The Dutch tax authorities announced on May 19, 2015 that 5,000 of its 30,000 employees will lose their current job, while at the same time 1,500 specialized data analysts will be hired as tax returns will be automatically assessed via data analysis. This is not exceptional as in various European countries taxpayers are already obliged to submit electronic audit files to the tax authorities. This trend will continue due to the availability of data analysis software and the increased focus on VAT compliance by tax administrations. It is also expected that tax authorities will request more and more data from the taxpayers.

Business Challenge

The OECD’s Committee on Fiscal Affairs (CFA) approved two notes for the development of guidance on business accounting system data requirements for tax audit purposes, and the associated practical implementation issues for software developers.

To support the development of this guidance the OECD has laid out the Standard Audit File for Tax Purposes (SAF-T). This guidance establishes the standard to be used for the exchange of tax data between companies and tax authorities.

The aims of the CFA guidance are to simplify tax compliance and audit requirements by clarifying the information required from business and accounting systems for tax reporting. As a result SAF-T is intended to give tax authorities easier access to the tax relevant company data (corporate income tax and VAT) in a consistent format leading to more efficient control and audit of tax regulations.

Every company with a SAF-T-requirement is now facing the challenge of finding an easy and reliable way to deliver the required data. Multinationals have the further challenge of providing a range of country-specific information in a controlled and efficient manner.

Also the European Commission is using the SAF-T standard. The Commission communicated to the European Parliament and the Council an Action Plan to strengthen the fight against tax fraud and tax evasion:

“31. Develop an EU Standard Audit File for Tax (SAF-T). The use of an EU standard audit file for tax (SAF-T), along the lines of what is already in force or under development in certain Member States, would both facilitate voluntary compliance from taxable persons and facilitate tax audits. A pilot project is currently under development in the specific context of the mini One Stop Shop for telecommunications, broadcasting and electronic services. Its further development should be envisaged”.

SAF-T: a worldwide trend?

Efficient use of technology lowers costs of data collection and compliance. As a result more and more tax administrations around the world are implementing electronic auditing of business’s financial records and systems as part of their compliance regime.

Recent developments of SAF-T include:

  • Singapore is encouraging businesses to adopt the SAF-T standards
  • Obligations already exist in Austria, Canada, France, Luxembourg and Portugal
  • Brazil can request a business to hand over all its electronic financial records for scrutiny
  • In Belgium, Croatia, Finland, Germany, Lithuania, Malta, Spain, Slovak Republic, Slovenia, and UK discussions about SAF-T are taking place
  • Sweden and Netherlands have their own 'e-audit file' standard
  • Germany also has the Electronic Tax Balance Sheet (EBS) which is comparable to SAF-T. The transmission of the Electronic Tax Balance Sheet is obligatory for all companies in Germany since fiscal year 2013. From January 1, 2014 it is mandatory to file all tax balances electronically
  • From 1 January 2016 registered businesses in the Czech Republic will be required to file a new VAT return which will have details of each taxable transaction made with other Czech registered business. The Slovak Republic and Hungary have also introduced similar VAT filing requirements in order to prevent VAT fraud

The reason for this trend is clear: e-filing considerably eases processing of VAT/GST returns for tax administrations and makes tax audits faster and more efficient.

In addition, e-filing of data, with a standard definition and format, enables tax administrations across the globe to use IT-based audit tools to support them in the on-going, and increasingly important, fight to combat fraud and tax evasion.

Certain countries already require the provision of all tax relevant data electronically but without clearly specifying what “tax relevant data” actually means. This puts the responsibility on an individual company’s interpretation of the requirements and increases their risk of over or under disclosure. OECD’s SAF-T standard could be used as a normative yardstick to define tax relevant data.

What Phenix Consulting has to offer

After many requests SAP developed a solution for the mandatory filing in Portugal. The feedback received is that this solution is not flexible enough to respond quickly to the introduction of new laws or to the issuance of additional reporting requirements. As a consequence considerable manpower and IT resources may be needed to both implement the changes and to run the tax submission process operationally.

In addition it is not possible to combine data from different sources - or even from different SAP systems (i.e. one legal entity running on multiple SAP systems for different business lines). To overcome these restrictions and comply with the SAF-T reporting requirements Phenix provides a lean and flexible solution which extracts the relevant data directly from the SAP systems and automatically transforms it into the XML format required.

With our solution a legal change can be implemented within a short period of time (e.g. one week including testing), has a low impact on in-house IT resources and reduces test cycles in the change management process substantially.

Our global solution is compliant with OECD's SAF-T standard and has the flexibility to process specific data requirements for individual countries. Data output is in XML format or in a database format and meets the individual country’s requirements. It also includes standard control reports in spreadsheet form to support validation of the final output.

Our SAF-T solution supports the filing of mandatory tax reports to the authorities in a timely manner. It protects a company’s confidential information by ensuring only the relevant data is provided.

Our solution also provides automatic detective controls to ensure the quality of data is maintained and allows management to review any potential tax risks prior to submission of the SAF-T report.