UAE firms face hiring crunch as VAT implementation nears

Dubai: With the forthcoming implementation of value-added tax (VAT) in the UAE and across the region, companies are going to face a huge talent crunch next year, according to recruitment specialists.Businesses in the UAE are gearing up for the collection of VAT in 2018. It was earlier forecast that the next tax policy will generate thousands of new vacancies for finance professionals. Source: UAE firms face hiring crunch as VAT implementation nears | GulfNews.com

According to surveys not many businesses have an adequate accounting systems to deal with VAT. Besides that lots of businesses lack the VAT knowledge of how a VAT works. Investments and training are needed to be ready in time.

To get VAT ready the following actions should be considered.

1. Assess the business impacts
2. Amend IT systems and business processes to the new situation forecasted and
3. Review existing contracts and set rules for new contracts

How to get VAT ready in time

Modernising VAT for cross border e-Commerce

The European Commission released legislative proposals to remove VAT obstacles for e-commerce to realize fair competition between traditional business and e-commerce.

The Commission has proposed practical new measures to support the digital economy when it comes to VAT compliance, which can currently place heavy burdens on small companies operating online.

The new rules should help to accelerate growth for online businesses, in particular startups and SMEs.

Proposals include:

• New rules allowing companies that sell goods online to take care of all their VAT obligations in the EU through a digital online portal (‘One Stop Shop’), hosted by their own tax administration and in their own language. These rules already exist for online sellers of electronic services (‘e-services’);
• To support startups and micro-businesses, the introduction of a yearly VAT threshold of €10 000 under which cross-border sales for online companies are treated as domestic sales, with VAT paid to their own tax administration. This goes hand in hand with other initiatives such as same invoicing and record keeping rules. Our aim is to make trading in the single market as similar as possible to trading at home for these companies;
• The removal of the current exemption from VAT for imports of small consignments from outside the EU, which leads to unfair competition and distortion for EU companies;
• A change to existing VAT rules to enable Member States to apply the same VAT rate to e-publications like e-books and online newspapers, as they apply to their printed equivalents.

These new rules will have a major effect for companies selling goods and services online that will now be able to benefit from fairer rules, lower compliance costs and reduced administrative burdens.

Member States and citizens will benefit from additional VAT revenues of €7 billion annually and a more competitive market in the EU.

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A cost efficient way to submit SAF-T files and perform risk management

To support the development of this guidance the OECD has laid out the Standard Audit File for Tax Purposes (SAF-T). This guidance establishes the standard to be used for the exchange of tax data between companies and tax authorities.

The aims of the CFA guidance are to simplify tax compliance and audit requirements by clarifying the information required from business and accounting systems for tax reporting.

As a result SAF-T is intended to give tax authorities easier access to the tax relevant company data (corporate income tax and VAT) in a consistent format leading to more efficient control and audit of tax regulations.

Every company with a SAF-T-requirement is now facing the challenge of finding an easy and reliable way to deliver the required data. Multinationals have the further challenge of providing a range of country-specific information in a controlled and efficient manner.

Efficient use of technology lowers costs of data collection and compliance. As a result more and more tax administrations around the world are implementing electronic auditing of business’s financial records and systems as part of their compliance regime.

Countries might have their own specific local SAF-T requirements but in case the basic required data are covered in the OECD framework it could be managed with country specific variants. You can compare it with the EU VAT requirements: EU Directive as framework with some country specific rules based on the options in the EU Directive.

Taxpayers will be obliged often to submit the SAF-T format:

• – on request in the case of a preliminary tax inquiry, a tax audit and tax proceedings;
• – monthly mandatory VAT SAF-T

The SAF-T VAT file should reconcile with the numbers of the VAT return to avoid a higher risk of a VAT audit.

Often I hear that the on request is given a lower priority. Be aware that audit defence is an important building block for a sound tax strategy. Although it is an ‘on request’ obligation it is important to run this requests regularly and archive.

This data will be used by the tax authorities for a tax audit to check whether tax positions taken in the tax reporting and /or rulings closed (corporate income tax and VAT) actually reflect the data in the SAF-T files. It is critical that your in-house tax department has sufficient time to assess the ‘on request’ data for any unacceptable tax risks.

I recommend use this functionality in-house as a pre-audit prior to the law being in force.

A SAF-T SAP add-on solution developed together by ‘Tax Assurance and certified SAP add-on specialists’ is now available for Poland, Lithuania and Norway and is scalable. The SAP add-on is extendable to countries that uses the OECD framework as the basis for SAF-T reports.

Note that countries might have their own specific local requirements but in case the basic required data are covered in the OECD framework it could be managed with country specific variants. Certain countries such as France, Portugal, Austria, Luxembourg, etc. – have already SAF-T in force.

Richard H. Cornelisse, Tax Assurance specialist – access PowerPoint for further explanation.

SAP add-on for SAF-T in Poland

In Europe SAF-T is now in force in Austria, France, Lithuania, Luxembourg and Poland. Germany, UK, Ireland, Norway and the Czech Republic are most likely next to introduce SAF-T. Lithuania is expanding its SAF-T.

Starting October 1, 2016 all VAT-registered taxable persons, – including foreign companies registered for VAT – will be required to submit a SAF-T file in XML format to the LT Tax authorities on a monthly basis.

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SAF-T SAP solution: fully integrated in SAP

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We now offer a SAP add-on solution for SAF-T Poland (ABAP) at a fixed all inclusive fee. It is fully integrated in SAP without an external interface or use of external software. All inclusive means implementation, training and 1 year of free support and maintenance for bug-fixes & legal updates.

Our IT solution can be reused for other countries.

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SAF-T Poland

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Besides the monthly SAF-T VAT file in Poland, companies have to be able to meet the SAF-T obligation ‘on request’ containing different legal requirements. This submission applies in case of a preliminary tax inquiry, a tax audit and tax proceedings where the SAF-T file should be provided to the PL tax authorities in a short timeframe.  To avoid disputes and or penalties it is therefore important that a company is ready.

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To establish synergies we have setup a joint venture initiative with a global development partner of SAP and leading software company in the area of e-invoice, e-bookkeeping, e-archive, e-ticket and such SAP add-ons in Poland. This company provides SAP certified add-ons for legal compliance to a large number of global well-known companies.

• Runs over SAP
• User friendly with single user interface (SAP)
• Easy to install by external SAP transport
• Easy to maintain by upgrades via transport files
• Has its own global SAP namespace so there is no effect on SAP standards and is not affected by SAP upgrades
• Standard SAP authorizations used
• Open source code as ABAP programming language
• Vendor independent
• One year free maintenance service including bug-fixes & upgrades according to legal compliance

Last Thursday – 25 August 2016 – was the deadline of the monthly VAT SAF-T PL submission.

Our generated SAF-T VAT file reconciles with the numbers of the Polish VAT return and have also been checked with the official tool of the Ministry of Finance.

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Contact us for more information

Certain SAP activities illustrated via ‘Brexit’

The impact of ‘Brexit’ – its VAT law change – is used to illustrate the SAP activities and resources needed when a company has to deal with a country setting change from UK to Non-EU.

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Assumed VAT law changes

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‘Brexit’ will result that trade between the UK and the EU countries and vice versa will be treated as imports and exports. VAT reporting will change as well as EC Sales Lists and Intrastat reporting will no longer apply. Transfer of for example own stock to or from the UK is no longer considered a fictitious intracommunity transaction.

With respect to chain transactions UK companies or non-EU companies with a UK VAT registration can for example no longer be party B of a simplified triangulation, unless that UK company is also VAT registered in the EU. 

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SAP – assess, redesign and … test!

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In order to implement ‘Brexit’, SAP settings have to be changed. In SAP’s country table T005 the UK must me changed from EU to Non-EU. That also means that tax determination logic, tax codes, invoice and reporting requirements have to be assessed and any (new) rules implemented as well. Take for example ‘Plant abroad’ and transfer of own stock to or from the UK, it is no longer deemed a fictitious intracommunity transaction.

Companies that have GB hard coded in their tax determination logic to determine the VAT treatment of UK transactions need to review the logic setup to avoid non compliance.

Besides assessments by the tax function – extra costs when outsourced to external advisor – IT effort has to be scheduled in to make it happen. Change management processes follow strict IT policies and specific and extensive test rules in practice apply before it can go to production. Those mandatory test cycles are time consuming and have a huge impact on resources.

When manual processes and controls are setup to manage complex VAT transaction that includes dealing with the UK new guidance should be drafted and ongoing review take place to control that these new procedures are actually followed up.

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The ideal SAP world of managing change

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• In the ideal world to implement Brexit and the current VAT rules from EU to Non-EU you would go to customizing of SAP and change the EU indicator field from ‘EU’ to ‘Non-EU’ and that the immediate outcome is that UK transactions are considered automatically import and export. Condition records do not have to be reviewed and ‘Plants Abroad’ settings are automatically updated.
• Test cycles as mentioned above do not apply as the overall functionality has been tested before and has been IT approved as it works.
• It would be ideal as well to have real-time access to UK transactions. That the blue print of the company can be shown so that you are able to immediately zoom in on (chain) transactions involving the UK. That such transactions can be made visible, accessed and changed on the spot. Not only important for UK companies but as well or even more for companies dealing with the UK.
• Suppose SAP would have its own Tax Control Framework that automatically checks non VAT compliance. For example, the UK in a simplified triangulation is automatically picked up and blocked or put in an emergency table just because you have changed the country setting from EU to Non-EU.

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Is that functionality already available?

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Yes, all above functionality exist. It is called ‘PwC Taxmarc’
Contact

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Data and technology

See also my first article about Brexit: ‘Brexit time to act‘?

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• ERP systems and tax engines
• When is standard SAP (in)sufficient?
• SAP and triangulation
• SAP and import, export and chain transactions
• SAP and plants abroad
• SAP checklist for VAT rate change
• Everything you always wanted to know about VAT in SAP * but were not aware to ask
• SAP implementation
• Tax engines questions to ask before you commit
• SAP and SAF-T Poland
• SAP and monthly SAF-T VAT file in Poland (JPK-VAT)

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Written by Richard H. Cornelisse

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Monthly SAF-T VAT file in Poland (JPK-VAT)

According to new regulation Large Enterprises are obliged to submit mandatory VAT SAF-T file in legal XML format for the first time on 25 August 2016. It is a monthly obligation even if the VAT reporting period itself is quarterly.

SAP and VAT SAF-T

I refer for complete overview to ‘SAF-T for Poland and SAP‘.

Most companies download the standard SAP VAT return reports from SAP to Excel and have an Excel working paper for review and adjustments. The data in the SAP reports are retrieved from various SAP tables.

The SAF-T VAT file need to reconcile with the submitted VAT return (monthly or quarterly). If this file does not reconcile to the submitted VAT return the risk that the PL tax authorities will ask questions – explain the differences – is high.

Our SAF-T VAT solution for Poland

• First deadline to submit SAF-T file is August 25, 2016 (feasible)
• Our solution ensures the completeness of the required data
• Meets legal XML format
• A control report exists that the total VAT amounts and data in the SAF-T VAT file reconcile

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‘Brexit’: time to act?

Relax, the VAT law will probably not change in the next 2 years.

The UK must first give the European Council notice of its intention to withdraw and a ‘Brexit’ agreement has to be negotiated. The negotiations are about setting the new relation between the UK and the EU and include tax and tariffs. That is already delayed as Prime Minister David Cameron considers that all a task of his successor.

“Mr Cameron has said it should be up to his successor to decide when to activate Article 50 by notifying the European Council. Once this happens, the UK is cut out of EU decision-making at the highest level and there will be no way back unless by unanimous consent from all other member states.

Quitting the EU is not an automatic process – it has to be negotiated with the remaining 27 members and ultimately approved by them by qualified majority. These negotiations are meant to be completed within two years although many believe it will take much longer. The European Parliament has a veto over any new agreement formalising the relationship between the UK and the EU.” Brexit: What happens now?

‘Brexit’ will result that trade between the UK and the EU countries will be treated again as imports and exports and most likely – unless negotiations will have a different outcome – result that customs duty have to be paid when goods move between the UK and the EU (duty rates might change).

As EU law will no longer apply – ‘be in force’ – the UK regains the right and flexibility to introduce own VAT legislation (again). That can be done much quicker as EU approval is also no longer required:

• VAT rates and the scope of zero-rating and exemption.
• Reversed CJEU decisions (e.g. broader scope of exemptions)
• Place of supply rules that could result in double taxation or non taxation

The interpretation of UK VAT law during litigation becomes a UK matter only at least for issues that took place after the secession. With other words the UK regains full control.

VAT reporting will change as well as EC Sales Lists and Intrastat reporting will no longer apply unless a similar concept is negotiated with the EU. UK businesses that operate in the EU the VAT compliance obligations are impacted and an analysis should be made:

• Appoint a fiscal representative
• Invoicing and reporting requirements
• Simplified trangulations for chain transactions
• Distance sales rules
• Mini One Stop Shop
• EU VAT refund rules
• etc.

From an operational perspective a company’s processes and controls have to be updated to the new situation at hand. ERP systems must reflect these changes and that means that tax determination logics, tax codes, invoice and reporting requirements have to be assessed and new rules implemented as well. IT time has to be scheduled in to make it happen.

That being said businesses will have sufficient time to oversee the consequences and be well prepared. It will probably take 2 years to come into force.

Lots can also happen in the meantime. Maybe a next referendum reverses the ‘Brexit’. Or United Kingdom will become less united as Scotland and the city of London (??? – LOL) decide to remain with the EU.

The future will tell.

Richard H. Cornelisse

Moving beyond tax technical advisory only

Surveys are alarming

If indirect tax risks are truly that high, then shouldn’t it receive more attention from the CFO?

Richard H. Cornelisse: That’s exactly the reason I started the Global Indirect Tax Management initiative. It’s not that the problem is unknown among the multinationals, but they just don’t share information sufficiently. The Indirect Tax Function is aware of the fact that it is understaffed and that budget is too limited to optimally execute its tasks, but they often don’t know how to change this and get it on the agenda of the CFO.

How it all started

How I started simply by ‘sharing my views’ and ‘take position’.

At Andersen around 2000, I discovered that my advice about VAT cash flow optimization was wrongly implemented in the ERP system resulting in a cash flow disadvantage for many years. That was my eye opener and was actually the reason that I set up as one of the first a team with a focus on ERP and indirect tax solutions.

Understanding the root cause and solving the real problem became from that moment on my mantra and I also started to write and share my views. Certain views – looking back – can now be argued, but that is exactly the reason why I am sharing these articles as it simply shows my way of thinking at that time and gives some insight about developments.

The Andersen team continued when we moved to EY. We branded the service offering in 2002: ‘ISIS’ (Indirect tax Solutions for Information Systems). In hindsight not really a good name.

VAT ERP remains still an important VAT critical process to manage, however it is only one of the building blocks of indirect tax function effectiveness. The launch of this website has taken it all a step further as all of its building blocks are addressed and discussed. I refer to the Tables of Contents.

How it all started: ‘2005 – 2012 – A selection of my publications‘: my own road trip.

SAF-T for Poland and SAP

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From 1st July 2016 onwards it is required to provide SAFT-PL files (in Polish: “Jednolity Plik Kontrolny” or “JPK”) in XML format on request of the PL Tax authorities.

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Filing SAF-T will be mandatory for large taxpayers: employ more than 250 people or 50 million EUR sales revenue irrespective of whether they are established in Poland or not. Per 1st July 2018 this extended to taxpayers with more than 9 employees or 2 million EUR sales revenue.

Foreign businesses not having a branch and/or fixed establishment but that are registered for VAT in Poland fall within the scope of the above reporting requirement when above conditions are met.

On 19 May 2016 the Upper Chamber of the Polish Parliament passed a bill on the amendment of provisions of the Tax Ordinance and of some other acts. According to the bill adopted by the Parliament, the obligation to generate VAT reports in a SAF-T data format and their monthly reporting to the tax authorities will apply initially only to the largest enterprises for each month begun on or after 1 July 2016.

It means that Large Enterprises will be obliged to file VAT reports in the SAF-T data format already on 25 August 2016. Thus, Large Enterprises will be obliged to submit in monthly period VAT register in SAF-T format (according to JPK_VAT structure 4 – VAT register) even if the VAT reporting period is quarterly.

Taxpayers will be obliged to submit the SAF-T format:

• on request in the case of a preliminary tax inquiry, a tax audit and tax proceedings;
• monthly mandatory – with respect to the VAT sales and purchases records only (Article 109(3) of the Value Added Tax Act of 11 March 2004 (VAT records) by submit monthly a SAF-T file that contains VAT sales and purchase records.

The first requests to submit audit files at their discretion will likely take place September 2016.  The monthly VAT reports on 25 August 2016.  Not complying with this obligation will not only negatively affect the position of taxpayers during a tax audit but also result in unforeseen tax costs as penalties will be levied.

‘Final’ version of the logical structures of the Standard Audit File (SAF) was published by the Ministry on 9 March 2016 including FAQ.

Besides introduced now in Poland similar EU obligations exist already in Portugal (2013) Luxembourg (2013), Austria (2009), France (2014), Lithuania (2015). More and more tax administrations around the world are implementing electronic auditing of a business’ financial records and systems.

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SAF-T Poland and SAP

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SAP developed currently only an extraction tool for SAP ECC 6 and higher version. The generation of the SAFT-PL XML files is not included. Certain companies use “older versions” of SAP and will not be supported by SAP.

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Based on SAP’s OSS notes, SAP provides only at the moment a functionality for gathering and downloading the transactional data. However, it is not the complete set of data required and the creation of the SAF-T file for the tax authorities is also not included. The functionality will also only be available for companies established in Poland and not for companies with a foreign Polish VAT registration.

In order to be able to comply with the requirements and provide the XML file on request in time, tooling needs either to be developed or purchased.

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Our solution

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A SAFT-PL tool that already works for Portugal that includes also strategy for downloading the relevant data from SAP  for older SAP versions.

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The basic design for a workaround solution is to extract the raw source data from the relevant SAP tables and use software tools to load the relevant data from the source SAP tables, perform additional mappings and data preparations and create the required XML files.

We offer 2 solutions:

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• A software application called Audit Command Language (ACL). This software is commonly used by auditing firms, tax authorities and internal audit departments. The process will be that the client will download the data from SAP and make it available to the Phenix. Phenix will then generate the XML files and some control reports and provide these files and reports available to client for submission.
• A tool in MS Access in combination with a specific user interface for extracting the data from SAP. The result is a full in-house solution for the client.

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Above process is based on our proven tool developed for the generation of the SAF-T files for Portugal.

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Detailed information about SAF-T compliance and planning

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• More info about our SAF-T solution for Poland
• Mandatory electronic audit files a worldwide trend
• Guidance for the Standard Audit File – Tax, Version 2.0
• Tax authorities peeking at your data

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Contact us for more information

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Embrace new technologies and catch up: Taxmarc

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Add-on for SAP offers high-quality data for tax managers and lowers work pressure for the IT department.

• Access to the right data at all times
  On the basis of this guarantee Taxmarc makes your data management extremely straightforward. The tax control framework checks every transaction, after which the database only saves the correct figures. Non-compliant transactions are reported in real time so that the tax department can take action immediately. It is no longer necessary to carry out a manual check of the data when making a tax return.
• Integration with SAP, simple maintenance
  Taxmarc is a permitted add-on for SAP – the code is written where SAP allows this. The integration with SAP means that no extra interface is necessary. As a result, SAP upgrades do not lead to any problems and maintenance is straightforward. There is no need to program anything yourself. The Taxmarc implementation guide (IMG) makes it possible to adjust the configuration in line with your personal wishes.
• Automatic reporting
  Thanks to Taxmarc’s central data management you can generate reports automatically. Examples are an automatic VAT and Intrastat return and any section of your data that you desire, without any manual effort being required.
  Integrated tax control framework
  The tax control framework in Taxmarc checks every transaction to make sure that it is permitted according to the legislation and regulations and permissible in accordance with the organisation’s own rules. Rejected transactions are reported immediately and automatically so that the tax manager can take action at an early stage and always has access to the accurate tax position.
• Central data storage
  Taxmarc uses thirty parameters to collect all the tax data from SAP and places it in a single database. The real-time check by the integrated tax control framework guarantees high data quality. Contamination of the database by rejected transactions is a thing of the past. The central data management facilitates data analysis up to transaction level. Integration with other systems, for example with the Tax and Customs Administration, is straightforward.
• All relevant data on a single screen
  The easy-to-use Taxmarc cockpit offers buttons to make any data report you desire, for example the total VAT position, transactions rejected by the tax control framework or country reports. Taxmarc is designed to be easy to use for tax managers and displays all the relevant data – such as tax code, VAT registrations, proof of export and import indicator – on a single screen. Thanks to the central data management, users can freely click through to goods flow details from financial and VAT data.
• Global solution
  Taxmarc is currently operational in around 50 countries. This means that Taxmarc can determine ‘indirect tax’ for all the regions in which you are active – no matter whether this means VAT, GST, sales tax or use tax.

Do you like to know more about SAP VAT weaknesses and technology improvements:

• ‘When is standard SAP (in)sufficient?’