Automation can be defined as “the replacement of human actions by machines and computer systems.” In the current climate of technological evolution, it’s playing an ever-increasing role: companies engage robots in their production process, shop cashiers are replaced by self-scanning tills and even Siri helps us with all kinds of practical information on a daily basis. It is therefore logical that a wide range of new technologies is also finding its way into the tax landscape, and more specifically compliance processes.
In Belgium, the technological evolution in VAT compliance started with the introduction in 2007 of the compulsory electronic submission of the VAT return. In the years that followed, many product developers jumped on the bandwagon to create software applications that allow automatic data transfer between accounting or ERP system and the VAT return, enabling the VAT return to be generated with a simple mouse click. Completing a VAT return automatically is one thing. However, the correctness of the VAT return can only be guaranteed if the underlying transaction data has been assigned a correct VAT treatment in the system. It is precisely this determination of the correct VAT treatment that often still requires human intervention. Scanning systems and OCR applications, by which invoices are read and automatically processed, are only effective if they are properly trained. The purchase of such software and the man-hours needed to train it correctly carry a considerable cost, which is an inhibiting factor for many businesses today.
VAT authorities also see an advantage in using new technology to make tax collection more efficient and to combat fraud more effectively. More and more data and payments have to be processed and reported electronically, as prescribed by the authorities. For example, we see global initiatives such as the split-payment mechanism in Poland, real-time reporting in Spain and Hungary, among others, and the increase in the mandatory use of electronic invoices to public authorities. These obligations place an additional compliance burden on taxpayers and require them to adapt their systems. This thus contributes "spontaneously" to an increase in the automation of compliance processes. However, investment in automated systems is an expensive proposition for one-man businesses and small and medium-sized enterprises. When introducing mandatory compliance technology, the government and the VAT authorities are therefore expected to take into account the implementation costs for entrepreneurs and the proportionality of the measures in relation to the objectives to be achieved (such as combating fraud). This also means that before we reach the point where automated VAT compliance can be fully achieved, there are still a number of obstacles to overcome.
The fragmented nature of various new compliance obligations in different countries often causes compliance systems to be adapted on an ad hoc basis to meet the new obligations and thus result in an incoherent whole. For example, a single company often has several coexisting systems per country and/or per branch, which are also difficult to reconcile. The implementation of a single globally integrated compliance system requires considerable investment and also involves a recurring cost to carry out the necessary updates and adaptations. In order to reduce costs, closely monitor global developments and update the systems accordingly, outsourcing VAT compliance to specialist service providers offers relief to many taxpayers. In this way, development costs can be spread over a larger group of users, and taxpayers have a single point of contact to monitor global developments in VAT and other indirect taxes.
The above raises a number of questions, on which you may have a response. If you are an entrepreneur, chances are that you have experience with VAT compliance technology. Based on your experience, do you believe that full automation of the VAT reporting process (i.e. from the moment a transaction takes place) would ease the fulfillment of your reporting and payment obligations? Should a fully automated solution be mandatory for every entrepreneur, or should smaller entrepreneurs be exempt, given the cost of purchasing and maintaining the technology? And, do you think it is important to develop an EU-wide harmonized VAT compliance technology? If you are not an entrepreneur, do you think it is right that entrepreneurs bear these kinds of costs so that the VAT administration can control returns more efficiently and combat fraud more effectively?
In conclusion, VAT compliance technology already has a solid foundation. Once we succeed in overcoming the stumbling blocks mentioned above (among others by using outsourcing), the path for a fully automated VAT compliance process will be paved. However, don’t expect a fully automated VAT compliance process to be in place in Belgium by 2025.
KPMG’s Indirect Tax Team consists of highly qualified tax professionals with a specialization in indirect taxes, including value added tax, customs and excise duties, as well as indirect environmental taxes and levies.
Based on many years of experience and collaboration across industries and services, the experts of KPMG’s Indirect Tax Team have also developed industry specific knowledge and understand the business side of indirect taxes.
They can effectively assist you with all types of indirect tax matters, help you fulfil and improve your tax compliance, as well as support you in complex cases and tax audits. They are your trusted partner in managing all your indirect tax matters in the best possible way.
Author: Sofie Vandermarliere, Tax Manager
The VAT system in Belgium was introduced in 1971, which will be 50 years ago in January 2021. On this memorable anniversary, KPMG Tax & Legal Belgium and Wolters Kluwer jointly publish a series of articles that reflect on the current VAT system in the context of our changing business and social environments. In each article, KPMG tax experts address a specific aspect of VAT and related challenges of the system and offer predictions on future evolutions by 2025.