2.3.5 Tax and accounting records

Most of the aforementioned objectives aim to ensure the security and confidentiality of the information. However, the barriers highlight that a variety of controls are required or are considered appropriate to achieve those objectives. Therefore, to continue to meet the common objectives through this variety of controls suggests that greater alignment of those controls at the EU-level is needed. Given the high sensitivity of the data and the fact that its protection requires particular safeguards against even state intervention (i.e. even in criminal investigations lawyers’ records may not be seized without applying a specific protection procedure such as under the Bulgarian Bar Act, Bulgarian Professional Ethics Code of Lawyers, and Czech Advocacy Act as listed above), the evidence from interview reports indicates that an approach that relies on whitelisted specialized service providers may be advisable, since authorities may otherwise struggle to recognize protected information.

2.3.5 Tax and accounting records

Overview and subtypes of data

In section 2.2.2. above, we examined barriers that applied to a specific category of financial data, namely data which is subject to supervision by national regulators. However, other types of financial information may also be subject to regulatory barriers. We therefore asked correspondents to report specifically on:

 Tax records, such as relevant information for personal or corporate tax declarations.  Accounting documents such as invoices. It should be noted that EU level rules exist with respect to electronic invoicing and the storage of electronic invoices, specifically through the

Sixth VAT Directive10. The latter permits electronic invoices and also allows invoices to be stored outside of national borders, provided that the invoices are immediately accessible to tax authorities. Thus, the EU legal framework as such inherently demonstrates a potential barrier (the requirement for data to be accessible to auditing authorities) and immediately provides the solution (a neutral requirement to ensure its accessibility via electronic means).

The following types of data were more specifically reported upon:

10 Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax, see http://eurlex.europa.eu/legal-content/EN/ALL/?uri=CELEX:32006L0112.

Figure 14 – Types of barrier observed (Tax and accounting records)

Country Source

Austria Bundesgesetz über allgemeine Bestimmungen und das Verfahren für die von den Abgabenbehörden des Bundes, der Länder und Gemeinden verwalteten Abgaben (Bundesabgabenordnung - BAO), original version: BGBl. Nr. 194/1961, latest amendment: BGBl. I Nr. 163/2015 (Federal Act on the General Principles and Procedures for the Regulation of Taxation as administrated by the Federal Government, the State Governments and the Municipalities (Regulation of Taxation Code, BAO). Bundesgesetz über besondere zivilrechtliche Vorschriften für Unternehmen (Unternehmensgesetzbuch - UGB), Austrian Commercial Code, original version: dRGBl. S 219/1897, latest amendment: BGBl. I Nr. 163/2015. Belgium Income Tax Code 1992 (Code des impôts sur les revenus 1992, aka CIR 92) and subsequent amendments, Article 315.

Bulgaria Закон за счетоводството (обн. - ДВ, бр. 95 от 08.12.2015 г., в сила от 01.01.2016 г.),

Restriction imposed on providers / users / data

All companies that have to keep books

Direct or indirect Summary of obligation / restriction

Indirect According to Article 131 BAO, the act on federal taxes and duties, financial recordings may be kept abroad. However, upon request of the authorities, they have to be brought to the national territory in a reasonable period of time. According to Article 216 of the Austrian Commercial Code (UGB), books may also be kept in electronic format. However, whoever is responsible for keeping the books has to ensure that the data is readable and – if necessary to make available a number of records that are readable without support tools.

All taxpayers

Indirect The final paragraph of Art.315 of the Income Tax Code states that all tax payers are required to present tax authorities, at their request, and without transportation11, with any books and evidentiary documents needed to establish the amount of taxable income. Note that this is a separate requirement from invoice storage rules, which state (in accordance with EU law) that they can be stored anywhere in the EU, conditional on their accessibility to tax authorities. The rule of Art. 315 is broader, relating not just to invoices but to any books and evidentiary documents needed to establish the amount of taxable income. Enterprises and taxable Indirect Under the Accounting Act invoices and other accounting information shall be stored on paper and/or technical medium within the respective entity12 for a

11 In this context, “without transportation” refers to the fact that the tax payer may not be obliged to physically bring the relevant documents to the tax authorities’ offices; the tax inspectors may invite the tax payer to present documentation in person, but the tax payer may decline, in which case the tax inspectors must go to the tax payer’s establishment. See http://lib.ugent.be/fulltxt/RUG01/002/164/464/RUG01-002164464_2014_0001_AC.pdf 12 According to the Bulgarian authorities, 'in the enterprise' is interpreted by tax authorities as physical location for accounting information on paper and electronic access for digital accounting information. But being an interpretation, it could contribute to legal uncertainty.

Accounting Act (promulgated on 08 December 2015, in force as of 01 January 2016); Закон за данък върху добавената стойност (обн., ДВ, бр. 63 от 4.08.2006 г., в сила от датата на влизане в сила на Договора за присъединяване на Република България към Европейския съюз, изм. и доп., бр. 95 от 08.12.2015 г., в сила от 01.01.2016 г.), Value Added Tax Act (promulgated on 04 August 2006, last amendments in force as of 01 January 2016). Данъчно-осигурителен процесуален кодекс (обн., ДВ, бр. 105 от 29.12.2005 г., в сила от 01.01.2006 г.; изм., бр. 13 от 16.02.2016 г., в сила от 15.04.2016 г.), Tax and Social Insurance Procedure Code (promulgated on 29 December 2005, last amendments in force as of 15 April 2016) persons

Germany Handelsgesetzbuch (The German Commercial Code), § 257 III . (Law / federal legislation)

Germany Abgabenordnung (Procedural rules for accounting and records), § 146 AO and § 147 (federal legislation) All merchants on which the HGB (trade law) applies. All companies subject to trade law (which is the vast majority).

All natural and legal persons obliged to keep tax records. specified period of time for the different types of accounting documents or in private third party archives. This includes electronic invoices and accounting registers held electronically (different types of software products). Under the Value Added Tax Act (VATA) taxable persons must guarantee the integrity and authenticity of electronic invoices for the whole legally required period. When electronic invoices are stored by electronic means, taxable persons are required to provide electronic (online) access to invoices stored by electronic means. Such access shall be provided to the competent authorities when the taxable person has establishment on the state’s territory, as well as when the person is not established on the state’s territory, but the tax has to be charged in Bulgaria; and to the competent authorities of the Member State in which the tax is chargeable - when the person has establishment on the state’s territory, but the tax is chargeable in another Member State.

Indirect The company records listed in sub-paragraph 1 of this provision can be kept electronically on video or data medium (such as a CD-ROM or a hard drive), with the exceptions of opening balances and annual balance sheets, if this is in line with standards of good bookkeeping and authenticity and availability of the electronically stored documents are ensured.

Direct § 146 AO provides for an obligation to keep the records required for tax declaration within Germany, with the exception of companies active in foreign countries and complying to local tax law on records. Tax records can be kept electronically outside of Germany if the tax authority gives permission on application by the subject. The permission can (not: has to) be given, if the subject provides the authority with the location of the data centre and access to the data in accordance with § 147 VI AO remains fully possible (§ 147 VI AO grants tax authorities full access to the data for control purposes). According to § 147 II AO certain records may not be kept electronically (e.g. annual balance of accounts).

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Ireland Notice from the Revenue Commissioners published in Iris Oifigiuil (Official Journal), 27 January 2012, drawn up in exercise of powers conferred on them by s.887 of the Taxes Consolidation Act 1997 (substituted by s.232 of the Finance Act 2001). (Regulatory Regulated Act) Companies Indirect Subject to the time limits governing the keeping of records, “records must be accessible to inspection by a Revenue official at all reasonable times”. All electronically stored records must be accessible to a Revenue official in paper or electronic form. The method of delivery and the format of the electronic record required by the Revenue official shall be specified by the Revenue official at the time the records are being requested.13 Where new computer systems or applications are introduced the person to whom the records relate must ensure that the old systems and/or applications are maintained for such period as ensures that the records are retained for the minimum period required by the Acts unless specific approval has been obtained from Revenue to discontinue support for the old systems and/or applications. While Revenue do not mandate how or where records should be stored and there is no requirement that the records be stored in the State, this requirement may (indirectly) impact the choice of a new storage system.

Sweden Bokföringslag (1999:1078), Swedish Bookkeeping Act , Chapter 7 sections 2 - 4. All companies and organisations that fall within the Swedish Bookkeeping Act (all companies registered in Sweden) Direct The main principle is that bookkeeping data should be kept locally in Sweden, even if stored electronically. Chapter 7 section 3a allows, however, for an exception in case of storage in another EU Member State. According to the section a company may store data electronically or keep computer equipment and systems accessible in another EU Member State if: the company has informed the Swedish Tax Agency (Skatteverket) or – when it comes to financial companies – the Swedish Financial Supervisory Authority (Finansinspektionen); the company upon request by the Swedish Tax Agency (Skatteverket) or the Swedish Customs (Tullverket) gives immediate electronic access to the bookkeeping data for control purposes; and the company can immediately print out relevant bookkeeping data in a readable format.

13 It should be noted that it is the position of the Irish governmental authorities that the records held must be made available by the person who holds the records following a request by an authorised official; an authorised Revenue can only access records where they have been made available to him by the holder of the records.

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It is worth noting that while all reports on accounting records also reference the aforementioned rules on electronic invoices, they are all broader in scope and also include accounting documents (ledgers, balance sheets, registers, etc.) that fall outside the scope of the common EU e-invoicing rules. As such, the information on observed barriers is useful for the purposes of this study.

Scope of the barrier

The following barriers were reported upon:

Figure 15 – Nature and scope of barrier observed (Tax and accounting records)

Nature of the barrier

Information must be retrievable for the supervisory authorities within a reasonable amount of time (AT, BG), without transportation (BE), at all reasonable times (IE) or immediately (SE) Observed in which countries?

Why is this (potentially) a restriction to the free flow of data within the European Union?

AT, BE, BG, IE, SE A way must be found to meet the response time requirements for delocalised storage.

Storage facilities must be within national borders (except when companies are active across borders), except with permission of the tax authority

Format and method of delivery shall be specified by the tax authority during verifications

DE

IE Nationally defined requirements may be hard to obtain necessary information, understand, or observe by foreign providers because they may only be available in the local language or may necessitate access to delivery methods that are only available locally, not internationally. Since the Irish authorities could impose specific delivery formats, foreign providers may be perceived as less reliable to meet that objective because they may not be able to support formats or delivery methods specified by Irish authorities.

Geographic limitation by nature.

All of the barriers aim to support the accessibility and availability of data to tax authorities in case of tax audits. Only one of the reported barriers however are explicitly geographic in nature; others are indirect and can be managed with a storage system abroad, assuming that appropriate communication interfaces are available that allow data to be retrieved rapidly and in a commonly accepted format.

Drivers behind the barriers and potential solutions

Accessibility of the data in a readable format is the main priority for this category of data. Therefore, solutions are relatively readily available, and indeed already commonly deployed in most cases.

Figure 16 – Drivers behind the barrier observed and potential solution (Tax and accounting records)

Nature of the barrier Objective / driver behind the barrier Potential solution?

Information must be retrievable for the supervisory authorities within a reasonable

Ensuring accountability and verifiability The barrier can be addressed if there is sufficient clarity on the requirements in relation to timeliness and method of delivery. EU level guidance on this point may be useful to avoid needless national divergences.