INVESTMENT
SWITCHING THE TAX EVIDENCE BASE MEANS MORE DATA INTELLIGENCE THAN EVER
As more tax regimes explore the case for digitisation, there is a growing shift in where the power of evidence is kept between the taxman and businesses. Taken at face value, this is a fundamental shift in tax record-keeping and evidence and takes a huge burden off the average business. But, in actual fact, their results need to be more iron-clad than ever. In the likes of Chile and other countries in Latin America, where continuous transaction controls (CTCs) have been in place for decades and reporting happens in real-time, rather than periodically, the shift has already occurred. European countries that have more recent CTC regimes, such as Italy and Greece, are slated to follow suit very soon. This means that the government builds, piece-by-piece, a company’s tax return through your authenticated data that it now possesses and can process without any dependency on the taxpayer. In theory, this is great for the taxpayer, 62
with periodic tax returns now becoming a thing of the past. But no system is perfect, especially when data from suppliers and customers needs to be relied on for accurate tax information. The dynamic nature of business is reflected in taxpayers’ systems, which are ever-changing and notoriously complex. If data is wrongly submitted to the tax authorities, or a piece of information is interpreted differently by them when calculating a company’s indirect tax position, then companies need to be able to challenge what has been calculated from CTC regimes. In other words, fortifying your evidence base and ensuring strong reconciliation capabilities will become critical business priorities.
Reporting revolution There is a clear opportunity for countries
to reap back lost revenue from incorrect tax returns with technology; an opportunity many governments have seized over the last twenty years or so. A growing number of tax authorities have rolled out legislation intended to gain greater control over companies’ indirect tax processes, positioning the point of audit or review closer to sales and purchase transactions, with the aim of reducing fraud and closing national VAT gaps. As a result digital CTCs, such as mandatory electronic invoicing and real-time reporting, have been rolled out to streamline previously clumsy returns processes. How far specific governments enforce these controls on businesses is subject to political inclination, but a great success story is undoubtedly Latin America. The oldest and most popular model, countries in this region were among the first to roll out digital controls to supplement and eventually replace VAT returns. Leaders
