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 18 th of April, 2014

European context European efforts to fight tax fraud and evasion Study on alternative methods for improving collection of VAT • VAT compliance VAT legal framework is being abusively used to issues allow situations of tax evasion and fraud • Alternative methods Analysis of various assessment and control methods • of VAT collection In depth analysis is made of 4 alternative models • COM issues a report (Dec2010) on the future of VAT Green paper made by • All 4 methods have a positive cost-benefit ratio, although the cost of implementation of the methods Commission varies

European context European efforts to fight tax fraud and evasion Study on alternative methods for improving collection of VAT Certified taxable Split payment Central monitoring Data warehouse Model 1 2 3 4 person model model database model model • Company uploads • Bank splits the predefined payment transaction data into • • • Invoice data is sent in VAT compliance The taxable amount a secure VAT data is paid to the real time to a central process and internal warehouse Description supplier VAT monitoring controls are • Company maintains • The VAT amount database. certified. the database and transferred directly accessible to the tax to the tax authority authority • Possible elimination of • Increase trust • VAT obligations This model allows • Eliminates ‘missing between tax In favour • More effective if e- quicker detection of trader’ fraud authorities and ‘missing trader’ fraud invoicing is used for taxpayers. all B2B transactions • • Substantial changes Time-consuming • • Costs of implementing Does not prevent • in the way all Requires substantial • ‘missing trader’ fraud Data management Against businesses and tax investment by tax • • Protection of Useless if the trader administrations authorities in human confidential data goes missing handle VAT resources.

Portuguese Government VAT Measures Implementation of Green paper - VAT measures Model 3 - Implementation of the Standard Auditing File system • OECD recommendation implemented in 2009 Measure • Computer file that allows the easy export accounting records [SAF-T (PT)]. • Corporate income tax (CIT) taxpayers Scope • VAT taxpayers with turnovers above € 100.000 • Easier for taxpayers to provide their electronic records Objective • Easier for auditors to review accounting records. • SAF-T provides tool to meet the requirements of other entities Advantages • Easier to switch from one accounting package to another Model 4 – Certified Invoicing Software • Measure All invoicing software be previously certified by the tax authorities • Corporate income tax (CIT) taxpayers Scope • VAT taxpayers with turnovers above € 100.000 • Information contained in the SAF-T file is accurate Objective • Reduce the risk of non registration of taxable transactions • Standard for invoicing software with full integration with SAF-T Advantages • Not time/resource consuming

Portuguese Government VAT Measures Implementation of Green paper - VAT measures Model 2 – Central VAT monitoring database • All taxpayers to communicate in real time (or via a monthly export Measure from the SAF-T file) all invoices issued • All corporate income tax (CIT) taxpayers • VAT taxpayers with turnover above € 100.000 send invoice Scope information electronically (remaining have a simplified regime) • Tax authorities receive invoicing information as soon as possible, Objective reducing risk of VAT fraud and evasion, namely through missing trader practices • Reduces costs for taxpayers and tax authorities • Advantages Certification of invoice software ensures compatibility • Information filters avoids reception of personal/private information

Portuguese Government VAT Measures Implementation of Green paper - VAT measures Three additional measures to improve Central VAT monitoring database effectiveness Tax benefit for requesting Tax lottery Mandatory invoices invoices • • Invoice issued entitled to a Weekly lottery • • Each 10 € entitles a All VAT taxable 15% refund of VAT paid Measure transactions must be against PIT assessed in the participation coupon following year (up to € 250 • documented by an invoice, Prize: Audi A4 and Audi A6 per household). for extraordinary lotteries • All invoices issued are • All VAT taxpayers, • Incentive covers automatically eligible regardless of turnover Scope restaurants, hotels, car regardless of the economic (some small exceptions repairs and hairdressers. sector, as long as they apply) contain the TIN • Ensure that all transactions • • Increase incentive of Increase incentive of are properly invoiced Objective asking for an invoice in asking an invoice with TIN • Information is sent to the hard-to-tax sectors in all economic sectors tax authorities • Low cost of implementation • • Consumers can “control” • Change of cultural Consumers behaviour Advantages allows to increase TA’s behaviour businesses control capacity

Main results achieved • 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) - over 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.

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 18 th of April, 2014