OECD – Consumption Tax Trends 2016

Tax revenues collected in advanced economies have continued to increase from last year’s all-time high, with taxes on labour and consumption representing an increasing share of total tax revenues, according to new OECD research.

The 2016 edition of the OECD’s annual Revenue Statistics publication shows that the OECD average tax-to-GDP ratio rose slightly in 2015, to 34.3%, compared to 34.2% in 2014. This is the highest level since the Revenue Statistics series began in 1965. An increase in tax-to-GDP levels was seen in 25 of the 32 OECD countries that provided preliminary data in 2015, while tax-to-GDP levels fell in the remaining seven countries.

Consumption Tax Trends 2016 highlights that VAT revenues are the largest source of consumption tax revenues in the OECD, and have now reached an all-time high of 6.8% of GDP and 20.1% of total tax revenue on average in 2014.

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A cost efficient way to submit SAF-T files and perform risk management

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. 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. Countries might have their own specific local SAF-T requirements but in case the basic required data are covered in the OECD framework it could be managed with country specific variants. 

You can compare it with the EU VAT requirements: EU Directive as framework with some country specific rules based on the options in the EU Directive. Taxpayers will be obliged often to submit the SAF-T format:

• - on request in the case of a preliminary tax inquiry, a tax audit and tax proceedings;
• - monthly mandatory VAT SAF-T

The SAF-T VAT file should reconcile with the numbers of the VAT return to avoid a higher risk of a VAT audit. Often I hear that the on request is given a lower priority. Be aware that audit defence is an important building block for a sound tax strategy.

Although it is an 'on request' obligation it is important to run this requests regularly and archive. This data will be used by the tax authorities for a tax audit to check whether tax positions taken in the tax reporting and /or rulings closed (corporate income tax and VAT) actually reflect the data in the SAF-T files.

It is critical that your in-house tax department has sufficient time to assess the 'on request' data for any unacceptable tax risks. I recommend use this functionality in-house as a pre-audit prior to the law being in force.

A SAF-T SAP add-on solution developed together by 'Tax Assurance and certified SAP add-on specialists' is now available for Poland, Lithuania and Norway and is scalable. The SAP add-on is extendable to countries that uses the OECD framework as the basis for SAF-T reports.

Note that countries might have their own specific local requirements but in case the basic required data are covered in the OECD framework it could be managed with country specific variants. Certain countries such as France, Portugal, Austria, Luxembourg, etc. - have already SAF-T in force.

Richard H. Cornelisse, Tax Assurance specialist - access PowerPoint for further explanation

Innovation and tax audits

Tax authorities, due to technological innovations, have become increasingly better in executing their tax audit. The probability that the Tax Authorities will issue additional assessments and penalties in the near future because errors in indirect tax are detected, increases by the day.

The OECD has issued in May 2005 a guidance note on the development of Standard Audit File –Tax (SAF-T) and recommends the use of SAF-T as a means of exporting accurate tax accounting data to tax authorities in such way that can it can be analyzed easily.

Mandatory data filing gives food for thought. Looking to the future The submission of the SAF-T file means that a taxpayer has to provide specific data to the tax authorities every month. From a tax controversy strategy it is common practice that before information is provided to the authorities, a company performs a risk assessment and determines the worst case scenario to avoid unforeseen tax risks.

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Norway introduces SAF-T to improve tax inspections

Norway is introducing SAF-T reporting for corporate entities, either resident or with physical presence in Norway (VAT registered businesses). From 1st January 2017 onwards it is required to provide SAFT-NO files in XML format on request of the Norwegian Tax authorities.

Tax authorities, due to technological innovations, have become increasingly better in executing their tax audit. The probability that the Tax Authorities will issue additional assessments and penalties in the near future because errors in indirect tax are detected, increases by the day. The SAF-T standard, originally created by the OECD, is intended to give tax authorities easy access to the relevant data in an easily readable format.

This leads to much more efficient and effective tax inspections.

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A scalable SAP solution for countries implementing SAF-T

The SAP add-on is extendable to countries that uses the OECD framework as the basis for SAF-T reports. Note that countries might have their own specific local requirements but in case the basic required data are covered in the OECD framework it could be managed with country specific variants.

You can compare it with the EU VAT requirements: EU Directive as framework with some country specific rules based on the options in the EU Directive.

Our partner's core business is to develop SAP certified add-ons and many well-known multinationals companies have implemented it for the comparable submission of electronic data.

The SAF-T SAP add-on solution is now available for Poland, Lithuania and Norway. 

Our SAF-T solution is fully integrated in SAP without an external interface or use of external software and SAP release and upgrade independent. It is implemented without core modification and ABAP is the programming language. Installation done simply by external transport file. It contains user-friendly screens, own customized tables and own transaction codes and menus.

We provide 12 months of free maintenance service and yearly maintenance agreements (optional) for consecutive years. Maintenance services include version upgrades according to new regulations issued and bug-fixing:

• Online Helpdesk
• Dedicated Project Manager (SPOC -Single Point Of Contact)
• 2 hours response time for first priority issues.
• Mail tracking
• Ticket Reporting

Scalable solution 

The solution is scalable.   The SAP add-on is extendable to countries that uses the OECD framework as the basis for SAF-T reports. Countries could be added quickly in an (cost) efficient and effective manner as the SAF-T add-on is designed in a way that it allows companies to extend SAF-T requirements for other countries:

Product consists of two main parts;

1. Core Part : The data extraction and main functionalities.
2. Localization part : Designed for further country adaptation requirements.

Country adaptations are as you can see quite straight forward after the core implementation.

Turn key solution

The solution is a turn key solution and that means:

• Implementation (4-6 weeks)
• Training
• Support & Maintenance (one year free & yearly renewable)

More detail also including an overview of the requirements for Lithuania, Norway and Poland and the challenges companies need to overcome when SAP is run can be found in attached slide deck.

Strategic partnership

SNI and KEY Group have formed a strategic partnership to leverage the synergies between KEY Group's tax and SAP services and SNI’s SAP add-on solutions.

The partnership positions the KEY Group as a preferred partner of SNI. Through this strategic alliance, the two organizations will bring to market SAF-T SAP add-on and web based portal solutions. We work for some of the world’s biggest businesses in the areas of tax, ERP consulting and technology.

The service will be provided by our core team and supported by our operations in Poland, The Netherland and Turkey.

This team is led by experienced and highly regarded Tax and SAP professionals who will be actively involved in all stages of the work we undertake. Our senior team is supported by experienced and motivated professionals with backgrounds as tax lawyers, chartered accountants and SAP (technical architects and functional).

The team has enormous experience in this type of SAP work including having managed migration / on-boarding projects and on-going (tax) performance advisory services for a number of global businesses.

Case studies outlining similar projects could be provided.

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Strategic partner alliance - leverage synergies

SNI and KEY Group have formed a strategic partnership to leverage the synergies between KEY Group's tax and SAP services and SNI’s SAP add-on solutions. The partnership positions the KEY Group as a preferred partner of SNI.

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Integrated SAP solution for SAF-T

Besides recently Poland, SAF-T is introduced now also for Lithuania and Norway. A fully integrated solution in SAP without an external interface or use of external software is available for Lithuania, Poland and Norway.

Other countries will follow.

This integrated SAP solution is developed together with a certified Global SAP Application Partner. 

Read more: Integrated SAP solution for SAF-T