Beniamin Franklin said once “(…)In this world nothing can be said to be certain, except death and taxes.”. Although it may seem well worn, the quote has not become obsolete in recent years- taxation remains a crucial element of our lives. It comes as no surprise that in an economy leaning towards using IT solutions in a vast number of sectors, from banking to logistics, the trend has also found its way into taxation. One of the key aspects of tax digitalization, and, in fact, a factor accelerating the said digitalization, are the 2005 OECD guidelines for implementing SAF-T (Standard Audit File-Tax; SAF-T in short), an international standard for electronic exchange of accounting data to national tax authorities and external auditors. The main goal of implementing SAF-T regulations is to allow cross- border tax controls and easy access to data, leading to faster and more effective audits. In consequence, electronic reporting’s long-term aim is to allow tax bodies to conduct faster and more thorough controls of taxpayers, as well as auditing more than one tax area or one taxpayer at the same time (i.e. CIT-VAT comparisons and cross industry benchmarks). In the long run, the usage of SAF-T technology should (will?) lead to identifying potential criminal activities and tax fraud. Thus, aim of this article is to present, briefly, a landscape of European SAF-T implementations.
SAF-T – What is hidden under the hood?
The SAF-T standard has been designed to embed financial data exported from a taxpayer’s accounting system in a container of a specific structure. Above is secured by applying standardized rules of layout and formatting of a container (a files), so as the information contained in it is easily readable and interpretable. Universally structured, it is meant for usage by all types of entities, both national and international and both public and private ones. However, the OECD only lays out general rules for usage of SAFT and the scope of tax information (and the required level of details) provided by SAFT lies with the implementing countries and in their sovereign decisions. Due to differing evolution of the legal systems between them, especially between countries of Western and Central Europe, SAF-T implemented in particular jurisdictions vary from country to country. Moreover, even if the basis for introducing SAF-T remains the same for each of them, the name of the system may also be different in each country, from FAIA (Fichier d’Audit Informatisé de l’Administration de l’enregistrement et des domaines) in Luxembourg to JPK in Poland (Jednolity Plik Kontrolny). Although the idea of SAF-T has been around for a number of years, the digitalization process is now gaining momentum, with a number of European states modernizing their tax systems through, among alia, SAF-T.
The Spanish Suministro inmediato de información (SII in short) is considered the most advanced SAF-T implementation of all systems used in Western Europe, and is mandatory since 1 July 2017. The new system is a set of rules regulating the manner of reporting VAT information to Spanish tax authorities, requiring taxpayers to maintain invoice records and VAT books through the Spanish tax authority website. The main new feature of electronic VAT bookkeeping is that taxes will be declared to the Tax Agency (AEAT) in almost real-time. In general, the entities obliged to file SII reports are large companies that achieve a turnover exceeding 6 million euro and companies listed in “REDEME”, a register of monthly tax returns. Using the SII system is optional for small and medium companies. The information presented in an SII file covers data including all issued and received invoices, cash, equity assets and the type of transaction, recorded by codes and subcodes. Information regarding invoices is detailed and requires providing the NIF number (tax identification number) as well as the date of issue and, if required, VAT adjustment data. In the first six months of mandatory SII, registering invoices is possible with an eight day delay, excluding Saturdays, Sundays and public holidays. After this time, it will be shortened to four days. In order to submit the required data, an electronic certificate is required, confirmed by the relevant tax authority. Late reporting of real-time electronic VAT ledgers will trigger a penalty of 0.5% of the missed amounts, with a minimum of EUR 300 and a maximum of EUR 6.000 per quarter.
Referred to as SAF-T (PT), electronic tax reporting has existed in Portugal since 2008. Recently, the system has gone through a set of modifications. First, a number of codes has been added to the accounting file and this change came into force on January 1, 2017. The second change modified the SAF-T for invoices and delivery notes to enhance the quality of provided billing information, becoming obligatory on July 1, 2017. The added equivalence tables allow identification of the accounts according to the accounting standards used by the different taxpayers. All entities that pay CIT and having a registered seat or an establishment in Portugal are obliged to submit tax reporting through SAF-T (PT).The file requires complex information including data specifying the client, equivalence table, payment, supplier, product and invoice number. Not all SAF-T data is reported on a monthly basis. If a PT Tax Damages request is issued, taxpayers are obliged to export SAFT account books, which are not regularly submitted to tax authorities. It is also possible to send the exported book through other means, for example by e-mail. The SAFT (PT) file should be created using a system certified by the Portuguese tax authorities and contain data identifying the software supplier and certificate.
The Luxembourg SAFT operates under the name FAIA and is in use since 2011. Based on the Luxembourg VAT law, any entity qualifying as a taxable person for VAT purposes could be required to provide a FAIA file upon request from the VAT authorities. The VAT authorities have decided to split the implementation of this FAIA file requirements in two phases. The first one applies to all taxable persons other than small businesses, those who use a simplified VAT regime and entities exempt from a Standard Chart of Accounts. In the second phase, the requirement will be extended to all taxable persons. Contrary to the aforementioned countries, submitting FAIA is only required on demand within 15 days since receiving the notice. The file does not need an electronic signature, only a referral to the issuer of the software. Failure to comply with the submission of FAIA could trigger either daily penalties up to EUR 25.000 per each day, or penalties on a lump sum basis (up to EUR 10.000 per infraction).
In France SAF-T is presented as FEC. In January 2018, it will be mandatory to use safe, certified programs to register all payments made by customers, including cash registers. All companies that have a registered office or an establishment are obliged to submit FEC files on demand , as there is no specified yearly, monthly or quarterly term. In addition, companies must fulfill the requirement of conducting all accounting- related matters in French. The penalty for not remitting a compliant e-file is 10% on additional tax liability (a minimum of EUR 5.000 per fiscal year) and possibility of self- assessment by the tax authority (leading to a potential 100% penalty on additional liability). Additionally, France is proposing a regulation obligating French registered companies to use certified VAT software on Business-to-Consumer (B2C) transactions, starting 1 January 2018. The proposition includes using licensed software and cash registers, although the exact requirements will be defined in the upcoming months and will cover security, archiving and transaction details. At first, only French resident businesses will be obliged to follow the new requirements but foreign providers of cash and accounting systems will have to follow and go through the accreditation process. The sanction for not following the new requirements may result in a fine up to EUR 7.000 per infringement.
SAF-T has been implemented, but is rarely required on a limited basis. All documents needed for auditing are presented in a form specified by the controlling tax authority and must be sent on demand, therefore no SAF-T reporting terms have been set.
Polish SAF-T is referred to as JPK (Jednolity Plik Kontrolny) and includes seven different types of files, the JPK_VAT file being most important (others are: JPK for invoices, JPK for warehouses, JPK with bank statements, JPK for accounting records and two JPKs for the smallest enterprises). Large, medium and small businesses are obliged to report JPK_VAT files on a monthly basis, whereas microbusinesses will have to fulfill this requirement from 1 January 2018. As for other JPK files, medium, small and micro businesses will have the obligation to submit them on demand from 1 July 2018. The definition of each entity is specified in the Act on Freedom of Business Activity (published 2 July 2004) and depends on the number of employees and yearly turnover in euros. As of 2018, governmental bodies will extend the obligation of JPK reporting to cash register receipts.
Electronic tax reporting was first introduced on 1 January 2016 under the name iMAS. The system consists of 7 modules, the largest of which are iEKA for cash registers, a system for electronic invoicing (iSAF) and iVAZ for freight bills. Moreover, there is an accounting system for small businesses (iAPS), iSAF-T for collecting accounting data and iKON, which monitors daily operations on Lithuanian territory. For system modeling and analysis, as well as risk management, the iMAMC system is used. From 1 January 2016 using the systems was recommended (not mandatory) but at the beginning of 2017 became obligatory for entities whose net sales exceeded 8 million euros. From 2018, it will be mandatory for companies reporting net sales over EUR 700.000and from 2019 for those, whose net sales exceed EUR 45k. SAF-T reporting is both on a monthly and on demand basis. From 29 March 2018, it is possible to report data by means of “automatic reporting”.
In the Czech Republic, electronic reporting similar to SAF-T is used for VAT in the form of VAT control statements from January 2016 or the first quarter of the same year, depending on the form of tax payments. This concerns all companies registered as VAT payers, which includes those with registered offices in the Czech Republic or companies that conduct their commercial activities there and achieve turnover surpassing 1 million CZK in twelve consecutive months. In addition, companies that do not have a registered office or branch but perform consignments within the Czech Republic and do not have a VAT account are included. VAT control statements are required on a monthly or quarterly basis. Legal persons and equity groups must report the statements no later than on the 25th day after concluding each month. As for natural persons, they are obliged to file the statements on the same day they receive VAT returns, but no later than on the 25th day after the taxable period. If an error is identified in the report, the fine amounts up to CZK 30.000 for each one, if it is not explained within 5 days.
Taking taxes to the next level
In other European countries, the process of introducing technological solutions to the world of tax is an ongoing process, depending on both legal and economic circumstances. In Norway, it is voluntary for companies to use SAF-T systems and it will become obligatory starting 1 January 2018. All companies that run their accounting matters in Norway, both having registered offices and doing business will fall under the scope of the new requirements. The regulations will only exclude companies with a turnover of less than 5 million NOK (without VAT) and those that execute only a few transactions a year (unless they store data electronically). Similarly, Hungary has electronic data reporting for transactions that exceed 1 million HUF. From 1 July 2018, it will become necessary to report transactions exceeding 100,000.00 HUF. The regulations cover all companies that have a registered seat in Hungary or conduct business activities there. Other countries, such as Germany, the Netherlands and Greece do not have any SAF-T solutions (yet), but in the event of a tax investigation, companies must provide some data in electronic form, available on demand. In Belgium, using SAF-T was researched in 2011 and widely discussed, but the plans have been indefinitely postponed. Perhaps the most intriguing question is how digitizing taxes will unfold in the United Kingdom. Published in December 2015, the “Making Tax Digital” roadmap set out the Government’s plans for digitizing the tax system and introducing real time reporting for all taxpayers. System testing is set to begin in spring 2018, and the initial goal is for companies to provide quarterly VAT reports from April 2019 . However, 2019 is also the year in which UK will officially leave the European Union, complicating the introduction of all new solutions to the legal system and the economy.