For billing, VAT regulations cause confusion

Written by on August 20, 2015 in BillingViews, Guest Blog with 0 Comments

Stress, paperwork, business.New VAT legislative changes came into force on 1 January 2015 for electronically supplied services/digital products. If you are not supplying these types of services to consumers (non-VAT registered) persons, then this change should not affect you for the most part. If you are supplying digital services, then you need to be aware of the rules, and the pitfalls that have already been encountered.

The rules change from VAT being charged in the Member States where the business is established, to that of the rules of the Member State in which the consumer resides. This does just mean the VAT rate in force, but also the application of it and the rules surrounding it, of which there are many.

In some respects, the law makes it much easier for businesses supplying digital services and it does this by allowing one registration with one VAT authority for reporting purposes. However, understanding the rules still remains a headache. Applying the correct tax rate might at first seem simple, but a change in tax rates can cause complications. For instance, knowing which rate will be applicable for services that are of a recurring nature, such as monthly line rental, or a telephone call which spans more than one day provides and example of the complexity.

There are many things that need to be considered, and for industries such as telecoms where accurate billing is vital, the regulations need to be studied, as you have to think about the rules and build them into your software application.

Some of the considerations which I am aware of across the Pan-European remit are:

  • When the tax rate changes, rises, or falls, different rules may apply, depending on the change. Sometimes, these rules are stipulated in the Member State law, and on other occasions it is detailed when the tax rate changes. Considering a line rental charge from 15 June – 14 July, where a tax rate changes on 1 July, the question is which rate of VAT will apply? And this will be different, depending on whether it is an increase or decrease.
  • Where and how should VAT rounding happen? Is it at the tax type level; standard rate; zero rate; exempt; lower rate, or is it at the summary transaction level, such as all calls for the period? Or is it all data usage for the bill, in other words broken down by category within a service, indicating a separate item on the invoice perhaps, or will it be the total net charge of the bill?
  • Will the rounding be up, down, nearest and to how many decimal places? This can be different depending on your charging structure. In the prepaid market, calls may be priced including VAT, which may mean the VAT is rounded for each call.
  • Displaying VAT on the invoice/bill is mostly covered by the EU law on invoicing, so it might be easier to get clarity on these rules, but there are still further issues to be covered, such as which currency will you bill in, and what must you display on the bill.
  • What happens when you get it wrong and need to correct an invoice or bill? Somehow you need to reverse the charge and VAT, and rebill it, so what references do you need to the original bills/invoices?

Last but not least, and in my view the most complicated, is the Tax Point Date, confirming when this is can be quite difficult, in the context of what you are supplying. Typically it can default to the last day of the month in which recurring charges happen, or the invoice/bill date. However, where we have payments on accounts, and payments in advance, then there may be different rules, where the date of the payment has some part to play. For example, prepaid customers may not get bills, but there are payments, and somehow there has to be a fair and consistent way to charge the VAT.

This list is not exhaustive, but these are just some things “functional architects” involved with designing billing/invoicing software will need to consider to comply with the new rules.

More detail on the rules is here, with a link to the EU pages.

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Linda French

About the Author

About the Author: Linda is an independent consultant, with 15 years experience in data privacy across the EU. Linda is an advocate for data privacy, with most of her experience in telecommunications and technology. Linda worked with Convergys as their Regulatory Affairs Consultant for over 10 years, responsible for the regulatory roadmap across Europe. Linda’s latests engagement have been with UL EHS Sustainability, and Asiainfo. The last 3 years have been spent with analysing the impact of the GDPR, and getting businesses ready for this new law. Linda, has a keen interest in international politics. .

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