Being able to track information ‘has always been the taxman’s dream’– Pascal Saint-Amans, OECD
Governments around the world are seeking new sources of revenue, and value-added tax (VAT) is the key revenue driver and the largest contribution to governmental budgets. Each year billions of dollars are lost in tax revenue due to non-compliance, evasion, fraud, and non-collection. As the global tax environment becomes increasingly complex it requires new solutions to increase transparency and close the tax gap.
Tax authorities have invested heavily in digitalization, data integration, and analytics systems to improve tax collection and prevent tax fraud. They are leveraging benefits of "AI" and "Advanced Analytics" on the endless tax data they collect to take an in-depth look at how businesses & industries are performing and identify bottlenecks in the tax system.
The DATA HUNT HAS BEGUN!
VAT GOING DIGITAL
"Data is not oil. Oil is a fossil fuel with limitations. Data is air that allows us to breathe and thrive. Lose air and you suffocate."– Chris Skinner Blog
The world of tax is changing rapidly and “real-time reporting” is one of the hottest topics in the VAT compliance world. Governments around the globe are demanding real-time information from the businesses, and Tax authorities are collaborating across the border and collecting more information than ever before to identify and act on tax issues due to the changing environment and global nature of businesses.
From 2016, the OECD has recommended companies with more than €750 million in revenue will be required to submit to tax authorities country-by-country reports on a number of different tax and financial data points.
This changes the way taxes are reported, filed and collected, disrupting the traditional compliance process and accelerating reporting and filing obligations for businesses.
Many countries have already adopted digitization & they require taxpayers to report VAT transaction data with new requirements such as SAF-T, e-invoicing or real-time reporting.
Latin America was the pioneer of Digital VAT reporting, took off in response to fraud. Brazil introduced measures in 2008 requiring corporations to begin filing their VAT transactions digitally and issue a digital invoice for any intracompany, B2B or B2C sales.
In Europe, countries are increasingly adopting SAF-T created by the OECD, which gives tax authorities access to data in an easily readable format for effective tax inspections. In the United Arab Emirates, there is a prescribed format (.csv) for submitting data to the tax authorities for audits known as ‘FTA Audit File (‘FAF’)’, similar to SAF-T which supports the figures declared in their VAT return.
Companies operating in several countries should be aware and prepared for the fact that data they submit will be shared with other tax authorities worldwide, and they have to be VAT compliant in all the countries where they conduct business.
How Blockchain will Transform Tax?
OECD’s Forum on Tax Administration (FTA) advocates that "big data and blockchain approaches open the possibility of new ways of managing large VAT transactions involving refunds or cross-border transactions."
Blockchain invented over a decade ago as a public transaction ledger of the cryptocurrency bitcoin in 2008, is ready to unleash a wave of innovation across every industry and sector. When combined with Big Data, Artificial Intelligence, and Human Expertise it opens up a huge range of possibilities for the tax Function.
Blockchain is simply a software protocol.
Its three notable features are that it is disruptive, trustless, and highly efficient.
The heart of every blockchain is the consensus mechanism that verifies each transaction and cryptographically binds the blocks of the chain together.
Blockchain application in tax has the potential to move the function from retroactive analysis and historical financial information gathering to a position where transactions can be recorded in real-time and may allow earlier collection & oversight through digital data.
It could streamline and accelerate business processes, increase the speed, accuracy, collection of data, improve cybersecurity, and reduce or eliminate the role of intermediaries.
It allows storing of digital invoices on the shared ledger that both seller and buyer have verified. On this immutable data foundation, smart contracts will calculate the VAT amount on the invoice and automate the VAT settlement by routing VAT amount directly to the tax authority & non-VAT part to the company’s account.
Both governments and tax authorities are discovering how to use blockchain technology to improve tax collection and prevent tax fraud.
Missing Intra-Community Trader fraud, or Missing trader fraud, the abuse of the VAT rules on cross-border transactions is the most familiar scam in the EU and contributes one-third of VAT fraud in Europe, representing a loss of 60 billion euros each year.
Blockchain has the potential to reduce this gap significantly through audit trail across supply chains, automatic settlements and identity management & two-sided validated invoices.
Cross Border Tax Efficiency & Security
Customs duty, Traders and customs brokers are required to provide information or documentary proof to benefit from any potential reliefs or reductions or verify that products are legal and not dangerous for import, and are in compliance with trade agreements.
If trading were recorded in a blockchain and the customs authorities had access to the chain, they could verify the accuracy, origin & nature of the goods at every stage and can automatically collect duties as goods transit across borders, cutting out third-party declarations.
In the case of Excise taxes, blockchain could track cross-border movements and calculate more accurate duties on products, reducing smuggling and counterfeiting.
"What is revolutionary is that blockchain has potential to Disrupt and will bring a fundamental shift in how data is being collected and exchanged – from information being ‘pushed’ to taxation authorities towards a position where it is being ‘pulled’ by them.
Tax Professionals Watchers and Business-Shapers
Today's digital world requires a new breed of tax function who can act as a business adviser, tax ambassador, tax-savvy technologist, tax diplomat & tax visioner who can bridge the gap to the C-suite and represents tax's unique value proposition in the digital age.
Tax Ambassador, shift from traditional role to broader strategic role, to educate the C-suite about the impact of changing tax laws. Such as international tax structure undergoing a fundamental overhaul in response to BEPS and other global tax initiatives.
Tax Technologists, develop new skills by embracing the power of technology, ability to understand how to apply new cutting-edge technologies like robotics, AI and automation, analyze data in real-time, apply data analytics as well as the tax rules and support in the development of real-time tax dashboards.
Act as Tax Diplomats, foster relationships throughout the organization. Work in a closer partnership with other parts of the business, particularly finance and IT. Collaborate and assist CEOs and CFOs on complex business decisions and risk management matrices.
Be a Tax Visioner, provide advice to business leaders to make educated decisions. Digitization is accelerating the timing of tax reporting and filing obligations for businesses, be prepared to provide accurate and quality-checked data on demand.
"Tax Professionals should prepare themselves to address today’s tax problems with tomorrow’s mindset. If they don’t use technology to innovate, they will become obsolete".
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