VAT Managers Need to Prepare For Audits and the Expansion of SAF-T Rules

Sovos
November 15, 2016

This blog was last updated on November 15, 2016

VAT Managers Need to Prepare For Audits and the Expansion of SAF-T Rules

So far companies have not been confronted often with an audit by the tax inspector – the average business gets an on-site visit for a VAT audit once in every 5-7 years. With the advent of SAF-T reporting and E-Audits for VAT, this will radically change.

According to data from the European Commission, the number of VAT registered businesses has grown exponentially. An increasing number of foreign companies have local inventory, or make substantial sales to individuals, registrations are required and returns need to be audited. More recently, the increase of self-employed individuals that require VAT registrations have put pressure on the tax authorities’ audit resources.

However even now, the frequency of tax audits has not decreased significantly. Inspectors have improved their audit efficiency, particularly over the last years, where statistical analyses, big data and cross-border mutual assistance have made the auditor’s life much easier.

Auditors used to be very selective in their tax audits, looking at particularly sensitive industries, at businesses with VAT returns that consistently claimed VAT refunds or simply at companies that made the headlines in the local newspapers. In the current audit environment, companies should expect that every VAT filing will receive some sort of scrutiny.

A well-known check is where the customer VAT identification numbers on the company’s EC sales list will be matched against the foreign tax offices’ tax payer data. Also, the detailed statistical analysis of a VAT return will identify sales or purchase numbers that differ from the company’s typical routine may raise questions. Benchmarks are used for specific industries, the size of the business, seasonal sales and a vast number of other performance indicators.

The European Commission has taken on an active role in improving the quality of VAT audits. They will put in minimum quality standard for audits, train auditors and create a platform to share VAT knowledge. They will even go as far as visiting the tax authorities’ offices, audit the auditors and come up with non-binding recommendations.

Next year, the Commission will announce further plans to improve the cooperation between the 28 EU tax authorities. Also, the Commission is actively involved in discussions with non-EU tax authorities, such as Switzerland, Norway and the United States, to further expand and automate the process of data sharing. Although the Commission’s main focus is on fighting organized crime and addressing VAT fraud, in the near future bona fide businesses that trade across borders should expect an increase in trade-related queries from their own tax inspector – or from tax inspectors abroad.

For non-resident companies that are selling online downloads to individuals in the EU, such scrutiny is already going on. We have seen that tax inspectors in EU countries send messages to non-EU online sellers, asking for trade data and inviting the companies to register for VAT and account for VAT on the sales made to EU individuals. With the new VAT rules for online sales to individuals within the EU, we expect that tax inspectors will start using their intra-EU assistance network to ask colleagues in other EU countries for data on online sellers as well.

With 2016’s year-end approaching rapidly, businesses should be extra sensitive for issues that may raise audit triggers. For example, now is the time to put in corrections in the input tax taken for goods and services that have been purchased in 2016 for personal use of employees, vendors and customers.

Even for sales that are typically zero-rated, like cross-border supplies of services to businesses and sales of goods, care should be taken that the correct values are reported and that eventual transfer pricing-related changes are reflected in the final VAT return. Similarly, for purchases where the reverse charge applies, now is the time to ensure that the reported reverse charge reconcile with the purchases and payments.

Some countries, such as Germany, used to allow a separate VAT filing to rehash at year-end all VAT corrections that were required. Now this separate filing is no longer available, but it would still be appropriate to use the last VAT return as a means to correct previous errors. It will be important, however, to list and disclose these corrections in an accompanying letter or message to the tax inspector, so that he can recognize the corrections and ask further questions where he feels necessary.

In 2017 we expect that tax authorities will dramatically expand the scope of the data that they require companies to submit. The so-called SAF-T (Standard Audit File for Tax) rules that have been introduced by Poland in 2016 will likely be mirrored by other countries. France, for example is working on their own template of tax data submission that may be rolled out further to a broad set of companies and industries in the course of 2017.

Large businesses should expect a further draw on their IT resources for addressing these strict requirements: the initial setup of the interface and collecting the data from the various resources in the company and subsequently the maintenance of the interface.

Even though the SAF-T rules are thought to be a simplification for the tax department, it should be expected that where authorities receive more data, more questions for explanations will be directed at the VAT manager

Take Action

Sign up for Email Updates

Stay up to date with the latest tax and compliance updates that may impact your business.

Author

Sovos

Sovos is a global provider of tax, compliance and trust solutions and services that enable businesses to navigate an increasingly regulated world with true confidence. Purpose-built for always-on compliance capabilities, our scalable IT-driven solutions meet the demands of an evolving and complex global regulatory landscape. Sovos’ cloud-based software platform provides an unparalleled level of integration with business applications and government compliance processes. More than 100,000 customers in 100+ countries – including half the Fortune 500 – trust Sovos for their compliance needs. Sovos annually processes more than three billion transactions across 19,000 global tax jurisdictions. Bolstered by a robust partner program more than 400 strong, Sovos brings to bear an unrivaled global network for companies across industries and geographies. Founded in 1979, Sovos has operations across the Americas and Europe, and is owned by Hg and TA Associates.
Share this post

Hungary Supplemental Insurance Premium Tax
EMEA IPT
July 11, 2022
Extra Profit Tax: An Introduction to Supplemental IPT in Hungary

This blog was last updated on October 28, 2024 Update 7 October 2024 by Edit Buliczka Hungarian Tax Office Updates IPT Declaration Form for 2023 The procedure necessary to correct an underdeclared premium figure in Hungary can be complicated. The complexity of a correction for return form 2320 has become even more challenging. Following a […]

2025 bond project
North America Tax Information Reporting
November 4, 2024
The Insurer’s Guide to the 2025 Bond Project

This blog was last updated on November 4, 2024 The regulatory landscape for insurance companies is undergoing significant changes with the Principles-Based Bond Project which is set to take effect on January 1, 2025. These changes, driven by the National Association of Insurance Commissioners (NAIC), will impact how insurance companies classify and value bond investments, […]

E-Invoicing Compliance EMEA VAT & Fiscal Reporting
November 1, 2024
New ViDA Proposal Set for ECOFIN Approval

This blog was last updated on November 1, 2024 The Council of the European Union has released a new proposal regarding the VAT in the Digital Age (ViDA) reform. The proposal aims to modernise and streamline VAT systems across the EU, notably e-invoicing and Continuous Transaction Controls (CTC). Members States will review it on 5 […]

what is peppol
E-Invoicing Compliance North America
October 29, 2024
What it is PEPPOL?

This blog was last updated on October 29, 2024 Peppol E-invoicing explained: What it is and how it works The global adoption of electronic invoicing is accelerating. Governments worldwide are pushing to adopt e-invoicing to digitally transform their national systems and, often, to close the VAT gap. While many countries have introduced their own e-invoicing […]

remote sellers sales tax
North America Sales & Use Tax
October 28, 2024
Will Congress Act to Simplify Remote Seller Sales Tax Collection

This blog was last updated on October 29, 2024 When the United States Supreme Court ruled in 2018, that South Dakota’s law imposing sales tax collection requirements on sellers without in-state physical presence was constitutional, it did not grant states free reign. States are still responsible for ensuring that their sales tax requirements are manageable, […]

dtc shipping laws for craft spirits
North America ShipCompliant
October 23, 2024
Why It’s Time to Reform DtC Shipping Laws for Craft Spirits

This blog was last updated on October 23, 2024 While wine lovers have enjoyed the convenience of direct-to-consumer (DtC) shipping for nearly two decades, the craft spirits market is still not afforded the same access. Outdated and restrictive spirits shipping laws have kept the spirits industry from fully leveraging the benefits of DtC shipping, leaving […]