Extensive VAT fraud exists globally in countries that introduced a VAT or GST system. The VAT-gap can be defined as the difference between the received and the theoretically calculated VAT-returns/GST returns.
The European Commission mentioned a potential loss of €164 billion in 2020 due to the coronavirus pandemic's effects on the economy. The VAT-gap has been of this material magnitude for years. As a result, the prevention of VAT fraud naturally is high on the priority list of the European Commission.
From the European Commission's action plan and '20 measures to tackle the VAT gap', we have selected a couple of actions that demonstrate the arrival of profound future changes. These will also influence the operation of the tax functions:
- Improvement of collaboration between EU and non-EU countries;
- Progress of the effectiveness of the tax authorities, including research into the possibility for automated data provision that enables the tax authorities to develop an automated mechanism to trace and connect individual transactions to signal fraud at an early stage;
- Development of a new way of data collection by collaborating between the EU countries;
- Improvement of collaboration between authorities and a joint procedure for detecting and handling fraud;
- The tax authorities introduced mandatory SAF-T and e-invoicing tax reporting requirements to combat VAT/GST fraud.
SAF-T and periodical and on-request tax data submission
The OECD developed the Standard Audit File for Tax Purposes (SAF-T). The objective was to produce a standardized format for the electronic exchange of accounting data from taxpayers to the tax authorities and external auditors.
Taxpayers should extract from their SAP invoices, payments, general ledger journals, and master files) into a standardized format. Because of that standardization, the tax authorities and external auditors should make their tax inspections and audits more efficient and effective when those submissions are received.
Austria, Czech Republic, France, Lithuania, Luxembourg, Norway, Poland, and Portugal have implemented mandatory SAF-T reporting requirements.
Every country has its local requirements and interpretation. Thus, there is no coordination or standard approach (yet). In practice, this results in potential differences in local requirements. In most countries, the SAF-T data only has to be provided to the tax authorities when they announce a tax audit. Portugal, Poland, and Lithuania, however, also have an additional monthly SAF-T for VAT specifically. In this SAF-T, the taxpayer must submit the VAT data to the tax authorities. The tax authorities can, for instance, compare the numbers with the filed VAT return.
In Poland, the SAF-T file has recently become the VAT return.
The existing VAT return process is digitalized and submitted to HMRC without human intervention via certified bridging software in the UK.
Norway has announced changes regarding VAT returns that should come into force starting in January 2022. The main objective is to submit VAT returns from ERP systems. The VAT return will be based on SAF-T coding.
Romania has announced the introduction of SAF-T reporting requirements in 2022.
The tax function and tax digitalization: 'what to do'
SAP add-ons for SAF-T reporting
KGT SAP add-ons for SAF-T, e-invoicing and MTD UK for VAT work as a standalone application within the SAP system and does not change existing customer SAP functionality or processes. It is fully configurable with custom namespace /KGT.
KGT partnered up with SAP regarding 'SAP Advanced Compliance Reporting for SAP HANA'. The 'Advanced Compliance Reporting' (ACR) service enables you to configure, generate, analyze, and electronically submit statutory reports that contain indirect taxes, such as value-added tax.
KGT provides also S/4 HANA transformation support.