Real-time reporting - how soon is now?
There is an increasing global trend of taxation authorities seeking to collect information from businesses’ enterprise resource planning (‘ERP’) solutions and other internal core systems in real-time by electronic means. There is a fundamental shift in how data is being collected and exchanged – we are moving away from information being ‘pushed’ to taxation authorities towards a position where it is being ‘pulled’ by them.
The Standard Audit File for Tax (‘SAF-T’)
In Europe, the Standard Audit File for Tax (‘SAF-T’) is a mechanism which was developed by the Organisation for Economic Co-operation and Development (‘OECD’).
SAF-T is an electronic format which enables the transfer of data from organisations to taxation authorities in a standardised, electronic format. The purpose of it is to enable taxation authorities to conduct more efficient and effective tax inspections.
A handful of countries originally adopted SAF-T (including Austria, France, Luxembourg and Portugal) but, in recent times, this number has increased (with Lithuania, Norway, and Poland), and there is an expectation that this trend will continue. Countries which have already adopted SAF-T have stated that it has brought significant benefits. Unsurprisingly, other jurisdictions have taken note and are considering adopting it.
Despite its benefits, there is no international standard list of data elements for SAF-T. As a result, taxation authorities in various jurisdictions have adopted their own versions of SAF-T.
The real-time submission of information.
Earlier this year, Spain introduced its ‘Immediate Supply of Information (‘SII’)’ system. SII is a new reporting regime which introduces real-time reporting of data. Certain taxpayers (such as those which file VAT returns on a monthly basis) are obliged to use the system while its use is currently optional for other taxpayers.
SII requires taxpayers using the system to submit invoices to the Spanish tax authority within four days after the issue or receipt of an invoice in order to maintain their VAT ledgers on the Spanish tax authority’s online platform.
Though the precise format or method may vary, we would expect that other jurisdictions will continue to move towards the real-time transfer of data.
The United Kingdom’s position
Her Majesty's Revenue and Customs’ ambition is to become ‘one of the most digitally advanced tax administrations in the world’, modernising the United Kingdom’s tax system to make it more effective, more efficient, and easier for taxpayers to comply with getting their tax right, and therefore reducing the amount of tax lost through avoidable error.
The ultimate aim is to remove the requirement for millions of taxpayers to complete tax returns and to bring all of the relevant tax information together in a digital tax account.
Recent proposals mean that businesses will not be required to provide information to Her Majesty's Revenue and Customs more regularly than they do now. VAT has been online since 2010 and over 98% of VAT registered businesses already file electronic returns – although 87% of businesses do so by entering figures on the online portal, rather than through software.
While there are no immediate plans in the United Kingdom to adopt a regime similar to SAF-T, or to provide detailed, real-time transactional information from taxpayers’ systems as per Spain’s SII, organisations will need to submit VAT returns in a digital format via an Application Programming Interface (‘API’) from April 2019.
Ireland’s current position
Similar to the position in the United Kingdom, from a VAT perspective, taxpayers may be pleased to know that there does not appear to be an imminent intention to introduce SAF-T or real-time data exchange regimes. Furthermore, Irish Revenue has not made any announcements regarding the requirement to submit VAT returns in a digital format via an API. However, modernising Ireland’s tax system is certainly on Irish Revenue’s agenda.
Businesses in Ireland will be aware of the upcoming Pay As You Earn (‘PAYE’) Modernisation real-time reporting regime that will be operational for all employee payments being made from 1 January 2019 onwards. This will represent the most significant reform of the PAYE system since its introduction in 1960.
While Ireland is yet to follow the international SAF-T and real-time reporting trends for VAT compliance, given Irish Revenue’s desire to overhaul other areas of tax compliance coupled with the obvious benefits of adopting such approaches, we expect that it is only a matter of time before the Irish VAT compliance process is overhauled so we would advise that organisations are proactive and plan ahead.
What should organisations be doing now?
Businesses should now be looking at their full VAT compliance process, and in particular where the data for this comes from, which systems are used, and how this information is adjusted and consolidated.
This end-to-end flow of information should be digital and capable of being audited going forward. Some organisations may be doing this currently by downloading reports and files, but where this information is being manually entered into spreadsheets or tax compliance software, the impact of automating this process should be considered.
It is likely that a digital audit trail from the submission of information to the underlying accounting records may be required, and potentially the submission of the underlying documents. Large organisations running complex or multiple systems may require several years (or longer) to implement these changes in their financial systems.
Should you have any queries on this article’s contents or would like our assistance with dealing with any of the issues discussed, please feel free to contact us.