How will SAF-T reporting change the fiscal landscape in Romania?
Alin Negrescu and Alexandru Comanescu of KPMG in Romania discuss the main implications of the new reporting obligation in Romania.
The implementation of the standard audit file for tax (SAF-T), one of the primary objectives of the digitalisation process of the National Agency for Fiscal Administration (ANAF), is starting to take shape in Romania.
As a first stage, large taxpayers will be required to use this reporting system starting from January 1 2022. Consequently, taxpayers have started to adjust their systems to also accommodate the updated technical details recently published by the authorities, as well as to identify whether they have the data required to report under the new standard.
Companies have the opportunity to voluntarily enrol in the testing phase of the system, which is scheduled by the authorities to be available starting from mid-August, in order to make the necessary adjustments before this new reporting system becomes mandatory.
The testing phase is extremely important, as it will shed light on the challenges and the complexity of this new reporting mechanism. No tax incentive is granted for this phase, except that no fines/penalties will be applied for non-compliance with the standard during the testing period.
SAF-T reporting is an international standard which consists of the electronic transfer of accounting and tax data to the tax authorities.
The main objectives of this new reporting system are twofold. First and foremost, the new standard aims to reduce the VAT gap (the difference between expected VAT revenues and the actual VAT collected in government coffers, which provides an estimate of revenue loss due to tax fraud and inadequate tax collection). The second objective is the digitalisation and simplification of tax audits (reduced interaction between tax inspectors and taxpayers, quick reaction to potential fraud).
These two objectives stemmed from the OECD's initiative to implement a uniform reporting standard for multinational companies whose tax reporting has become increasingly difficult for the authorities to monitor successfully.
Statistically, the implementation of SAF-T, as per the OECD standard, or its variants in other EU countries, has helped the respective countries to combat the increasing VAT gap (of course, together with other tax measures). Poland, for example, where SAF-T became mandatory for all taxpayers in 2018, achieved the third largest decrease of its VAT gap among all EU member states in 2018, according to a report by the European Commission.
Romania is unfortunately at the other end of the spectrum, and is still currently one of the EU member states with the highest VAT gap in percentage terms. Consequently, the implementation of SAF-T can be seen as an important milestone towards addressing this issue. Extensive and standardised transaction reporting could help to gradually improve tax revenues to the state budget.
Secondly, the implementation of SAF-T will speed up the digitalisation process of the Romanian tax authorities. Although Romania has implemented several initiatives to help with this process, and ironically the pandemic has actually proved helpful in this respect, as tax authorities have more or less adopted electronic correspondence instead of the traditional ‘pen and paper’ approach, there is still a long way to go.
SAF-T reporting provides just that – the opportunity for tax authorities to carry out remote checks via electronic means, as a result of the very detailed level of information made available by taxpayers via this new reporting system. Tax inspectors will have access to the data included in the general ledgers of taxpayers and will be able to request additional documentation for certain transactions they deem relevant. In other words, the tax authorities will gain an increased level of certainty with respect to the activity of taxpayers, combined with a decrease in the resources needed to actually carry out tax audits.
Of course, when considering benefits, the challenges cannot be overlooked. Probably the biggest challenge taxpayers need to overcome is the very short timeframe in which this new reporting system is being implemented.
Under the current timetable published by the Romanian tax authorities, this reporting requirement will become mandatory for large taxpayers starting from January 1 2022, and for all other categories of taxpayer (including non-resident taxpayers registered for VAT purposes in Romania) starting from January 1 2023.
This leaves all companies with very limited time to adapt their IT, tax and accounting systems so that they are compliant with the new rules.
Secondly, the sheer volume of required information is enormous. Romania chose to implement the second OECD version of the SAF-T model, comprising the five modules – general ledger, receivables (AR), debts (AP), fixed assets and inventory. The first three modules will be submitted on a regular basis (in line with the period for filing the VAT returns), the data on fixed assets will be submitted only once a year (along with the submission of the financial statements), while the information related to inventory only needs to be submitted at the request of the tax authorities.
To comply with the new obligations, taxpayers will be required to provide the authorities with a considerable amount of accounting and tax information related to their business, in a predefined but quite complex format. As a result, taxpayers need to prepare for this, as soon as possible, to allocate resources (both financial and human) in order to verify whether the required data is readily available in their IT, tax and accounting systems.
To summarise, while SAF-T is arguably one of the biggest projects undertaken by the Romanian tax authorities, it should be considered an opportunity by the business environment, but at the same time, the challenges involved in implementing this initiative should not be overlooked.
Partner, KPMG in Romania
Director, KPMG in Romania