When we hear about pioneers, the vision that springs to mind (at least for those of us who used to read K. May, J. F. Cooper, J. London or A. Szklarski as a child) is the vision of North America. We can't help but go back to Westerns and novels of those authors.
And quite possibly, the myth of Wild West, with its explorers and conquerors, would never have been able to settle in public consciousness if it wasn't for the Homestead Act of 1862. The law that triggered a massive wave of American expansion, which moved steadily westward and actually paved a way for the growth of the United States.
And clearly, this is only one of countless examples of legislation being a spark for cutting-edge changes. Nowadays, progress no longer means the use of stagecoaches and the journey to Promised Land happens in cyberspace (with the obvious exception of unsettled places such as recent Syria). Yet, more and more developed and developing countries are still taking advantage of the potential that lays in new technologies and their actions inspire others to do likewise.
The document which set in motion the work of contemporary pioneers, in this instance from the tax industry, was the 'Guidance for the SAF-T' – the set of guidelines developed in 2005 by the OECD – the godfather of the modern approach to tax supervision. It was then that the tax authorities were handed an up-to-date weapon worthy of fighting dishonest taxpayers which in its efficiency may be compared to revolution brought to the Wild West by the Colt revolver or the book-famous Henry rifle.
The solution is genius in its simplicity – all information relevant to tax supervision have to be contained in one file. Starting with VAT invoices, through accounting books, ending with sales and purchase registers. Suddenly companies realized, they would have to reveal a considerable quantity of tax information to tax authorities. Moreover, reporting form imposed by SAF-T is vastly different from the one to which entrepreneurs were used to. Generating account records in Excel or PDF would no longer be sufficient. Tax authorities in countries which implemented SAF-T require reports in the XML format which quite often are is impossible to generate the file without dedicated software. Additionally, a strict, pre-set data format often proves to be quite a challenge to both the accounting and IT departments.
But let's start from the very beginning. Where did journey of digital tax supervision pioneers, which by now has spread all across Europe, begin?
Contrary to American pioneers' movement, SAF-T's travel originated in the West from where it headed towards the East. Portugal was the first country to notice the opportunities arising from the solution proposed by the OECD. Since 2008 all taxpayers of corporate income tax are obliged to submit the SAF‑T file. This means that, as an example, all big chain stores are obliged to provide, with no need for a special request, the tax authorities with monthly reports in XML format containing information about clients, payments or suppliers.
Austria implemented SAF-T a year after Portugal. However, that was enough for this country to opt for a different model from the Portuguese one. The main difference being that the files are sent by entrepreneurs only on tax authorities' explicit demand. On the one hand, this means that companies are not burdened with generating files required by tax administration regularly. On the other hand, they never know when the request for those files may come. Tax authorities are the ones to determine which data should be presented in each specific case.
Portugal decided to concentrate on close to real-time data control. It makes SAF-T similar to a new type of tax return which may be used to identify audit targets. On the contrary, Austria chose a model in which SAF-T is just a new format of data submission during tax audit. It doesn't influence initial assessment of compliance but can make data analysis easier. In a short period of time Europe saw the emergence of two different approaches to SAF-T. Which of them would be more popular? Which countries would model (consciously or not) Portugal and which Austria? Turns out, we had to wait a little to hear the answer.
SAF-T's conquest of Europe stopped for a few years just to re-emerge in France (a hub of revolutions since XVIII century) under the name FEC, implemented in 2014. FEC shows that Portugal's SAF-T model was perceived superior by France. Under this model taxpayers are obliged to generate required files without explicit request. In contrast to residents of Magellan's homeland, companies registered in France or having branches there are obliged to submit data required by FEC to tax administration only once a year. We can only suspect how big the file send to tax departments by biggest French hypermarkets may be given just one unit can handle anywhere between 5 to 30 thousand of clients daily.
From France SAF-T moved over to neighbouring Luxemburg. And once again countries which implemented the system within one year from one another settled for different solutions. Luxemburg, which is traditionally being chosen by companies as a place to register headquarters because of its favourable tax policy chose in favour of the Austrian model – sending files on demand. Taxpayers there have 15 days to generate file. Small businesses, taxpayers benefiting from a simplified VAT regime and taxpayers who are exempt from Standard Chart of Accounts obligation are excluded from this obligation. However, Luxemburg plans to extend SAF-T to all entities subject to VAT taxation.
In 2016 SAF-T reached first Central-Eastern European countries – Poland and Lithuania (and by doing so, it has breached the historic economic frontier on the Łaba River). In those countries SAF-T finally received local modifications, diverging from standards proposed by the OECD, for instance with regards to the scope of required information.
Polish equivalent of SAF-T consists of 7 files (sic!). However, entrepreneurs are only obliged to regular submissions of the JPK_VAT structure. The remaining six structures are prepared on demand of tax authorities. During the audit Polish tax authorities may demand particular files such as bank account statements or warehouse movements in the XML format. The range of required data is therefore quite untypical, especially considering that SAF-T was implemented to make tax audit more efficient.
Lithuanian i.MAS, similar to Polish SAF-T, consists of seven subsystems (coincidence? Or perhaps a consequence of Polish-Lithuanian Commonwealth). One of them – i.SAF-T is based directly on the OECD standard. In addition, Lithuanian tax authorities created an i.SAF subsystem, through which invoice data will be submitted and i.APS – an accounting system for small companies. Obligation to share data by SAF-T structure depends on reaching a certain threshold of net sales. Its precise amount however, is shrinking each year. From 7mln Euro in 2016 (report duty actualizes on 1 January 2018) to 45 000 Euro in 2017 (report duty actualizes in 2020). This in turn means a growing number of entities obliged to use i.MAS from year to year.
In case of retail companies, the most significant i.MAS subsystem may be the i.EKA module which requires regular submissions of cash registers data. The more complex the entity, the more data it has to generate. This means that big store chains are or may soon be obliged to supply information detailing operations from each of their cash registers.
In 2016 an alternative for SAF-T emerged in a form of detailed VAT reporting. Czech Republic was the first country to show interest in it ("Czech New Wave") by implementing the VAT Control Statement. This system aims to emphasize VAT invoice tracking. VAT taxpayers with turnover below 10 000 CZK are allowed to submit to tax authorities only the following data: VAT numbers of buyer and seller, base amount and VAT amount. Companies with higher turnover however, may be asked for more detailed information. Data are sent to tax authorities in electronic format monthly or quarterly with no need of an explicit request.
The Czech SAF-T alternative focused mainly on detailed VAT reporting became a trend in 2017. Hungary in turn, implemented a system which electronically shares data from invoices in real-time. All invoices exceeding 100 000 HUF (320 EUR) have to be registered in this manner. What's particularly important, is that the obligation also applies to companies which are only registered in Hungary as VAT taxpayers.
Going back to Southern Europe, we shouldn't forget Italy (after all – all roads lead to Rome) which in 2017 introduced electronic VAT reports in which all kinds of information have to be submitted. Those quarterly report comprise of the following data: client's data, date and number of invoice, tax base, tax rate, total tax value and the transaction type. Italy and Hungary have one more thing in common, namely in both of these countries failing to fulfil the obligation may result in fine.
In 2017 Spain also decided to adopt SAF-T and connect its capabilities with solutions typical for detailed VAT reporting. First of all, Spanish tax authorities put more emphasis on the real-time control. It manifested mainly through the way invoices are submitted. All invoices have to be reported within 8 days from the issue date and Spain aims to ultimately reduce this time to 4 days.
This kind of real-time invoice registration will require good organization. Moreover, in some cases implementation of dedicated software will be needed. Otherwise identification of the appropriate data on invoices and reporting it to tax authorities may be impossible.
More and more countries are walking the path marked out by pioneers of digital tax audit with the ultimate goal of boosting the financial transparency of companies. Norway should be the next in line – implementing the SAF-T in 2018 for companies with turnover above 5mln NOK.
SAF-T is the harbinger of change in the approach to audit and tax as a whole. Entrepreneurs just as first American settlers have to face new challenges. Even though they may not be in danger of grizzly bear's fangs any more the consequences of not adapting to the new circumstances may be dire. Not delivering required files on time may result in tax audit, sanctions, reputation damage and in extreme cases – falling out of market. It is therefore, another tax topic to take into consideration and eventually implement into a daily routine.