We are celebrating the 10th episode of VAT Talks with Fabiola Annacondia! Fabiola is the Editor of IBFD’s International VAT Monitor and of the EU VAT Compass book, as well as the Cluster Manager for the VAT courses offered by IBFD International Tax Training. Furthermore, she gives courses and publishes regularly on a wide variety of VAT-related topics. In recent years, she has presented at OECD workshops in China, South Korea and Mexico and she speaks regularly at VAT conferences around the world on different VAT related topics. In this VAT Talks we discuss the importance of harmonising the EU VAT system and the usage of technology. Additionally, Fabiola explains why she is so passionate about VAT and why it is so much fun.
For how long have you been working in VAT and how did you end up in this field of work?
“People are always surprised when I tell them that I have been working in VAT for more than 30 years. It all started when I was studying accounting and business administration. At some point the Argentine Tax Authority (AFIP) opened a position for students that wanted to work as an assistant for tax inspectors. So I applied, did all the exams and started working there in 1990. I was only 19 years old and my main role was to help with tax audits, for example checking invoices. It came down to the following: they put me into a room, gave me many boxes with invoices and told me ‘do the groundwork’. In other words, cross checking the invoices with the bookkeeping. [laughing] As you might expect, everything was on paper. Sometimes they had a truck full of invoices waiting for you.”
“I worked with the AFIP until the government published an open competition for a secondment at the IBFD. I competed, won and moved to the Netherlands in 2000. The plan was to work there for 1 year in the Latin-American division to gain international experience. This one year turned into 1 year and three months and I returned to Argentina. However, the IBFD left the door open for me to come back and half a year later I moved to the Netherlands again. I started working as the editor of the International VAT Monitor (IVM). Now I only focus on VAT, whereas before I did all kinds of taxes, like direct taxes, excise, VAT, social security etc. I was teaching VAT at the University of Buenos Aires and that’s one of the reasons why the IBFD offered me this position in VAT.”
What do you especially like about VAT?
“I really like VAT because it presents a lot of challenges and it’s in constant development. It is anything but boring, although some of my colleagues do not understand that. For example, when I give my four-day introductory course in VAT they sometimes ask me ‘but what do you explain to the people? VAT is only a percentage over an amount, that’s it!’ Then I always tell them ‘no, it is much, much more than that’. And I really enjoy doing VAT, you always have to think about how do you comply with the system, how could the system be simpler, how could you find solutions to existing problems. I also really like to teach VAT, to transfer my passion for VAT to students. I always say, if every year one of my students continues in VAT, I’m happy.”
“It is very clear how important VAT is for society when you have a look at government revenue, as it provides one of the highest revenues. This is even more important in the current situation with COVID-19. This means crisis, recession and again VAT will play a big role. You could compare it with corporate tax, when there is no profit there is no corporate tax revenue. However, we will always continue consuming. Sure, we are not going to restaurants that often anymore, but we increasingly consume digital products and services. So consumption has shifted due to COVID-19. Consumption is always there.”
As the editor of the International VAT Monitor, you encounter many interesting articles about VAT. What is the most interesting article you recently published and what was it about?
“[laughing] That is a difficult question because I like every article that is published of course! As an editor, you like what you publish. If I have to choose I would pick the following.
“Two months ago we published an article of Christian Amand, it was about intra-community trade and VAT. He poses the question: will the distinction between goods and services still be relevant in the near future? This is an interesting question, because currently there are different rules for goods and services, but from July 2021 there will be almost no distinction anymore in the B2C area because of new regulation. The author then analyses very clearly if this distinction will still be necessary in the B2B area.”
“Another interesting article that we recently published was about the new VAT reporting obligation for payment service providers, written by Marieke van Hilten and Giorgio Beretta. They write about the importance of this reporting obligation as well as about the difficulties that will bring this to service payment providers. And even before they enter into force, they already provide some suggestions of what could be improved.”
“We also receive a lot of articles about ECJ cases. Those are always interesting. For example, we have an article about an Airbnb case, is it a real estate agent or not? Another article about the Glencore case and the taxable person’s fundamental right in tax proceedings. Lastly, we have a lot of articles lately about Latin America regarding e-commerce as, after Europe and Asia, Latin American countries are now introducing rules regarding e-commerce. You see, I could talk for hours about articles that are published in the International VAT Monitor.”
Next to being a passionate editor of the International VAT Monitor you are also the author of the EU VAT Compass, what part of the EU VAT Directive should be changed according to you in order to improve the EU VAT System?
“If I could pick one issue that could be improved in the VAT Directive, [laughing] I would pick all the possibilities, all the ‘may’s. I’ll explain myself.”
“In the current VAT system, if you change one thing, other aspects are affected as well. You cannot change one area without changing others. That is why I think it is necessary to harmonise the VAT Directive further. The Directive provides a lot of ‘may’s to the Member States. For example, the Member State may allow parties to opt for taxation in respect of the financial services industry. This leaves the door wide open for a variety of tax legislation throughout the EU. It results in a different application of the same rules in each Member State. So I would give Member States less possibilities as the more possibilities you give, the more complicated the system becomes. This makes it harder for taxable persons to pay their taxes, even for the majority that actually really wants to comply with VAT legislation. This does not only result in costs for businesses, but also for the tax administration as they will spend more time performing checks .”
Do you see positive developments in this regard within the European Commission?
“There is definitely something happening. You can have a look at the Green Paper of 10 years ago, or at the White Paper in which the European Commission uses words as simplification, robustness, efficiency etc. There are also some rules implemented, although some of them also add to the complexity. For example, the Quick Fixes are now implemented, which is great and a good step forward. But if you look at the actual implementation in the Member States you see that every Member State implemented them in a different way. Again, this makes it hard for businesses to comply. I truly believe that the European Commission is doing their absolute best, but in practice it does not always work out the way it is supposed to work out unfortunately.”
What do you think about the new tax package of the European Commission that was published in July this year?
“I think this is a very good development. Paolo Gentiloni (European Commissioner for Economy) mentioned three different areas regarding VAT in his speech. First of all, he addressed financial services and the need for an update of the VAT rules on financial services taking into account the digital economy. The proposal is not there yet, but a proposal to simplify the rules is coming. There actually already was a proposal for this sector a couple of years ago, but it was withdrawn. ”
“Later he spoke about a proposal to adapt the EU to the digitalisation and increasing the role of technology in order to simplify compliance and to fight fraud. Great, amazing! This is not something new, we know this for many many years and it is one of my ideas as well, we need to use technology. Also, when you look at the first VAT action plan (2016), they already spoke about VAT reporting and the use of technology, etc. However, not much happened in that area. Now several Member States have done something in their own capacity, but again all the rules are different. So, this is another proposal that I’m looking forward to reading.”
“The last point he makes is that he wants to prevent and resolve disputes in the area of VAT. This is also important as every year the amount of court cases at the ECJ have increased almost exponentially and there are more and more unresolved issues. The point is we need to get to those issues at an earlier stage, before they end up at the ECJ. I hope there will be improvement, but again it is all to be seen. Still, I do think that the areas that he mentioned are also indeed the areas that need the improvement the most.”
What do you think is the most interesting development in VAT outside of Europe?
“That is very difficult to say, because everyone is now focusing on COVID-19. What I see is that countries are trying to find a way to create a tax system that provides governments with sufficient funds to tackle all problems related to COVID-19. There is a recession and with a recession, there is not enough money. That is why the tax system has to change somehow. For example, countries are introducing all kinds of measures, but there is not really one measure that I would recommend. Countries are playing with the rates, reducing them for example. The only country that increased the standard rates is Saudi Arabia. The latter is something which I definitely would not recommend to do.”
And do you see any interesting developments regarding the fight against fraud in specific?
“Currently, the topic of how to tax the digital economy and the platforms is very popular. The economy is moving from goods to services and is digitising rapidly. The question is: how to treat those platforms that are offering such services in a fair way. This has already been a question since 2003, but what is interesting is that we are now going towards the extension of the one-stop-shop. A good measure in this area regarding the fight against fraud is the abolition of the minimum low value consignment of €22. Before this abolishment, there was a lot of unfair competition between those platforms, selling goods from all over the world, and small local businesses. Companies were undervaluing their prices in order to stay below the threshold, which is fraud. Therefore, I see that as a good development related to the reduction of fraud in the B2C supply of goods area. The actual implementation of the new rules is delayed due to the COVID-19 unfortunately.”
More and more countries are implementing real-time reporting systems to fight fraud, such as Italy, Spain, Hungary and now Greece. What do you think of this development?
“This is indeed a good tool to combat fraud and in Latin America it works really well. It allows the tax administration to get all the information real-time and everything can be checked. This makes it very difficult to escape the system and in B2B it works perfectly. The issue I see with the implementations of such systems in the EU is first of all: how much information do you ask? Some countries are asking a lot of information and I am wondering if the tax administrations are really capable of analysing all the information that they are asking for? Sometimes it is better to ask for less information, if it at least guarantees you to be able to analyse everything. So, yes it is a great tool to combat fraud, but only if the information is constantly analysed.”
A problem of such a system might be that the burden of proof is shifted. The tax authority will become the one that ‘should have known’. Do you see the same problem?
“Pfu, that’s an interesting question. Indeed the taxpayer could then say that the tax administration has all the information, so it should be able to know or it should have known that the fraud occurred. But to blame the tax administration for not taking action is a different topic. The taxpayer is the one that always has to know what’s going on in their own business.”
“As an example, a taxpayer is dealing with a supplier that offers a very good price. This could be an indicator that you are dealing with a fraudster, as we know from the ECJ cases. However, after doing all the necessary checks the taxpayer does not think it is dealing with a fraudster and the taxpayer buys the goods. Later, the tax administration finds out that this particular supplier is indeed a fraudster. The honest taxpayer then does its VAT return etc. and at that point it might indeed become the responsibility of the tax administration to warn you about the fraudster, and if you followed all the procedure’s you should be okay and easily prove that you did not know.”
If you could give one piece of advice to the European Commission regarding combating VAT fraud, what would it be?
“First harmonising the system as much as possible, which will make it simple to comply. Another point we also already discussed, the usage of technology. First, if you make it simple, you make it simple for the tax administration to check taxpayers. Second, for businesses who are the partners of the tax administration you will also make it easy for them to comply. Unintentional mistakes will not happen, which would be a win-win for both. This would also help with reducing fraud to the minimum.”
Do you have a last comment/remark to enthuse the reader for VAT?
“[laughing] VAT is fun! Although my colleagues cannot always understand my passion for VAT, I really enjoy doing it. It is an area with continuous development, not only at the national level but also internationally, think of the OECD that is currently working on VAT. It is definitely a growing area and I would like to say to people who are starting in taxation: think about VAT and give it a shot! Sure there are always transfer pricing issues, corporate taxation issues, but I think VAT is way more fun.”
We would like to thank Fabiola 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 firstname.lastname@example.org