Death to VAT returns?

Is the traditional VAT and Corporate Income Tax return doomed?

Advances in electronic reporting may be taking business that way over the next ten years as the taxman is able to electronically ‘peer’ into accounting systems, spot anomalies and potential calculate companies’ VAT, employment tax or corporate income tax liabilities in advance. This would then put companies in the position of having to defend their own estimates of their tax liabilities.

In particular, two current initiatives being progressed by tax authorities are driving this development:

SAF-T is an international electronic protocol being adopted by tax authorities to have companies report their taxable transactions. It enables fully automated data exchange between companies and the tax authorities. SAF-T was developed by the Organisation for Economic Co-Operation and Development (OECD). It is a XML standard format that captures data on invoices, purchase orders, payments, inventories and fixed assets.

Several EU tax authorities have now adopted SAF-T into their tax audit procedures. These include: France, Portugal, Luxembourg and Germany. Typically, prior to a formal tax audit, the tax office will request a full SAF-T report of the transactions covering the period under review.

Crucially, it will empower tax inspectors to perform analytical reviews of companies’ taxable transactions in advance of audits, and potentially identify anomalies not reported in returns.

E-ledgers are complete downloads of all taxable transactions. This includes: invoice details; and intra-community supplies on purchases and sales. The primary use of e-ledgers is to detect domestic and international VAT fraud.

e-VAT ledgers requirements have now been implemented in: Estonia; Slovenia; Bulgaria; Slovakia; and Spain. The Czech Republic is next.