One of the most relevant tax trends in Colombia has been the use of the electronic invoices (EI) to support sales and purchases for tax purposes.
During 2020, the Colombian Tax Office (DIAN) set the technology, technical requirements and deadlines for a wide group of Colombian taxpayers to start issuing EI when a sale-purchase transaction occurs and once the DIAN had approved the invoice.
To date there are taxpayers, in specific sectors of the economy, not obliged to issue EI, but this is likely to change in the short term. In fact, during 2019 approximately 47.5 million EIs were issued. By November 2020, the number was around 143.2 million.
2021 started with a robust and strengthened EI process and by the third quarter of 2021, it is expected that electronic payroll and electronic supporting documentation will be implemented for certain groups of taxpayers, who will be obliged to transmit this information to the DIAN.
Additional electronic reporting documents and systems are expected to be implemented in the short term. The expectation is that the electronic transmittal of information to the DIAN will allow the authority to access high volumes of quality taxpayer information, allowing an improvement on tax analytics which is key to guide tax audit and tax policy initiatives in Colombia.
Lately, the DIAN has begun to submit reports to VAT taxpayers informing accumulated amounts of revenue and output VAT before the filing of the VAT tax return, to be used by taxpayers as reference for compliance with their formal tax obligations.
This is a new and disruptive feature in the communication between the tax office and taxpayers, and is indeed the expected outcome of the digital tax transformation implemented in Colombia to transform transactional information into valuable input for taxpayers compliance process and to provide the tax office with analytical tools to monitor taxpayers activity.
Electronic documentation as part of global digital transformation trends
The OECD´s Forum on Tax Administration (FTA) produced several discussion papers about the vision of the digital transformation of tax administration. Characteristics of a Tax Administration 2.0 have been identified and trends to become Tax Administration 3.0 have been set for analysis and discussion.
Tax Administration 2.0 pillars have been widely discussed and guidelines seem to be present in the Tax Administration strategy, for example:
- Third party reporting (i.e. Colombian magnetic media information);
- Implementation of reliable reporting systems (i.e. EI);
- Improvement in services to taxpayers (i.e. e-filing, e-payments, online live chats); and
- Detection of non-compliance.
The latter will represent in the use of the digital data to produce ‘better risk assessment modelling’, to enhance, among others, the detection of non-compliance and increase tax collections.
The future will bring Version 3 for Tax Administration with more challenging goals and taxation processes to adapt to in order to ‘fit in with taxpayers’ natural systems’ which may require a deep collaboration between the tax authority and taxpayer.
The Russian tax administration has created an optional system in which the taxpayer grants access to the accounting and tax reporting system to the tax authority facilitating control and monitoring of tax treatments and transactions.
Colombia has started to think about such capabilities, in fact EI tax rules requests that the EI process should guarantee its interaction with taxpayers inventories systems, payments, payable taxes and accounting. In other words, it seems that taxpayers must be able to trace the effects of an EI in their accounting. Further details on this are expected.
Other key aspects of Version 3 will involve third party agents carrying tax administration tasks or grater connections of governmental systems and tax systems (as it has been seen in Singapore where ‘National Digital Identity’ grants access to a portal of various government services including tax services).
Taxpayers to-do list
It will be difficult to predict the next steps for the electronic documents ecosystem; it will depend on how the Colombian tax administration prioritises the tax audit process and its tax policy strategy in the short and long-term.
It may be possible to expect two different areas of focus:
- Detecting non-compliance, in order to increase taxpayer’s basis; and
- Determination of the taxable basis using the electronic documents received.
The latter will enhance the comparison with taxpayers returns and provide valuable information to detect differences and challenge tax treatments. Digital tax transformation comes with many challenges. Taxpayers should start to evaluate if action should be taken now.
- Transmission is not enough: The complexities of implementation of electronic document systems are already surpassed. The present and the future challenge is the analysis of the data reported to the tax administration;
- Waiting is not an option: Analysis of the tax effects of the transactions reported is not a tax administration exclusive task. Taxpayers need to review the information they report and what has been reported on their behalf;
- Anticipation is relevant: Taxpayers needs to analyse before information is processed by the tax authority. Adoption and design of preventive controls to the information reported to the tax authority, before it is reviewed, is key to detect and correct and most likely avoid tax penalties. The best-case scenario would be to apply preventive controls before information is reported to the tax administration, but it would be difficult to implement;
- Automatisation requires tax knowledge: Automatisation is a powerful tool to review a large amount of data and to determine its tax effects but ultimately what matters the most is complying with the tax rules; therefore, tax expertise is required when implementing automatisation; and
- Having a tax system is an alternative to consider. The possibility of having a tax system designed to collect, arrange, review and classify information with the purpose of analysis and to facilitate the pre-population of a tax return is a potential alternative.
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