Tax authorities peeking at your data

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.

Portugal has implemented this guidance per January 1, 2013. On monthly basis, companies are obliged to submit the SAF-T (PT) reports for sales invoices to the tax authorities. Besides the SAF-T (PT) requirement there is also a Portuguese requirement to implement a digital signature for all sales invoices.

From a risk management perspective mandatory data filing should give food for thought. 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.

The more efficient use of technology lowers costs of collection and compliance. More and more tax administrations around the world are implementing electronic auditing of a business’s financial records and systems.

What if there are glitches in your data, input errors, empty fields, awkward descriptions in fields or apparent inconsistencies?

A checklist re submitting data to the tax authorities:

• Have you analyzed the data and performed a tax risk assessment?
• What are the tax authorities doing with this data: perform data analysis?
• Does not meeting the requirement result in a higher risk of a tax audit?
• What are the KPIs of the tax authorities?
• If not impacting the present does the company show a audit trail that can be retroactively be investigated and backfire to tax position taken (ammunition for contra arguments, increase of penalties)
• If the data provided does not meet the required data format could this result in a higher risk of a tax audit?
• To avoid unforeseen risks or mitigate this risk is it not necessary to perform a data analysis prior to submitting data, as an internal pre-audit?

Written by Richard Cornelisse, one of the articles published on Global Indirect Tax Management