Deploying effective strategies in tackling VAT fraud Portugal’s experience
Second Global Forum on VAT Tokyo 18th of April, 2014
European context European efforts to fight tax fraud and evasion Study on alternative methods for improving collection of VAT
VAT compliance issues
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VAT legal framework is being abusively used to allow situations of tax evasion and fraud
Alternative methods of VAT collection
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Analysis of various assessment and control methods In depth analysis is made of 4 alternative models
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COM issues a report (Dec2010) on the future of VAT All 4 methods have a positive cost-benefit ratio, although the cost of implementation of the methods varies
Green paper made by Commission
European context European efforts to fight tax fraud and evasion Study on alternative methods for improving collection of VAT Model
Split payment model
1 • •
Description •
Bank splits the payment The taxable amount is paid to the supplier The VAT amount transferred directly to the tax authority
2 Central monitoring database model
3 Data warehouse model •
• Invoice data is sent in real time to a central VAT monitoring database.
•
Company uploads predefined transaction data into a secure VAT data warehouse Company maintains the database and accessible to the tax authority
4
Certified taxable person model
• VAT compliance process and internal controls are certified.
In favour
• Eliminates ‘missing trader’ fraud
• Possible elimination of VAT obligations • More effective if einvoicing is used for all B2B transactions
• This model allows quicker detection of ‘missing trader’ fraud
• Increase trust between tax authorities and taxpayers.
Against
• Substantial changes in the way all businesses and tax administrations handle VAT
• Costs of implementing • Data management • Protection of confidential data
• Does not prevent ‘missing trader’ fraud • Useless if the trader goes missing
• Time-consuming • Requires substantial investment by tax authorities in human resources.
Portuguese Government VAT Measures Implementation of Green paper - VAT measures
Model 3 - Implementation of the Standard Auditing File system Measure
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OECD recommendation implemented in 2009 Computer file that allows the easy export accounting records [SAF-T (PT)].
Scope
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Corporate income tax (CIT) taxpayers VAT taxpayers with turnovers above €100.000
Objective
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Easier for taxpayers to provide their electronic records Easier for auditors to review accounting records.
Advantages
• •
SAF-T provides tool to meet the requirements of other entities Easier to switch from one accounting package to another
Model 4 – Certified Invoicing Software Measure
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All invoicing software be previously certified by the tax authorities
Scope
• •
Corporate income tax (CIT) taxpayers VAT taxpayers with turnovers above €100.000
Objective
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Information contained in the SAF-T file is accurate Reduce the risk of non registration of taxable transactions
Advantages
• •
Standard for invoicing software with full integration with SAF-T Not time/resource consuming
Portuguese Government VAT Measures Implementation of Green paper - VAT measures Model 2 – Central VAT monitoring database Measure
Scope
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All taxpayers to communicate in real time (or via a monthly export from the SAF-T file) all invoices issued
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All corporate income tax (CIT) taxpayers VAT taxpayers with turnover above €100.000 send invoice information electronically (remaining have a simplified regime)
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Tax authorities receive invoicing information as soon as possible, reducing risk of VAT fraud and evasion, namely through missing trader practices
• • •
Reduces costs for taxpayers and tax authorities Certification of invoice software ensures compatibility Information filters avoids reception of personal/private information
Objective
Advantages
Portuguese Government VAT Measures Implementation of Green paper - VAT measures Three additional measures to improve Central VAT monitoring database effectiveness Mandatory invoices
Measure
Scope
Objective
Advantages
Tax benefit for requesting invoices
Tax lottery
• Invoice issued entitled to a 15% refund of VAT paid against PIT assessed in the following year (up to €250 per household).
• Weekly lottery • Each 10€ entitles a participation coupon • Prize: Audi A4 and Audi A6 for extraordinary lotteries
• All VAT taxpayers, regardless of turnover (some small exceptions apply)
• Incentive covers restaurants, hotels, car repairs and hairdressers.
• All invoices issued are automatically eligible regardless of the economic sector, as long as they contain the TIN
• Ensure that all transactions are properly invoiced • Information is sent to the tax authorities
• Increase incentive of asking for an invoice in hard-to-tax sectors
• Increase incentive of asking an invoice with TIN in all economic sectors
• Change of cultural behaviour
• Consumers can “control” businesses
• Low cost of implementation • Consumers behaviour allows to increase TA’s control capacity
• All VAT taxable transactions must be documented by an invoice,
Main results achieved • The VAT reform has been considered a success, due to the implementation of the central monitoring database model: •
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The cost for the tax authority was lower than expected and the cost for taxpayers was limited, as the system uses already existing electronic standards Over 4,2 Billion invoices sent to the tax authorities (360 M per month) over 600 Million invoices in the restaurant sector
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Total tax revenue increase 13% in 2013 and VAT revenue in hard-to-tax sectors (which grant the tax benefit for consumers) increased 20% in given months
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Estimated 140% increase in VAT revenue from restaurant sector (250M€ to 600M€) between 2011 and 2013 – 50% resulting from the implementation of the VAT reform and other set of measures
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Roughly 19 M€ in tax benefit given to ca. 2,5 M taxpayers in 2013
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51.000 companies invoiced and did not submitted the VAT for
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71.000 companies assessed less or deducted more VAT than due
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Overall, 128.000 companies detected with irregularities - 40% of these companies voluntarily corrected their tax return.
Medium term objectives
50% increase in the number of invoices issued and submitted to the tax authorities (in comparison to the four billion submitted in 2013)
Number of consumers that indicate their taxpayer identification number may increase to over four million
Increase in revenue as a result of the development of the invoicing reform between 600 and 800 million euros.
Conclusions
• Innovative model in Europe to curb shadow economy • Results above expectations in the first year of application • Good acceptance by the business community and overall society • Major changes in cultural behavior are already observable • Effective communication and close cooperation with stakeholders is key
Deploying effective strategies in tackling VAT fraud Portugal’s experience
Second Global Forum on VAT Tokyo 18th of April, 2014
