The trend of real-time data collection as a tax control mechanism by tax authorities across the world is not much of a surprise now, quite the contrary. One by one and at increasing speed, governments are rolling out local adaptions of Continuous Transaction Controls regimes, more commonly referred to as CTCs. However, new trends are emerging among tax authorities, trends that go beyond the collection of fiscal data in real-time and instead touch upon real-time access to taxpayers’ accounting data and ultimately the use of this data to assess the tax compliance risk.
Real-time data collection presents many opportunities for a tax authority. For example, it can provide a reliable overview of business level transactions in the country, enabling the state to transform financial data into actionable insights. Real-time data can also allow a tax authority to flag individual taxpayer tax risks early so they can be addressed before an audit or dispute arises.
Russia is leading the way
Russia is a good example of a country that is leading the way, building a tool for making risk assessments regarding the compliance of taxpayers. The Russian system was initially called Integrated Risk Management System and later renamed Cooperative Compliance System (CCS). Through the CCS, the tax authority can assess the probability of noncompliance of the individual taxpayer and once risks are detected, the system generates a warning that is visible to both tax officials and the taxpayer.
How does the Russian system work?
At its current stage, only the largest and most digitally advanced taxpayers volunteering to use this system can be a part of the CCS. Taxpayers are motivated to join with advantages such as being exempt from desk and field audits, making a decision that is socially responsible and the ability to move from paper to digital in their financial processes.
The CCS allows the Federal Tax Authority (FTS) direct access to the accounting data of the taxpayer. Using AI technology, a given taxpayer’s operations are assessed and its non-compliance risk is calculated. If a risk is detected and a warning is triggered by the system, the tax authority and the taxpayer can communicate and act before any disputes arise.
What can be expected in the future?
The Russian CCS system is a clear indication of what many of the world’s existing and future CTC regimes are likely to mature into, namely systems that enable tax authorities around the globe to interact and collaborate with taxpayers while taking advantage of modern technology.
Even if it takes time to implement technological advancements, tax administrations seem determined to find new and effective ways of performing tax controls while reducing the burden of tax compliance on businesses through collaboration. Russia’s CCS system is still fairly new and therefore it is not easy to estimate how likely it is to be adopted by other countries, however, given the advantages it wouldn’t come as a surprise if we see similar developments in other countries in the years to come.
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