Several nations worldwide are following in the footsteps of pioneering Latin American countries, leveraging data and automation to ensure compliance with tax regulations. Building on early requirements for VAT reporting and eFiling, many countries are now focusing on transactional data with real-time electronic accounting, ledger, invoice and receipt mandates, paving the way to reach the ultimate goal: eAssessments.
The Foundation for Full Automation
Minimizing significant VAT gaps and reducing tax evasion, fraud and sale of black market goods is the initial goal of many countries as they adopt new rules for electronic tax filings, as well as more detailed accounting records and real-time transactional data.
These efforts have shown positive impacts throughout Latin America. eInvoicing alone has reduced the VAT gap, with Brazil reporting increases in its tax revenue by $58 billion and Mexico seeing tax collections grow by 34 percent.
Europe is facing similar VAT gap issues. The European Commission estimated the VAT gap to be €151.5 billion in 2015. These large losses have spurred many countries to dramatically change their tax regulations, with a focus on implementing technology to increase reporting efficiency and accuracy, reduce costs, improve cash flow, reduce tax fraud and share more data with other tax authorities.
The progression of tax compliance automation often takes a similar path, whether in Latin America or other regions throughout the world, phasing from simple electronic filings to more complex requirements:
- eFiling - Use of standard electronic forms for filing periodic tax returns.
- eAccounting - Requires regular electronic submission of accounting and other source data to support filings, such as invoices and trial balances. This information enables government agencies to more easily audit companies with operations in those countries.
- eLedger - Requires submission of additional accounting information, including electronic registration of transaction-related sales and purchasing data from trading partners, enabling the government to triangulate data and electronically audit VAT.
- eInvoicing - A defined electronic standard format (XML) is mandated for companies to legally operate and bill both domestic and foreign customers. The data is used as the only invoice transaction of record for tax compliance and audit defense.
- eReceipts - Electronic registration of consumer purchases carrying VAT obligations that give tax authorities real-time visibility into transactions at the point of sale.
Setting the Stage for eAssessments
After phasing in these various electronic mandates across all businesses, tax authorities have vast quantities of data - invoices, receipts and payments - enabling them to produce electronic tax assessments.
With eAssessments, tax authorities generate VAT reports based on real-time transactions that taxpayers submit, and issue the reports to taxpayers for revision and remittance.This is a game changer; now taxpayers have to prove if government calculations are wrong based on what they submitted, which is extremely complicated.
Chile is among the first countries to move to an automated Proposal of Monthly VAT Declaration (Propuesta de IVA). There, taxpayers will no longer be obligated to submit the ledger of sales and purchases (libros). Instead, the SII, Chile's tax authority, will prepare a Registry of Sales and Purchases (RCV), which records information related to all sales and purchases based on electronic invoices and other documentation. The RCV data will enable the government to generate the Propuesta de IVA, which taxpayers then simply accept and pay or reject with correction documentation.
Spain is considering a similar requirement, likely beginning in 2019. Several modifications to Spain’s Immediate Information Sharing system (SII) will require remaining businesses to participate in the program. From there, Spain is discussing a plan to use SII data for eAssessments to improve the accuracy and speed of tax reporting and collections.
To learn which countries may be next to introduce eAssessments and keep up with the fast-changing compliance trends impacting companies in Europe, download The Evolution of European Value-Added Tax Compliance and Reporting: The Definitive Guide to the New Wave of Technology-Drive VAT Disruption.