The Most Critical Detail in VAT Compliance: UUIDs

Brian Elswick
December 26, 2017

UUIDs – or unique identifying codes – are what allow tax authorities to track every single taxpayer document and verify VAT payments and credits based on the original source documents. The specific code structure varies by country. In Mexico, for example, the UUID is a 32-character code formed from the numbers 0-9 and lowercase letters a-f. In all countries using UUIDs, though, the code is a complex set of digits prone to error when manually input.

UUIDs Link Every Single Transaction and Report

While several countries have UUIDs in place, including Chile (in the form of folios) and Brazil, Mexico’s ability to leverage and track these codes is currently the most sophisticated. The SAT, Mexico’s tax authority, assigns UUIDs when it validates electronic documents. Companies are then required to link these UUIDs in all related documents.

For example, polizas (journal entries), should have a UUID for every single payroll transaction – at the individual level – instead of having one single entry for payroll. This is a major change from how most businesses report payroll (nomina), which is usually done at the cost center level instead of the employee level – requiring new data and tracking methods. The same challenge holds true for travel and expense reporting as well. While an expense report is often a singly document in a company’s ERP, it must be linked to several UUIDs – for each meal, each taxi, etc.

The SAT then uses those UUIDs to cross-check all transactions – sales, purchases, credit and debit notes, payroll, travel and expenses, journal entries and VAT reports. Discrepancies can automatically trigger audits. With Mexico announcing its plans to move further toward eAudits, it is increasingly imperative that companies leave no room for UUID errors.

Zero Tolerance for Errors Necessitates Automation

Companies need to automate the compilation and linking of UUIDs in all reports. Manual entry is a recipe for an automatic audit, yet we’ve found that almost 25% of companies use this method to input the government issued UUID into their ERPs, resulting in a 7% error rate. Since all transactions are linked to VAT reports, that means a significant number of reports have audit-triggering errors.

Businesses in Mexico need to first automate the transmission of the UUID into their ERPs, and then into subsequent eAccounting reports. They must also ensure that their compliance process includes built-in matching and UUID validations to catch any missing links and errors before they are reported to the SAT and trigger an audit.

 

Take Action

See how Sovos has created just such an environment of automation and validation here, and contact us to learn how we can help your company with VAT compliance in Mexico.

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Author

Brian Elswick

Brian Elswick is the Marketing Programs Manager for Sales & Use Tax, Business-to-Government Reporting, and VAT.
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