Tax administrations worldwide are increasingly relying on digital technologies for data gathering, exchange of information and analytics. Digital systems that are already in place can even provide real-time tax collections, re-conciliations and assessments. Furthermore, data exchange among tax authorities is becoming an automated process that can provide tax authorities a holistic view of multinationals to help conduct audits and investigations, creating a ‘Big Brother’ world.
The use of big data, blockchain, robotics and business intelligence are not futuristic ideas from the epical ‘Star Wars’ or ‘Matrix’ films, but, instead, are what is happening right now. Several revenue services are precursors of an automated and intelligent administration. They are already developing and using tools that can, for example, link taxpayer’s data held internally with information from external sources, such as media reports and financial transactions in order to develop a broader taxpayer ‘X-Ray’ picture.
Imagine a scenario where a high-tech solution can achieve the workload of over 350 tax inspectors that usually take a year in only three months? In Hungary, an increase of 10-23% of VAT revenue in certain sectors has been experienced, with the use of online cash registers and time series analysis of turnover and technical data implemented by the National Tax and Customs Administration (NTCA). The automation is a trend that is already showing results, and no one wants to lose any more revenue. The game is simple, using high-tech tools to excel real-time tax compliance and collection.
Another leading example is the Australian Taxation Office (ATO) that introduced the “Smarter Data Program”. The aim is to use data analytics to improve decisions, services and compliance. Similarly, the Irish revenue authority is relying on data analytics and risk assessment to identify and cross-check non-compliant behaviours. The focus is on maximizing the use of data and deploying analytics to identify the incidence, scale and materiality of non-compliance and to target resources effectively to overcome those risks.
Additionally, Japan’s National Tax Agency maintains its own electronic information system, called the KSK system (“Kokuzei Sogo Kanri”), that links all Regional Taxation Bureaus and Tax Offices and centralizes more than 300 million information returns each year. The KSK system also systematically combines the data, which enables central management of national tax claims and liabilities. Moreover, the system allows information to be extracted by way of directed queries and shared with other jurisdictions. The Director of the International Operations Division of Japan’s Tax authority reports that great a part of the requests from foreign jurisdictions have been responded by providing information maintained in the KSK system.
Brazil's Federal Revenue (RFB) has introduced a digital system since 2007 that collects data for accounting, e-invoicing and tax records. All levels of taxation in Brazil (federal, state and municipal administrations) are integrated in the Public Digital Bookkeeping (SPED) system and tax administrations can access and cross-check real-time data. It unifies reception, validation, storage, authentication of electronic documents and keep a trail record of any modifications made during the filing process.
The standard file “xlm” firstly introduced by the Brazilian SPED system inspired the “SAF-T” (Standard Audit File for Tax) implemented by the Portuguese Tax Administration in Europe and spread to various EU member countries later.
The aim of the Brazilian SPED is to move towards ‘natural systems’ models that integrate tax compliance into natural business processes and real-time transactions. The system is comprised of three major sub-projects, divided into 12 modules.
(1) Digital Tax Bookkeeping - EFD
The EFD is an electronic file comprised by a set of tax bookkeeping documents, such as Value-Added Tax and Excise Tax (EFD ICMS IPI), Payroll (eSocial and Reinf), Social Contributions (EFD Contribuições), Transfer Pricing, CBCR and Corporate Taxes (ECF) returns and documentation, according to a pre-defined layout (.xml or .xbrl schema).
The files must be digitally signed by the Company’s legal representatives and be submitted to the SPED environment, whose functioning procedures are demonstrated below:
(2) Digital Accounting Bookkeeping - ECD
The ECD is an electronic file comprised by accounting bookkeeping documents, such as general ledgers and sub-ledgers, journal register and supporting records, and daily trial balances and balance sheets. The aim of the digital file is to provide tax administrations with a full-disclosure of financial statements and accounting records, even including filing of bill of materials (so called, “Block K”). Taxpayers must generate a single file from its accounting systems, according to a pre-defined layout.
This file must be digitally signed by the Company’s legal representatives and be submitted to the SPED environment, whose functioning procedures are demonstrated below:
(3) Electronic Invoices (NF-e, NFS-e and CT-e)
The E-invoicing is an electronic filing for invoicing sales/purchase of products, services and bill of lading documentation and controls. An electronic file containing the tax information of commercial operations must be digitally signed. This Electronic invoicing system is filed online on the SPED environment. The RFB pre-validates the file and gives a receiving protocol (Use Authorization). It means that goods can not be transported or delivered without this preliminary authorization protocol, in other words, non-compliance with the filing can stop companies’ core operations.
The NF-e is also filed to the Federal Revenue of Brazil – considered the national database of all NF-e’s (National Environment) filed. The RFB’s system (National Environment) allow the information checking on the internet for those who hold the key access to the electronic document, as follows:
The experience of the SPED system has shown a clear disruptive movement from the end of the old models of tax returns to a new paradigm of real-time data analytics. The idea of reinventing tax compliance to a real-time analysis has been spanned to numerous initiatives around the world, such as International Compliance Assurance Programme (ICAP), “Intelligent Tax” Innovation Laboratory in China etc.
Tax administrations are stepping up their game with massive digitalization, being able to collect cash faster through electronic systems, automation and data analytics. Taken this into consideration, companies should adapt quickly to get an equal path, not only to mitigate their tax positions, but more importantly, to efficiently control their global business to be ready to make real-time decisions when necessary.