one). To summarize, the adoption of the e-invoicing for B2B transactions will become a must have not only because of Invoicing Policies changes, but also because of increased constraints on digital management of tax compliance adopted by several EU countries, if the organizational benefits did not convince you⊠The table below shows the current situation in the EU big 4, and UK and Switzerland in terms of e-invoicing.
What is transfer pricing ?
This article will provide you with a high-level methodology for the different methods and types of transfer pricing. You will not become a tax expert, but next time you will be asked the question âwhat is your transfer pricing methodâ, you probably wonât respond âCost +â⊠Multinational companies, MNE, used to allocate profits (earnings before interest and taxes – EBIT) among its various subsidiaries, generally in âtax friendlyâ countries to benefit from double non-taxation. However, since the financial crisis in 2008, the G20 countries put tax, specially tax avoidance, on the top of their agenda. In 2012 a plan against Base Erosion and Profit Shifting was elaborated. BEPS was just born. The Article 9 of the OECD Model Tax Convention on Transfer Pricing regulations require transfer prices within a controlled group to meet the armâs length principle. In other words, transactions between related parties must take place under market conditions. The arm’s length principle provides broad parity of tax treatment for members of MNE groups and independent enterprises as it avoids the creation of tax advantages or disadvantages that would otherwise distort the relative competitive positions of either type of entity. There are five different transfer pricing methods in two categories: Regardless of the method, master and local files as well as international comparable transactions are required. The traditional transaction methods, commonly and wrongly called âCost +â, are used for a wide range of operations such as purchase ans sale of commodities (goods), lending money and services. Generally the transactions are straight forward and the margins involved are rather small. Transactional profit methods require a profound analysis of routine and non-routine transactions and the elements of the value chain of the companies involved. It details risks occurred by participant companies and the margins at play are potentially higher. If the latter is more complex, it has a significant benefit for the companies which implement it; tax transparency across several jurisdictions. You can continue reading the chapters below to gain a comprehensive and high-level understanding of transfer pricing. 1. Overview of transactions 2. OECD Transfer Pricing Guidelines & the Armâs Length Principle 3. Functional and risk analysis 4. Transfer pricing analysis 5. When to apply traditional transaction methods? Subject to the guidance in paragraph 2.2 of the OECD Guidelines for selecting the most appropriate transfer pricing method in the circumstances of a particular case, generally it is assumed that: 6. When to apply Transactional profit methods? While in some cases the selection of a method may not be straightforward and more than one method may be initially considered, generally it will be possible to select one method that is apt to provide the best estimation of an armâs length price. However, for difficult cases, where no one approach is conclusive, a flexible approach would allow the evidence of various methods to be used in conjunction. In such cases, an attempt should be made to reach a conclusion consistent with the armâs length principle that is satisfactory from a practical viewpoint to all the parties involved, considering the facts and circumstances of the case, the mix of evidence available, and the relative reliability of the various methods under consideration. TNM method PSM method This method was revised by Action 10 of the action plan against Base Erosion and Profit Shifting (BEPS) in June 2018. PSM may be considered the most appropriate transfer pricing method in a specific set of circumstances only: Besides the constraints already mentioned in the previous paragraph it is also important to indicate when it may not be appropriate to use the PSM: Despite itâs complexity, the PSM is being largely adopted because it enhances tax transparency specially for companies subject to Country-by-country reporting (CbCR) as the tax authorities have a complete view of the routine and non-routine thanks to the analysis of the value chain. As the profits are jointly shared, it is likely to satisfy the tax administrations of the parties involved. Sources: OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations ISBN 978-92-64-26512-7 report_on_the_application_of_the_profit_split_method_within_the_eu_en.pdf (europa.eu)
Tax opportunities post COVID-19
With the sudden appearance of COVID-19, many businesses encounter tough and violent challenges as shut down with a loss of revenue and removal of production capacity. The preservation of the EBIT and especially the cash is critical. Therefore companies should focus on completing their 2019 tax credits on R&D might help to obtain cash refunds from the governments. As part of the various public states measures, urgent tax incentives have been introduced such as: Such measures may lead several countries to raise their tax rates and tax conditions in the coming years. The world post COVID-19 remains uncertain and companies may rethink their value chain process by using tax design to improve their bottom line results. Opportunities 1. Transfer pricing activity reorganization In context of an economic downturn, tax-group reorganization is more favourable as it triggers lower valuation in respect of transfer of business activities, goodwill, Intellectual Property (IP). Restructuring allows to benefit from the negative context to redesign the transfer pricing group policy by calibrating the benchmarks and efficiently re-streamline the generation of the value added creation in more tax efficient locations. In addition, tax losses generated during 2020 might be optimally utilized to reduce the exit tax impact. 2. Revisit of existing transfer pricing flows The negative economic context offers possibilities to recalibrate the transfer pricing remuneration by streamlining the benchmarks. This may decrease the net income of the group subject to corporate tax in the various jurisdictions. 3. CFC â Controlled Foreign Company rules. Group subject to CFC rules may also benefit from a favourable re-design in term of shareholding. Reorganizing the shareholding flows as well as the adequate level of substance might allow to minimize and optimize the negative impact of these rules. As a conclusion, the world post COVID-19, remains uncertain and companies may take this opportunity to rethink their value chain process by using tax design to improve their bottom line results. It is the right to elaborate a tax risk-benefit assessment. Please feel free to contact us for more information. Simon Massel
