Tuesday, August 04, 2009

Dream scenario for VAT auditing

Making life easier and work more productive for SMEs in EU is a central goal for EU and most member states. More productive SMEs means more productive large enterprises and lower cost for the public sector (equals lower tax pressure and thus again better productivity and competitive position - less inclination towards protectionism).

Now there is a clear opportunity for a mega-step. It goes as follows:

1. Out of the 24 m enterprises 98-99% are microclass (less the 10 employees - almost half of them have only one employee).

2. Most of these could and should move to cash-based accounting (CBA) - as EU and many member states encourage. Simplified accounting saves cost from the outset and lowers stress levels.

3. CBA opens up an opportunity to automate it all by linking payments in electronic bank account statements with sent and received e-invoices. This saves money on a huge scale - most likely in the Deutsche Bank study that promises 54bn in Germany.

4. Tax authorities are rightly worried about VAT fraud - big leakage is a risk in paper and e-mail based invoicing.

5. e-invoicing is in itself a clear improvement - but some member states have not followed the equal treatment principle and made e-invoicing more complex with mandatory qualified digital signatures - thus raised the threshold and costs to migrate to safer and more productive invoicing practises.

6. Automated accounting in the CBA sector would clearly shrink the space for VAT fraud and make auditing less needed, easier and less costly as (i) SMEs have an additional big incentive to digitalize invoicing, (ii) payments are linked to the e-invoice, (iii) cost-efficient and secure storage is already offered by professional service providers, (iv) corresponding sent/received and paid invoices can be found in the counterparts digital environment, (v) auditing can be automated, (vi) VAT payments and reporting can move to real time..

Enough reasons to take real action for sure. Is it happening in your country? Are tax authorities simplifying things? Are your enterprise organizations pressing for it? Doing something real for massive cost savings? Or just complaining and lobbying for nitty-gritty or clinging-to-the-past practises??? We - in the Real Time Economy program - are working hard on making this next dimension of e-invoicing real.

The blogosphere and social media at large should prove their power by adopting this kind of issues with quite some gusto. Please feel free to kick the ball forward.


DanGa said...

Dear Bo,

It is time Tax Authorities are simplifying auditing procedures. They should start collecting tax related trade data all over Europe and validate whether transactions reported are correct.

Some of these ideas I have written down on my weblog:


kind regards
Danny Gaethofs

BoHarald said...

Dear Danny,

Thank you - very valuable blog indeed. My own near term visions now:
1. automate accounting for cash-based segment - 20m...
2. provide realtime automatic cashflow estimate as byproduct
3. move to realtime payment of VAT - no need to report, store etc
4. use account-integrated invoice data to take away last tax authority needs for mandatory qualified signatures