26 Feb

Weaponising VAT: Tax trends for 2018

Brexit, VAT fraud, austerity straitjackets and global tax wars; Richard Asquith, VP Indirect Tax, at tax software provider Avalara discusses the major tax trends for 2018.

Leaving the EU: The Brexit process.

The future trading model for post-UK Brexit looks unresolved with businesses needing clarity; a hard Brexit with a transition in to WTO rules may provide remedy however, with a significant adjustment and learning curve for business will be necessary. The imposition of import and export VAT on EU trade may have a cash flow impact on companies selling or buying from Europe, which means the government will need to be creative in this area, perhaps introducing an import VAT deferment scheme.

VAT in the face of austerity

In the face of continuing austerity, global governments look at reduced VAT rises – however, the UK, post-Brexit and free from EU rules on VAT rates, will now be in position to loosen reduced rates as alluded to in the 2016 referendum.

Arab Gulf launches VAT with a splutter

The initial excitement around the six Gulf States’ 2018 VAT launch has lessened, with four of the countries likely to delay their roll-outs until 2019. In Saudi Arabia and UAE panic is ensuing as they are unprepared for the basics – such as preparing a compliant VAT invoice.

Digitisation and digital services

A major debate for 2018 will be the taxing of digital services to consumers. The OECD and EU are under pressure to accelerate their own proposals on taxing electronic services provided by large marketplaces. Conflict between the two could arise, and the EU may well have to back down under US protection of its internet giants.

The drift towards live transactions reporting to the tax authorities also continues, but is likely to be tempered by overly ambitious launch dates. In the UK, HMRC has recently estimated that Brexit will create up to 40% more work for it over the next two years – its own plans for live VAT and tax reporting may be delayed further, after already postponing the 2019 launch for the ‘Making Tax Digital’ programme.

VAT fraud: The EU fights back

2018 sees the European Commission’s radical plans to create a single VAT area on B2B transactions come to fruition. Tackling the stubborn €50bn VAT fraud problem will not be without challenges – political pressures from member states will push for the EC reforms to be watered down. Consequently, the 2022 implementation target of a destination-based VAT system will inevitably slip given the aggressive timetable.

2017 promised huge gains on automation; progress has been made but not quickly enough, pushing the likes of the EU to escalate measures on a trans-national level, which will be the theme of VAT and all taxes for 2018. Despite the uncertainties that lay ahead, many companies are already bringing forward investment in ERPs and tax reporting software, so that they can react in real-time to whatever comes over the barricades next, but what is clear, is that automation of tax departments is probably one of the best defences.