Deploying effective strategies in tackling VAT fraud Portugals - - PowerPoint PPT Presentation

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 Alternative methods

• f VAT collection

Green paper made by Commission

• VAT legal framework is being abusively used to

allow situations of tax evasion and fraud

• Analysis of various assessment and control methods
• In depth analysis is made of 4 alternative models
• 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

European context

European efforts to fight tax fraud and evasion Study on alternative methods for improving collection of VAT

Description Against In favour

• Bank splits the

payment

• The taxable amount

is paid to the supplier

• The VAT amount

transferred directly to the tax authority

• Eliminates ‘missing

trader’ fraud

• Substantial changes

in the way all businesses and tax administrations handle VAT Split payment model 1

Model

• Invoice data is sent in

real time to a central VAT monitoring database.

• Possible elimination of

VAT obligations

• More effective if e-

invoicing is used for all B2B transactions

• Costs of implementing
• Data management
• Protection of

confidential data Central monitoring database model 2

• Company uploads

predefined transaction data into a secure VAT data warehouse

• Company maintains

the database and accessible to the tax authority

• This model allows

quicker detection of ‘missing trader’ fraud

• Does not prevent

‘missing trader’ fraud

• Useless if the trader

goes missing Data warehouse model 3

• VAT compliance

process and internal controls are certified.

• Increase trust

between tax authorities and taxpayers.

• Time-consuming
• Requires substantial

investment by tax authorities in human resources. Certified taxable person model 4

Implementation of Green paper - VAT measures

Model 3 - Implementation of the Standard Auditing File system

Portuguese Government VAT Measures

Measure Objective Scope

• OECD recommendation implemented in 2009
• Computer file that allows the easy export accounting records [SAF-T (PT)].
• Easier for taxpayers to provide their electronic records
• Easier for auditors to review accounting records.
• SAF-T provides tool to meet the requirements of other entities
• Easier to switch from one accounting package to another

Advantages

• Corporate income tax (CIT) taxpayers
• VAT taxpayers with turnovers above €100.000
• All invoicing software be previously certified by the tax authorities

Measure Objective

• Information contained in the SAF-T file is accurate
• Reduce the risk of non registration of taxable transactions
• Standard for invoicing software with full integration with SAF-T
• Not time/resource consuming

Scope

• Corporate income tax (CIT) taxpayers
• VAT taxpayers with turnovers above €100.000

Advantages

Model 4 – Certified Invoicing Software

Portuguese Government VAT Measures

Measure Objective Advantages Scope

• All taxpayers to communicate in real time (or via a monthly export

from the SAF-T file) all invoices issued

• 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
• All corporate income tax (CIT) taxpayers
• VAT taxpayers with turnover above €100.000 send invoice

information electronically (remaining have a simplified regime)

Implementation of Green paper - VAT measures Model 2 – Central VAT monitoring database

Portuguese Government VAT Measures

Implementation of Green paper - VAT measures

Three additional measures to improve Central VAT monitoring database effectiveness Measure Objective Advantages Scope

• All VAT taxable

transactions must be documented by an invoice,

• Ensure that all transactions

are properly invoiced

• Information is sent to the

tax authorities

• Change of cultural

behaviour

• All VAT taxpayers,

regardless of turnover (some small exceptions apply)

• Invoice issued entitled to a

15% refund of VAT paid against PIT assessed in the following year (up to €250 per household).

• Increase incentive of

asking for an invoice in hard-to-tax sectors

• Consumers can “control”

businesses Mandatory invoices

• Incentive covers

restaurants, hotels, car repairs and hairdressers. Tax benefit for requesting invoices

• Weekly lottery
• Each 10€ entitles a

participation coupon

• Prize: Audi A4 and Audi A6

for extraordinary lotteries

• Increase incentive of

asking an invoice with TIN in all economic sectors

• Low cost of implementation
• Consumers behaviour

allows to increase TA’s control capacity

• All invoices issued are

automatically eligible regardless of the economic sector, as long as they contain the TIN Tax lottery

• The VAT reform has been considered a success, due to the

implementation of the central monitoring database model:

• 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) -
• ver 600 Million invoices in the restaurant sector
• 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

• 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

• Roughly 19 M€ in tax benefit given to ca. 2,5 M taxpayers in 2013
• 51.000 companies invoiced and did not submitted the VAT for
• 71.000 companies assessed less or deducted more VAT than due
• Overall, 128.000 companies detected with irregularities - 40% of these

companies voluntarily corrected their tax return.

Main results achieved

 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.

Medium term objectives

• 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 Conclusions

Deploying effective strategies in tackling VAT fraud

Portugal’s experience

Second Global Forum on VAT Tokyo 18th of April, 2014