To simplify tax compliance and audit, as well as to reduce tax evasion and fraud, the Organisation for Economic Co-operation and Development (OECD) in 2005 introduced an international standard for exchanging data between companies and local tax authorities. This file, designated as the Standard Audit File for Tax Purposes (commonly known as SAF-T) was represented using Extensible Markup Language (XML), a free and open format commonly used to represent data structures. However, the OECD did not make this file format compulsory.
The first version of the file defined by the OECD in 2005 was based on a reduced set of information, namely accounting, sales, purchases, and payments. A second version was introduced in 2010 with another set of information, namely inventory and fixed assets. This revision also addressed improvements on the previous data structure.
This file was designed to provide a normalised data structure among all countries; however, in order to meet specific needs, some changes were introduced locally in countries that adopted this standard.
In 2008, Portugal became one of the first countries to implement this standard in a XML file format, named as SAF-T (PT), as a legal requirement for all taxpayers subject to corporate income tax.
Until now, three additional data structures have been published by the Portuguese tax authorities (PTA). These new versions have brought sets of adjustments to ensure proper alignment between the file structure and the realities of the Portuguese fiscal, business, and information systems.
As expected, this has caused major disruption in the way companies conduct their business and perform their internal control and reporting processes. Even for the PTA, the days of tax inspections with pen and paper have ended, and new methodologies, tools, and IT infrastructures have been required and implemented.
In 2018, 10 years later, it could be expected that all had been done. However, in our experience, companies are still facing many diverse challenges, namely:
- The generation of a compliant SAF-T (PT) file;
- Assurance that the file content corresponds to reality;
- A lack of in-house confidence that ongoing changes and the increment of complexity in the systems to comply with business needs are in accordance with the file requirements;
- The degree of effort required to adjust the systems to meet new changes to the file data structure;
- The high volume of data to be pulled from their systems and proper mapping to the SAF-T (PT) file;
- The limited internal resources with sufficient know-how on this matter;
- Addressing the multinational environment and associated group policies versus local needs.
Additionally, these have been times of big decisions, including: (i) rethinking the organisational structure of companies to ensure better communication between all stakeholders; (ii) deciding between major overhauling of legacy systems and implementing flexible new systems; (iii)reviewing business and support processes; and (iv)critically challenging the way of doing things. These facts bring another layer of challenges to the SAF-T (PT) compliance landscape.
Considering all of the benefits that the tax authorities obtain with these new ways of ensuring that companies comply with all their fiscal obligations, it can be taken as granted that in Europe and other regions, the SAF-T compliance obligations are here to stay.
Portugal, with 10 years’ experience in this matter, could be considered as a case study when implementing SAF-T in other countries. Substantial efforts have been made, and new ideas and breakthroughs have been achieved, such as:
- Billing software certification, issued by the PTA, with the objective of reducing sales suppression techniques;
- Submission to the PTA of information regarding transportation of goods prior to shipment;
- The PTA e-invoice web portal, which congregates all monthly invoices issued by companies, enabling all individual taxpayers, to verify the VAT to be deducted on their annual individual income tax returns (a Portuguese tax benefit for individual taxpayers);
- Communication of the annual SAF-T (PT) accounting data for the prefilling of the annual return, which includes company financial statements.
These are all good examples of what has happened since 2008, and indicate what is still to come.
Furthermore, blockchain and distributed ledger technologies are emerging. Management teams around the world are considering how these new concepts can be used in their business, while governments are also considering new methods to ensure that due taxes are collected.
Tax compliance is becoming increasingly data- and technology-driven.
This article was prepared by Ricardo Lourenço (email@example.com), tax technology director at PwC
Tax technology director, PwC