We have been writing about the rapid emergence of ‘clearance’ systems worldwide for some time now. Our annual white paper and the 2017 Billentis market report provide more detailed analysis of different real-time controls that tax administrations are experimenting with. It’s happening everywhere, from Rome to Rio and from Seoul to Saint Petersburg. Some call it ‘e-invoicing’, others ‘reporting’ and some ‘validation’. What they have in common is the realisation that real-time controls can strike that long sought-after balance between maximising tax collection and minimising expensive and disruptive audits.
Real-time controls can benefit all economic actors – in theory
Businesses worldwide often prefer a smart real-time control that is simply built into a transaction or accounting engine. Such a solution is sought by all companies that are often pained in finding the optimum interpretation of an ambiguous legal requirement. This is because a law that leaves room for interpretation also leaves room for one’s competitors to find a more advantageous way to comply – or perhaps even a more advantageous way to cut corners at an acceptable risk. Real-time controls leave very little room for cutting corners and can level the playing field through reduced subjectivity, to the benefit of all economic actors. But that’s the theory. Out of the twenty-some countries that have chosen this type of system, we have yet to see one that strikes the perfect balance.
Diversity of real-time controls can undo benefits
Fragmentation, however, is an even bigger problem. You can see that tax administrations are getting inspiration from countries that have gone down this path earlier, but the diversity of real-time control regimes is mind-boggling. There is a real risk that we are collectively, businesses and governments, missing a once-in-a-lifetime opportunity to use this new approach to tax law in a way that solves the enforcement ‘transaction cost’ problem that is as old as taxes themselves. With hundreds of millions of Euros already sunk into real-time control systems, it’s probably too late to achieve any real standardisation in this area. But it may not be too late to avoid the worst: that a technology with great promise ends up being costlier to businesses than paper-based processes.
Good news: a global dialogue is planned
To avoid this from happening, we have worked within the International Chamber of Commerce (ICC), and through ICC with several public sector organisations active around tax topics (e.g. Intra-European Organisation of Tax Administrations (IOTA) and Inter-American Center of Tax Administrations (CIAT), towards setting up an informal dialogue between practitioners and policymakers from business and tax administrations. This informal dialogue will be kicked off after the summer this year. A good number of experts from both sides have already committed to participating. We’re hopeful that these organisations and experts will build useful bridges and perhaps lay a foundation for future steps towards more harmonised approaches among countries.
