Touching down in Europe
With the current technological developments in the tax landscape, let’s not forget one of the starting points of the chain of technicalities. Initially agreed upon by all 38 OECD members of the Organisation for Economic Co-operation and Development (OECD), Standard Audit File for Tax (SAF-T) was one of the first tech-standard breakings into the European market. Finding its landing waters in Portugal, it spread through Europe with Poland mandating monthly online VAT-filing following SAF-T protocol as a recent example. SAF-T was designed around commonly held business data, converting it to a statement of best practice in obtaining tax data for use in a computer-assisted audit. Its main purpose is to allow tax administrations to get access to billing and logistic data, timely diagnose non-compliant tax behaviors (outliers) and, as a consequence, speed up the inspection process. The implementation on national level is the responsibility of individual member countries, leaving room for the local tax authorities to add individual elements. Following the implementation of SAF-T, the OECD produced a very detailed guidance note, describing what data needs to be in the file structure.
To show that SAF-T is not just a coincidence, Europe is getting more and more into the technological side. As said, SAF-T landed in Portugal and since then it has been adopted by Austria, France, Luxembourg, Portugal, Norway, Poland, Lithuania, while it is still being discussed in Belgium, Croatia, Finland, Germany, Malta, Spain, Slovakia, Slovenia and the UK.
Besides SAF-T, there are also countries experimenting on their own. The Netherlands have their own e-audit file standard, ‘XML Auditfile Financieel’, Sweden is working on its own ‘Svefaktura’ and Germany has its own mandatory electronic tax balance sheet. This all being said, the case of Brazil has not even been mentioned with their state-of-the-art SPED software, discussed in ‘Tax administrations raise the playing field with technological solutions’.
The trend can be easily linked to the fact that e-filing can help speed up the processes of VAT/GST returns and increase efficiency in the tax authorities.
Challenges of SAF-T implementation
Systems in which accounting and tax records are maintained are usually complex and diverse. Consequently, the data comes in different formats which ideally requires a mapping mechanism of entries and outputs, then, a conversion into a standard format to finally extract and align the bookkeeping information.
Companies can collect data that has to be converted into the SAF-T file from different heterogeneous sources, such as, relational databases, enterprise resource planning (ERP) systems, flat files, spreadsheets, but generating a single report with all the database in a standard format may not be an easy task, especially when facing with country specific standards. While the SAF-T file has been set in XML-format, data formats and extraction should be tailor-made on an individual country basis, based on local tax regulations. ERP systems should then be able to convert the data, to map the requirements of the SAF-T, to give the necessary data elements and, thus, facilitate a cross-checking analysis.
For the taxpayer, this potentially adds more reporting requirements and costs in software adaption. Moreover, if the extraction and alignment of data is done manually, the chance of mistakes will increase the taxpayer tax exposure significantly. However, as an outcome, it can help improve billing and logistics management, while anticipating potential reconciliation of outliers.
For tax administrations, a standard tech-metalanguage, in line with the OECD recommendation, can help realise more targeted audits and improve electronic audit techniques. Countries that have already adopted SAF-T have enforced its benefits; others, in process of adopting it, such as Belgium and Norway, have stated that this new way of collecting accounting data means more efficient audits and shorter case-handling times as a consequence of automation, instead of manual processes.
Besides harmonizing the systems of taxpayers and tax administrations, all these digitalization trends have shown a common pattern: having full-control is key.