4 minute read 11 Dec 2019
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What lessons can be learned in Belgium from digitization abroad?

Authors

Matthias Penninck

EY Belgium Indirect Tax Executive Director

Background in VAT. Focus on electronic invoicing and archiving.

Michiel Ruys

EY Belgium Tax Associate Partner

15+ years of experience in European Indirect Tax (VAT). Specialized in Tax Technology and the automation and streamlining of Indirect Tax processes.

4 minute read 11 Dec 2019

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Why it is crucial to digitize operating procedures and why it costs the government money when not done sufficiently.

The impact of digitization in and between companies and the government is not exactly something the finance professional is worried about. But the results of the most recent CFO Barometer do show that awareness is growing, and things are beginning to move. Digitization’s tentacles impact on many procedures, but it is mainly the bigger, international companies who change tack first.

  • CFO Barometer

    The CFO Barometer is an independent research initiative of the editors of CFO Magazine in cooperation with EY Belgium. A questionnaire concerning an actual CFO topic was answered by a representative sample of around two hundred Belgian CFOs from medium-sized to large multinational companies.

    The focus of the CFO Barometer is local, so the results are very representative of the Belgian market and as such the CFO Barometer becomes a benchmark tool for the CFO active in Belgium. The results are shown here and commented on by specialists and illustrated with practical experiences.

Digitization: priority or not?

How important is digitization for companies? In the most recent CFO Barometer, 22% of the respondents confirm they do not give it any priority. These are probably the smaller companies or organizations, with less resources, where technology is of less importance and where there is no acute demand for digitization, or not yet anyway. Moreover, smaller organizations wait for the government and authorities to lead the way. And governments who are not yet fully dealing with digitization, are not setting a good example.

Belgium vs. other countries

Unfortunately, Belgium is lagging behind. Notwithstanding a few digital requirements in our country, such as digital invoicing of the government, other countries are already doing a lot more. The big, international companies are striving to implement new technologies to invest more in analyses and added value work (instead of reports only).

That would also explain why approximately 80% of the respondents say they do focus on digitization, more specifically on finance and supply chain management. Tangible applications are automatically entering purchasing invoices in the accounts, extraction of data out of an ERP-package, etc.

Fraud stimulates digitization

In terms of taxation, governments are the guardians of the treasury (in other words: they need to ensure actual collection of the expected tax income). It is striking that, in Europe, governments are more and more aware of the gap between the amount they should collect and what they are actually collecting. That means that certain items remain untaxed or that fraud is taking place.

South American and East-European countries are very susceptible to fraud. Their governments use digitization to chase up local companies and to collect more VAT income (which has actually increased in the last few years).

Why is digitization being postponed?

The main arguments against it are the complex procedures and the substantial costs. Companies do not see an immediate yield, because they have to adjust certain procedures. Moreover, there is no uniform European model, causing every country to operate differently. In turn, this means substantial costs for companies seeking compliance with all the different content and formal requirements. Governments also need to start communicating about regulations and practicalities a lot sooner, to enable companies to free up funds to test and roll out these digital procedures.

Digitization’s positive influence on the taxpayer–government relationship

80% of the interviewees believe that digitization will positively affect the relationship between taxpayer and the government. Governments will always play their part for the taxpayer. But companies do not like being checked, feeling that the tax authorities are convinced they have something to hide. For that purpose, digital transparency of data is a plus. During conversations with the tax authorities, companies will feel differently, just because they have already transferred all their data electronically.  

Belief in its impact

Almost 80% of the respondents agree with the statement that digitization will have a substantial impact on the current tax assessment. In the long run, we are heading for a model without returns, with a transparent communication with the authorities and, therefore, a shorter lead time. In the current system, companies have weeks to implement adjustments in the ERP-system. In some countries, companies must send live data from this system, which does not leave any time to adjust certain items. That also means that all data needs to be correct, because it can be checked straightaway.

The importance of tax compliance

85% of the participants in the CFO Barometer confirm that digitization increases the value and importance of tax compliance. The authorities’ attitude is also a determining factor: if they tend to penalize severely, companies will behave differently than when they tend to look for solutions together with the companies. Value of data decreases, when nothing or not enough is done with it. It is the governments’ task to educate their own employees.

A decisive Europe can generate extra income

The more a country is susceptible to fraud, the greater the chance it’s missing out on income. Because of (un)conscious wrong collections or weak points in the system, Europe is missing out on €150bn of income. €50bn of that is a result of cross-border transactions. That is why Europe is looking for a final and uniform model, where people do their tax returns in the country where they pay tax. But because of its lack of decisiveness, Europe does not manage to take unanimous decisions. Confidence and good communication between the Member States remain crucial for the digital evolution.

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Summary

Results from the most recent CFO Barometer show growing awareness among companies about the importance and advantages of digitizing operating procedures. In the short term, digitization can be beneficial in areas such as finance, taxes and supply chain management. However, governments need to set an example. There are a huge number of interesting cases abroad but, in Belgium, the government seems to be lagging behind, notwithstanding a few promising initiatives. What lessons can be learned by the Belgian government from these examples set by governments abroad?

About this article

Authors

Matthias Penninck

EY Belgium Indirect Tax Executive Director

Background in VAT. Focus on electronic invoicing and archiving.

Michiel Ruys

EY Belgium Tax Associate Partner

15+ years of experience in European Indirect Tax (VAT). Specialized in Tax Technology and the automation and streamlining of Indirect Tax processes.