Introduction

Real-time reporting and digital reporting requirements are advancing all over Europe. We discuss these developments with international indirect tax specialist Aiki Kuldkepp. Aiki has an astonishing career in the world of taxation and currently holds the position of senior manager at Grant Thornton. Come join us in a discussion about the future of VAT in Europe and how technology can help. Aiki is convinced that the “modernisation of reporting systems will help to increase the trust between member states” but she’s also aware of the difficulty of harmonising national DDRs in the EU. This is why she thinks that the European Commission should first focus on intra-EU reporting requirements, and we couldn’t agree more.

How did you end up in VAT and could you tell a bit more about your current work at Grant Thornton?

“I started my career in taxation in Estonia, where I come from. After my studies at London School of Economics, I first worked at the Estonian Ministry of Foreign Affairs. At that time, Estonia was not yet an EU Member State, but was in the process of becoming one. In this process, I was responsible for trade relationships between Estonia and the EU. This was a very interesting work, and during that time I met people from the Ministry of Finance who invited me to work as the Head of International Tax. This mainly involved negotiating tax treaties. I also worked closely with the OECD and participated in international meetings and coordinated international tax issues. This was the beginning of my career in taxation. Later on I did my PhD in EU Tax Law. Afterwards, I started working for a couple of big 4 companies, especially focused on VAT. This was in 2003. So, I’ve been working in VAT now for almost 20 years now. That means that VAT is apparently interesting enough to keep working in this field.

Currently I work at Grant Thornton as a Senior Manager. I mainly advise companies, mostly on cross-border VAT and Customs issues. However, I also help companies with VAT automation. For example regarding the One Stop Shop (OSS). We can help them by offering our tools to get the data from Excel tables to the required format. Lastly, I also write articles and newsletters to share some knowledge.”

Regarding these articles, you wrote an excellent article on Bloomberg, analysing the latest VAT developments in the EU, what is the most important one according to you?

“I think these different developments are all a bit connected. First of all, I think that the harmonisation of VAT reporting systems is very important. The usage of technology could help here and also make it easier for companies to comply, while at the same time increasing the VAT revenue of tax authorities. The usage of these technologies might also make it easier to move to some form of a definitive VAT system. As far as I understand, a major issue in realising this system was that countries do not trust each other. I think the modernisation of reporting systems might help to increase this trust. If everything is transparent and automated, EU Member States can be more confident that their counterparts are effectively collecting VAT and sharing it among the EU Member States. This is closely connected to modernising and harmonising VAT compliance across the EU which would be a simplification both for companies and for tax authorities. The current variation of VAT reporting obligations, together with the existence of multiple e-invoicing standards, makes it even for multinational companies an overwhelming task to comply with.”

How can businesses best prepare for all these upcoming changes in EU VAT?

“It is quite difficult for companies to prepare, because we are not sure exactly what the future holds. When looking at the OSS implementation of July 2021, we received quite positive signs as the implementation went relatively smoothly. On the other hand, it was implemented on quite a short notice and not everyone was fully prepared. Although it seemed not too big of a change for us who are in the middle of the VAT world, this was not the case for businesses. So the start was not easy, but now that they are making use of it, it is a big simplification which is a very positive development. Regarding the different plans of the “VAT in the Digital Age” package, there are still many different scenarios on the table. Therefore, I would not prepare for all four different options that are still discussed. This would be a bit too much even for a big multinational. At the same time, what companies can do is to get their VAT determination right, because sooner or later VAT reporting will be modernised. This will mean that tax authorities will have the tools to almost immediately check transactions which makes it essential to really have the VAT data and calculation correct. For this also, the modernisation and digitalisation of existing business processes will be helpful.”

In terms of e-invoicing, do you think there is still the opportunity to harmonise these varying standards?

“I think potentially it could be harmonised, but that all depends on the will of the EU Member States. I really hope this will happen because it would make it significantly easier for companies to comply as there will be less variation in all those systems.”

Regarding real-time reporting (or DRR/TBR), what do you see as the most feasible among the four mentioned options?

“That’s a good question. In an ideal world, I would like to see it move to a more harmonised system. Both for domestic and intra-EU transactions. However, I’m not sure if that’s feasible or not.

A good way to begin might be to first harmonise and modernise VAT reporting for intra-EU transactions.

This could for example replace VIES. Most VAT carousel fraud also exists because it is difficult to control cross-border movements of goods within the EU. Therefore, more efficient control of cross-border movement of goods within the EU by digitally reporting those transactions could help to decrease fraud via an efficient use of technology. Besides, Italy and some other countries already invested heavily in their own systems. This makes it difficult to harmonise all domestic systems.”

What is the main concern of companies regarding the implementation of a real-time reporting system?

“One concern is that probably all different types of systems make the transactions more transparent. It makes mistakes more visible for the tax authority. On the other hand, this also comes with benefits. Instead of tax authorities having up to 5 years later to perform a check and then issue a big fine because a company did not know they were doing something wrong as they misinterpreted complicated tax legislation, immediate controls allow tax authorities to notify taxpayers about mistakes at an early stage. This could even mean that there is no, or at least a lower, fine involved. Related to this are concerns regarding data protection. How can governments guarantee that they can provide taxpayers or shareholders the certainty that there will be no data leaks? Furthermore, the Netherlands also has some examples of Artificial Intelligence (AI) being used in a way that had severe consequences. Lessons learned from these experiences should be taken into account in this process as it can be used wrong and cause a lot of traumas. In other words, taxpayers’ rights should be well protected. This is also about proportionality. How much data does the tax authority actually need to tackle fraud? Lastly, it’s important to not ask companies for the same data for different reporting obligations, for example both for VAT and for the DAC.”

Currently the public consultation regarding VAT in the Digital Age is open. If you could give one piece of advice what would it be?

“It is important to move forward with the DRRs step by step. In this way all checks and balances can be taken care of: taxpayer’s data is protected, gathered in the optimal way, only the necessary data is collected and data is only asked once. Speaking about the “VAT in the Digital Age” project in general, I think all the three tasks are equally important. Specifically for DRR, it might not be realistic to harmonise both domestic obligations and intra-EU from the start. Starting with intra-EU might therefore be more feasible. Such an harmonised approach would make it easier for companies, especially small companies that sell their goods across the EU. When speaking about platforms, harmonisation is equally important. It should be easier for taxpayers who are offering services or selling goods via platforms to comply. Also the OSS should be more widespread, both for B2C and B2B. This is also related to the definitive system because it would be very difficult for companies doing business in multiple EU Member States to pay VAT separately to all these different tax authorities. Therefore I think it would be logical to introduce a single VAT registration. It would actually be essential for the definitive system to be implemented I would argue.”

What do you want to say to our readers to make them more enthusiastic about VAT?

“VAT is certainly an interesting, dynamic field of work. There are always some interesting developments going on. On the other hand, I think it is also important that there are a lot of job opportunities. There are possibilities to choose between different employers and sectors. From private to public organisations and from focusing on technology to working on the legal side. I think a lot of people are needed that are interested in technology and probably when the automation will really take off and all the compliance systems are modernised then there will be even more work for those that are interested in both technology and VAT. What is also important is that it is a very international area of work. 170 countries already have implemented a VAT and a lot of aspects are harmonised. This allowed me to work in many different countries. For example I worked on the VAT implementation in Malaysia and the Gulf States. So, you can have these kinds of interesting experiences when working in VAT. You could even work in the US, as they also need know-how about the EU VAT system. So, let’s put it this way: VAT is never boring as you always have something new to discover.”

We would like to thank Aiki again for her time and for giving her perspective on VAT. The opinions expressed in this article are personal. If you have any questions, suggestions or if you want to be our next interviewee, do not hesitate to contact us via info@summitto.com