Richard Cornelisse

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OECD – Consumption Tax Trends 2016

In Indirect Tax Strategic Plan on 03/12/2016 at 9:18 pm

Tax revenues collected in advanced economies have continued to increase from last year’s all-time high, with taxes on labour and consumption representing an increasing share of total tax revenues, according to new OECD research.

The 2016 edition of the OECD’s annual Revenue Statistics publication shows that the OECD average tax-to-GDP ratio rose slightly in 2015, to 34.3%, compared to 34.2% in 2014. This is the highest level since the Revenue Statistics series began in 1965. An increase in tax-to-GDP levels was seen in 25 of the 32 OECD countries that provided preliminary data in 2015, while tax-to-GDP levels fell in the remaining seven countries.

Consumption Tax Trends 2016 highlights that VAT revenues are the largest source of consumption tax revenues in the OECD, and have now reached an all-time high of 6.8% of GDP and 20.1% of total tax revenue on average in 2014.

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Modernising VAT for cross border e-Commerce

In Indirect Tax Strategic Plan on 01/12/2016 at 4:46 pm

The European Commission released legislative proposals to remove VAT obstacles for e-commerce to realize fair competition between traditional business and e-commerce.

The Commission has proposed practical new measures to support the digital economy when it comes to VAT compliance, which can currently place heavy burdens on small companies operating online.

The new rules should help to accelerate growth for online businesses, in particular startups and SMEs.

Proposals include:

  • New rules allowing companies that sell goods online to take care of all their VAT obligations in the EU through a digital online portal (‘One Stop Shop’), hosted by their own tax administration and in their own language. These rules already exist for online sellers of electronic services (‘e-services’);
  • To support startups and micro-businesses, the introduction of a yearly VAT threshold of €10 000 under which cross-border sales for online companies are treated as domestic sales, with VAT paid to their own tax administration. This goes hand in hand with other initiatives such as same invoicing and record keeping rules. Our aim is to make trading in the single market as similar as possible to trading at home for these companies;
  • The removal of the current exemption from VAT for imports of small consignments from outside the EU, which leads to unfair competition and distortion for EU companies;
  • A change to existing VAT rules to enable Member States to apply the same VAT rate to e-publications like e-books and online newspapers, as they apply to their printed equivalents.

These new rules will have a major effect for companies selling goods and services online that will now be able to benefit from fairer rules, lower compliance costs and reduced administrative burdens.

Member States and citizens will benefit from additional VAT revenues of €7 billion annually and a more competitive market in the EU.

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VAT expected to benefit United Arab Emirates

In Indirect Tax Strategic Plan on 27/11/2016 at 10:37 pm

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Abu Dhabi: The implementation of Value-Added Tax (VAT) in the UAE in 2018 is expected to benefit the country’s financial markets by boosting the earnings of publicly-listed companies, according to a top spokesman from the Abu Dhabi bourse.

Rashed Al Beloushi, chief executive officer of Abu Dhabi Securities Exchange (ADX), told reporters he was bullish on the impact of VAT on the UAE’s overall economy and on financial markets.

“We’re talking about nearly Dh12 billion [in government revenues] that will be gained from the implementation of VAT, and this Dh12 billion will be reinvested into the UAE’s infrastructure. As a financial market, we have public companies whose investments are in that very infrastructure be it in real estate, health, or other sectors. So, public companies will inevitably be part of these new investments, which will then translate to higher corporate profitability and higher dividends to shareholders,”  Source: VAT expected to benefit UAE bourses, ADX CEO says | GulfNews.com

According to surveys not many businesses have an adequate accounting systems to deal with VAT. Besides that lots of businesses lack the VAT knowledge of how a VAT works. Investments and training are needed to be ready in time.

To get VAT ready the following actions should be considered.

  1. Assess the business impacts
  2. Amend IT systems and business processes to the new situation forecasted and
  3. Review existing contracts and set rules for new contracts

How to get VAT ready in time

A cost efficient way to submit SAF-T files and perform risk management

In Indirect Tax Strategic Plan on 23/11/2016 at 11:38 pm

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To support the development of this guidance the OECD has laid out the Standard Audit File for Tax Purposes (SAF-T). This guidance establishes the standard to be used for the exchange of tax data between companies and tax authorities.

The aims of the CFA guidance are to simplify tax compliance and audit requirements by clarifying the information required from business and accounting systems for tax reporting.

As a result SAF-T is intended to give tax authorities easier access to the tax relevant company data (corporate income tax and VAT) in a consistent format leading to more efficient control and audit of tax regulations.

Every company with a SAF-T-requirement is now facing the challenge of finding an easy and reliable way to deliver the required data. Multinationals have the further challenge of providing a range of country-specific information in a controlled and efficient manner.

Efficient use of technology lowers costs of data collection and compliance. As a result more and more tax administrations around the world are implementing electronic auditing of business’s financial records and systems as part of their compliance regime.

Countries might have their own specific local SAF-T requirements but in case the basic required data are covered in the OECD framework it could be managed with country specific variants. You can compare it with the EU VAT requirements: EU Directive as framework with some country specific rules based on the options in the EU Directive.

Taxpayers will be obliged often to submit the SAF-T format:

  • – on request in the case of a preliminary tax inquiry, a tax audit and tax proceedings;
  • – monthly mandatory VAT SAF-T

The SAF-T VAT file should reconcile with the numbers of the VAT return to avoid a higher risk of a VAT audit.

Often I hear that the on request is given a lower priority. Be aware that audit defence is an important building block for a sound tax strategy. Although it is an ‘on request’ obligation it is important to run this requests regularly and archive.

This data will be used by the tax authorities for a tax audit to check whether tax positions taken in the tax reporting and /or rulings closed (corporate income tax and VAT) actually reflect the data in the SAF-T files. It is critical that your in-house tax department has sufficient time to assess the ‘on request’ data for any unacceptable tax risks.

I recommend use this functionality in-house as a pre-audit prior to the law being in force.

A SAF-T SAP add-on solution developed together by ‘Tax Assurance and certified SAP add-on specialists’ is now available for Poland, Lithuania and Norway and is scalable. The SAP add-on is extendable to countries that uses the OECD framework as the basis for SAF-T reports.

Note that countries might have their own specific local requirements but in case the basic required data are covered in the OECD framework it could be managed with country specific variants. Certain countries such as France, Portugal, Austria, Luxembourg, etc. – have already SAF-T in force.

Richard H. Cornelisse, Tax Assurance specialist – access PowerPoint for further explanation.

Business models that are changing

In Indirect Tax Strategic Plan on 21/11/2016 at 10:40 pm

There is one common denominator that is too often missing from the strategic or planning elements of a business model change — indirect tax.

But do these taxes get the attention they need, especially in light of increasingly complicated and globalized business models? And although these tax considerations may not be among the issues that drive a financial transformation, tax can certainly give rise to some significant and costly challenges.

That is particularly true of value added tax (VAT), which hits a number of disparate points within the enterprise as diverse as finance, procurement, IT or HR. One of the most common side effects of an integration that cannot be fully realized surfaces in the realm of invoicing.

For example, large numbers of payable invoices are not correctly coded so VAT is not deducted (in time). Or when the legacy system is only half integrated into the new model, incorrect sales invoices are issued, causing problems for customers, incorrect reporting of tax figures, and missed compliance obligations.

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IMF: VAT will generate $1bn for Omani government

In Indirect Tax Strategic Plan on 20/11/2016 at 2:37 pm

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The International Monetary Fund (IMF) is estimating $1 billion (OR 385 million) windfall for the Omani government from value added tax (VAT). The consumer tax, not conspicuously stated yet, will account for nearly 1.5 per cent of the gross domestic product though the amount can fluctuate depending on variables such as compliance rate and exemptions, the IMF said. Source: ArabianBusiness.com

According to surveys not many businesses have an adequate accounting systems to deal with VAT. Besides that lots of businesses lack the VAT knowledge of how a VAT works. Investments and training are needed to be ready in time.

To get VAT ready the following actions should be considered.

  1. Assess the business impacts
  2. Amend IT systems and business processes to the new situation forecasted and
  3. Review existing contracts and set rules for new contracts

How to get VAT ready in time

VAT Fraud and personal liabilities

In Indirect Tax Strategic Plan on 19/11/2016 at 12:04 am

59 percent of respondents (53 percent in 2014) expect the personal liability of compliance officers to increase in 2015, with 15 percent expecting a significant increase. Compliance officers or its Executives at firms as diverse as Swinton Insurance, Bank Leumi, Bank of Tokyo-Mitsubishi, Brown Brothers Harriman and Deutsche Bank (DB: VAT fraud) having been fined, banned or jailed (or a combination).

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Innovation and tax audits

In Indirect Tax Strategic Plan on 17/11/2016 at 5:54 pm

Tax authorities, due to technological innovations, have become increasingly better in executing their tax audit. The probability that the Tax Authorities will issue additional assessments and penalties in the near future because errors in indirect tax are detected, increases by the day.

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.

Mandatory data filing gives food for thought. Looking to the future 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.

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Council VAT rules on cross-border transactions improvements

In Indirect Tax Strategic Plan on 16/11/2016 at 4:08 pm

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On 8th November 2016, the Council adopted conclusions on improvements to VAT rules for cross-border transactions. The conclusions come in response to certain issues raised when a Commission action plan on VAT was discussed by the Council. The conclusions relate in particular to:

  • the VAT identification number as an additional condition for application of an exemption in respect of an intra-EU supply
  • in order to better tackle VAT fraud, improving the quality and reliability of data used in the EU’s VAT information exchange system
  • determining the VAT treatment of the transaction chain, including ‘triangular transactions’ (where goods are shipped from a member state other than that of the supplier and the customer)
  • simplifying rules for call-off stock (where goods are sent to a customer’s storage facility in another member state)
  • work concerning the exemption from VAT of intra-EU supplies

The Commission is asked to present legislative proposals and conduct studies, as appropriate.

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Taxation Trends in the European Union 2016

In Indirect Tax Strategic Plan on 16/11/2016 at 12:56 pm

This report contains a detailed statistical and economic analysis of the tax systems of the 28 Member States of the European Union, plus Iceland and Norway which are members of the European Economic Area.

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