A cost efficient way to submit SAF-T files and perform risk management

To support the development of this guidance the OECD has laid out the Standard Audit File for Tax Purposes (SAF-T). This guidance establishes the standard to be used for the exchange of tax data between companies and tax authorities. 

The aims of the CFA guidance are to simplify tax compliance and audit requirements by clarifying the information required from business and accounting systems for tax reporting. As a result SAF-T is intended to give tax authorities easier access to the tax relevant company data (corporate income tax and VAT) in a consistent format leading to more efficient control and audit of tax regulations. 

Every company with a SAF-T-requirement is now facing the challenge of finding an easy and reliable way to deliver the required data. Multinationals have the further challenge of providing a range of country-specific information in a controlled and efficient manner. Efficient use of technology lowers costs of data collection and compliance. 

As a result more and more tax administrations around the world are implementing electronic auditing of business’s financial records and systems as part of their compliance regime. Countries might have their own specific local SAF-T requirements but in case the basic required data are covered in the OECD framework it could be managed with country specific variants. 

You can compare it with the EU VAT requirements: EU Directive as framework with some country specific rules based on the options in the EU Directive. Taxpayers will be obliged often to submit the SAF-T format:

• - on request in the case of a preliminary tax inquiry, a tax audit and tax proceedings;
• - monthly mandatory VAT SAF-T

The SAF-T VAT file should reconcile with the numbers of the VAT return to avoid a higher risk of a VAT audit. Often I hear that the on request is given a lower priority. Be aware that audit defence is an important building block for a sound tax strategy.

Although it is an 'on request' obligation it is important to run this requests regularly and archive. This data will be used by the tax authorities for a tax audit to check whether tax positions taken in the tax reporting and /or rulings closed (corporate income tax and VAT) actually reflect the data in the SAF-T files.

It is critical that your in-house tax department has sufficient time to assess the 'on request' data for any unacceptable tax risks. I recommend use this functionality in-house as a pre-audit prior to the law being in force.

A SAF-T SAP add-on solution developed together by 'Tax Assurance and certified SAP add-on specialists' is now available for Poland, Lithuania and Norway and is scalable. The SAP add-on is extendable to countries that uses the OECD framework as the basis for SAF-T reports.

Note that countries might have their own specific local requirements but in case the basic required data are covered in the OECD framework it could be managed with country specific variants. Certain countries such as France, Portugal, Austria, Luxembourg, etc. - have already SAF-T in force.

Richard H. Cornelisse, Tax Assurance specialist- access PowerPoint for further explanation

Business models that are changing

There is one common denominator that is too often missing from the strategic or planning elements of a business model change — indirect tax.

But do these taxes get the attention they need, especially in light of increasingly complicated and globalized business models? And although these tax considerations may not be among the issues that drive a financial transformation, tax can certainly give rise to some significant and costly challenges.

That is particularly true of value added tax (VAT), which hits a number of disparate points within the enterprise as diverse as finance, procurement, IT or HR. One of the most common side effects of an integration that cannot be fully realized surfaces in the realm of invoicing.

For example, large numbers of payable invoices are not correctly coded so VAT is not deducted (in time). Or when the legacy system is only half integrated into the new model, incorrect sales invoices are issued, causing problems for customers, incorrect reporting of tax figures, and missed compliance obligations.

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UAE implementing VAT in 2018

The United Arab Emirates (UAE) has proposed implementing Value Added Tax from 1 January 2018. A new tax office, the Federal Tax Authority, has been established by Federal Law 13 of 24 October 2016. This body will be responsible for the role out of VAT, and local laws on other taxes, too. It will manage the VAT registration and returns processes. Aside from launching the new consumption tax, the new Authority will co-ordinate VAT harmonization amongst the other Gulf states in the GCC single market. Source: UAE VAT 2018

According to surveys not many businesses have an adequate accounting systems to deal with VAT. Besides that lots of businesses lack the VAT knowledge of how a VAT works. Investments and training are needed to be ready in time.

To get VAT ready the following actions should be considered.

1. Assess the business impacts
2. Amend IT systems and business processes to the new situation forecasted and
3. Review existing contracts and set rules for new contracts

How to get VAT ready in time

IMF: VAT will generate $1bn for Omani government

The International Monetary Fund (IMF) is estimating $1 billion (OR 385 million) windfall for the Omani government from value added tax (VAT). The consumer tax, not conspicuously stated yet, will account for nearly 1.5 per cent of the gross domestic product though the amount can fluctuate depending on variables such as compliance rate and exemptions, the IMF said. Source: ArabianBusiness.com

According to surveys not many businesses have an adequate accounting systems to deal with VAT. Besides that lots of businesses lack the VAT knowledge of how a VAT works. Investments and training are needed to be ready in time.

To get VAT ready the following actions should be considered.

1. Assess the business impacts
2. Amend IT systems and business processes to the new situation forecasted and
3. Review existing contracts and set rules for new contracts

How to get VAT ready in time

VAT Fraud and personal liabilities

59 percent of respondents (53 percent in 2014) expect the personal liability of compliance officers to increase in 2015, with 15 percent expecting a significant increase. Compliance officers or its Executives at firms as diverse as Swinton Insurance, Bank Leumi, Bank of Tokyo-Mitsubishi, Brown Brothers Harriman and Deutsche Bank (DB: VAT fraud) having been fined, banned or jailed (or a combination).

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Innovation and tax audits

Tax authorities, due to technological innovations, have become increasingly better in executing their tax audit. The probability that the Tax Authorities will issue additional assessments and penalties in the near future because errors in indirect tax are detected, increases by the day.

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.

Mandatory data filing gives food for thought. Looking to the future 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.

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Council VAT rules on cross-border transactions improvements

On 8th November 2016, the Council adopted conclusions on improvements to VAT rules for cross-border transactions. The conclusions come in response to certain issues raised when a Commission action plan on VAT was discussed by the Council. The conclusions relate in particular to:

• the VAT identification number as an additional condition for application of an exemption in respect of an intra-EU supply
• in order to better tackle VAT fraud, improving the quality and reliability of data used in the EU's VAT information exchange system
• determining the VAT treatment of the transaction chain, including 'triangular transactions' (where goods are shipped from a member state other than that of the supplier and the customer)
• simplifying rules for call-off stock (where goods are sent to a customer's storage facility in another member state)
• work concerning the exemption from VAT of intra-EU supplies

The Commission is asked to present legislative proposals and conduct studies, as appropriate.

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Taxation Trends in the European Union 2016

This report contains a detailed statistical and economic analysis of the tax systems of the 28 Member States of the European Union, plus Iceland and Norway which are members of the European Economic Area.

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Approaches and models

A Tax Strategy should cover all taxes and all key business locations and should be aligned to the overall business strategy. A tax strategy document should also include guidelines as to acceptable planning, which is then further detailed in a Tax Planning Policy.

Features to be considered may include likelihood of tax authority challenge and litigation, likelihood of adverse press coverage and likely impact on tax authority risk rating.

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What is considered tax avoidance

Tax avoidance is an attempt to exploit legislation to gain a tax advantage that was never intended. This often involves artificial transactions that serve little or no purpose other than to produce a tax advantage.

But tax avoidance is not the same as tax planning, which involves applying tax legislation in the way it was intended - for example saving in an ISA (Individual Savings Account) where you don't pay tax on the interest.

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When expertise is needed upfront

The tax function should ascertain proper implementation and determine the impact of changes in businesses, laws and regulations on implemented tax planning.

Getting ahead of possible problems at the planning stage before they arise in practice is one critical way to make sure that the company reaps the benefits. When the business model changed as a result of the implementation of a centralized procurement model, this could create not only VAT risks, but commercial risks as well.

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