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The increase in e-audits by tax administrations has gone hand in hand with the rise in the use of electronic invoicing and storage of data.
Lack of harmonization causes headaches for multinationals
Tax administrations differ in their demands for how VAT/GST data should be stored, archived and transmitted. Some require taxpayers to maintain special tax audit files (such as the SAF-T), while others request access to taxpayer’s ERP systems or use data submitted by taxpayers on a regular basis.
Many use a combination of these data sources. The differences between e-audit practices and data legislation in different countries make it hard for international companies to standardize data practices. Even in the EU, VAT laws are harmonized, with every Member State having its own rules.
Adopt data policies and formats
To prepare for e-audits, you should adopt policies and practices for storing, archiving and retrieving VAT/GST data. In many countries, the information requested by the tax auditors must be available at very short notice and in the format they require.
The standard audit file for tax (SAF-T) is the closest approach to a consistent way of managing tax audits.
The OECD project: The SAF-T was originally created by the OECD. It is intended to give tax authorities easy access to relevant data in an easily readable format, to allow more efficient and effective tax inspections.
A growing number of tax administrations around the world are implementing e-audits of a business’s financial records and systems. Countries are adopting tools that can interrogate these records on the basis that they must support the SAF-T methodology.
For example, Singapore is encouraging businesses to adopt the SAF-T standards. Portugal requires large companies to use SAF-T, and Brazil, notably, can require a business to hand over all its electronic financial records for scrutiny.
Adoption in the EU:SAF-T is currently used in Austria, France (on a voluntary basis), Luxembourg, Portugal and Singapore. Discussions on adopting SAF-T have taken place in Belgium, Croatia, Finland, Germany, Lithuania, Malta, Spain, the Slovak Republic, Slovenia and the UK.
Sweden and the Netherlands have their own e-audit file standards, and Germany has a mandatory electronic tax balance sheet.
The European Commission is looking to develop an EU SAF-T, along the lines of what is already in force or under development in certain Member States. It believes this would both facilitate ongoing compliance by taxpayers and allow tax administrations to carry out more effective tax audits.
A pilot project is currently under development in the specific context of the MOSS for telecommunications, broadcasting and electronic services, and further developments may be expected to follow.
As e-audits become increasingly common around the world, taxpayers cannot ignore the implications. They must be aware of their obligations and of the sorts of demands that tax administrations are likely to place on their systems.
VAT data generally consists of large amounts of accounting and management information spread throughout the ERP or IT system. Getting prepared for an e-audit is therefore vital to managing future VAT audits. Key questions include: Where is our data located? How can I get access? What does it contain?
These demands may also logically influence the introduction of data analytics tools for use by in-house VAT functions to allow businesses to manage VAT more effectively and to prepare themselves for future e-audits. Having the same knowledge as the tax administrations about these new audit weapons will certainly help businesses to be more compliant before inspections and therefore more relaxed about the audit process when the time comes!