Are you ready for a Local Sales and Purchases list?
Instead of traditional tax reviews based on selected sample of tax documents, applying analytics in tax allows us to perform detailed tax reviews based on all company tax documents.
Deloitte has developed a tool - Tax Analytics, which makes it possible to verify a whole set of documents that are reflected in the VAT return. The VAT Analytics tool uses input data file consisting of detailed infor¬mation on accounting documents from the client’s accounting system. A team of Deloitte VAT specialists has prepared over 70 tests. Once your data is saved in the VAT Analytics tool, the tests verify the compliance with the specific rules of the VAT Act and identify any of the client’s specific accounting documents that may be non-compliant.
December 22nd 2014 the Chamber of Deputies approved the technical amendment of the VAT Act. The Amendment assumes introduction of the Local Sales and Purchases list (“kontrolní hlášení”), which is to become effective from 1 January 2016. The new VAT report will need to be submitted only in electronic form. It will contain a detailed overview of the taxpayer’s transactions in the level of detail of the individual tax documents. This new tool will enable tax authorities to perform tax audits in a much more efficient way.
The new system will significantly increase the likelihood of errors being detected – i.e. there will be a much higher risk of having to pay a penalty of 20% comprised of additionally assessed tax and late payment interest. The Local Sales and Purchases list introduces new set of penalties in the range from 1.000 CZK to 50.000 CZK pro every case of late declaration, or even 500.000 CZK already defined in the Tax Administration Act. In case of repetitive breach of tax obligations, the taxpayer may be put on the list of unreliable taxpayers.
Deloitte VAT Analytics
Deloitte has developed a tool (VAT Analytics), which makes it possible to verify a whole set of documents that are reflected in the VAT return. The VAT Analytics tool uses input data file consisting of detailed information on accounting documents from the client’s accounting system. A team of Deloitte VAT specialists has prepared over 70 tests. Once your data is saved in the VAT Analytics tool, the tests verify the compliance with the specific rules of the VAT Act and identify any of the client’s specific accounting documents that may be non-compliant.
The project is divided into four phases:
1. Specification of the Analysis Aim
The aim is to add specific tests for the client related to the client’s industry, or possibly also specific business cases.
2. Data Preparation
The client’s business users extract the data from the accounting information system. Usually, IT assistance is not necessary. We can provide a step-by-step manual on how to obtain the needed data from SAP and Oracle.
3. Tests and Analyses
The set containing over 70 tests examines, for example, the following: using the correct tax codes in connection with the tax identification number and the tax treatment of a business transaction, using the correct foreign currency exchange rates, tax identification number check using the VIES system, date tests for the timely inclusion of tax documents in the tax return, rate tests, etc.
4. Final Report
The individual cases identified in the tests are discussed in detail with the client. Such cases may present an opportunity for a process and system improvement, in order to prevent similar cases from occurring in the future.
Outcomes of the VAT Analytics project
The VAT Analytics project was performed for many clients already. The client receives a report summarizing all the test results. For each of the tests, you can find information about the number of tax documents tested and number of findings, it means number of documents, which failed the test criteria and represent a tax risk. The report includes the recommendation on managing the identified risk.
Typical findings by VAT Analytics
The typical finding is the usage of incorrect VAT numbers of the business partners, for example one client had 13,53% of the tax documents with incorrect VAT number. Correct VAT number is critical from the Local Sales and Purchases list reporting point of view.
Missing VAT number in the VAT evidence may in extreme case lead to questioning the VAT deduction by the tax authorities, for example 0,66% of the tax documents represents a risk of 1,2 mil. CZK of the VAT deduction for one of the clients.
Late issuance of the invoice is another usual finding, for example 15,44% of the tax documents in the VAT amount of 6,5 mil CZK was issued later then 51 days after tax point date. Too big delay in VAT declaration represents high risk and by introduction of the Local Sales and Purchases list it will be easy to discover.
The VAT Analytics allows the taxpayer to get ready before their first submission of the Local Sales and Purchases List. As a result, you will receive a comprehensive test of your VAT evidence, before the tax authorities perform such test within the electronic audit.