Richard Cornelisse

Tax Authorities peeking at your data – Are you still confident about your tax position?

In Audit Defense, Business Strategy, EU development, Indirect Tax Strategic Plan, Macroeconomic effects of VAT, Processes and Controls, Technology, Training on 29/01/2013 at 9:59 pm

By Ferry Geertman, Managing Director of the KEY Group

Ferry Geertman
Robbert Hoogeveen and Richard Cornelisse blogged about the’ new requirement for submission of tax report with transaction details in Portugal (SAFT-PT)’.

This blog provides some background from a tax controversy perspective.

The OECD has issued in May 2005 a guidance note on the development of Standard Audit File –Tax (SAF-T) and recommends the use of SAF-T as a means of exporting accurate tax accounting data to tax authorities in such way that can it can be analyzed easily.

Portugal has now – as stated by Hoogeveen and Cornelisse earlier – implemented this guidance per January 1, 2013.

On monthly basis, companies are obliged to submit the SAF-T (PT) reports for sales invoices to the tax authorities. Besides the SAF-T (PT) requirement there is also a Portuguese requirement to implement a digital signature for all sales invoices.

From a risk management perspective mandatory data filing should give food for thought.

The submission of the SAF-T file means that a taxpayer has to provide specific data to the tax authorities every month.

From a tax controversy strategy it is common practice that before information is provided to the authorities, a company performs a risk assessment and determines the worst case scenario to avoid unforeseen tax risks. What if there are glitches in your data, input errors, empty fields, awkward descriptions in fields or apparent inconsistencies?

A checklist re submitting data to the tax authorities:

  • Have you analyzed the data and performed a tax risk assessment?
  • What are the tax authorities doing with this data: perform data analysis?
  • Does not meeting the requirement result in a higher risk of a tax audit?
  • What are the KPIs of the tax authorities?
  • If not impacting the present does the company show a audit trail that can be retroactively be investigated and backfire to tax position taken (ammunition for contra arguments, increase of penalties)
  • If the data provided does not meet the required data format could this result in a higher risk of a tax audit?
  • To avoid unforeseen risks or mitigate this risk is it not necessary to perform a data analysis prior to submitting data, as an internal pre-audit?

Data analysis as a pre-audit should be aimed at detecting and correcting inconsistencies and evaluating tax falls within the company’s risk appetite. More importantly, if similar data requests are becoming a common practice of the tax authorities, is it from a tax strategy perspective not important to set up a continuous monitoring process that on a real-time basis verifies and remediates data quality and data consistency?

  1. Is the mandatory data request approach of the Portuguese tax authorities incidental or will this become a future trend?
  2. Is it not likely in the downturn economy that more countries will follow this in order to maximize tax revenues?
  3. What is the current status in the European Union or beyond?

In Austria it is also mandatory to provide data in electronic format. It looks like in France this will be introduced per January 2014.

In Luxembourg, Norway, Singapore and Canada providing data is still on a voluntary basis and only mandatory upon request by the tax inspector.

In Belgium, Slovak Republic, Germany, Spain, Malta, Finland, UK, Slovenia, Croatia and Lithuania discussions on implementing SAF-T are already taking place.

Based on the above it is likely that tax data analysis is or will be the standard tax audit methodology.

Are you ready for change?


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