Confidentiality has a special place in our discussions with VAT experts. We are aware of the potential impact of ransomware attacks and data breaches on the economic activity of businesses and entire countries. This is why we developed a confidential real-time reporting solution. We have seen that tax administrations are starting to reduce the amount of data they collect. Nevertheless, this could get them into a very difficult situation as the less data collected the less useful the system becomes. As a reader of our blog you know that we provide an answer to this challenge. However, let’s first hear from the experts we had the opportunity to discuss the topic with.

Lesson 1: confidentiality is becoming more and more important in the realm of VAT

While speaking with VAT experts from all over Europe, we very much enjoyed their expertise and lucidity in making clear how real-time reporting systems are very much needed both to digitalise VAT and increase state revenues. Nevertheless, it was also made clear to us that countries do not always invest time and resources in developing better and more efficient cyber-security systems for their real-time reporting solutions. In a world where data breaches and ransomware attacks are becoming more common, this could be a “gambling game”, as VAT expert Richard Asquith acknowledged.

Richard underlined how countries already implementing real-time reporting solutions may use “pretty insecure platforms” which do not adequately protect the information stored in the system. Branislav Kovac, tax partner at VGD Slovakia, also stressed this issue: “Data protection is a very important matter for businesses. It concerns not only privacy, but also confidentiality. So think about business secrets that could be exposed. For example, disclosing any kind of unit prices or quantities on invoices should be out of discussion”.

An echo to Richard’s and Branislav’s statements comes from Piotr Arak, director of the Polish economic institute. In his view, data breaches are “one of the biggest threats to any IT solution”. For this reason, he suggests discussing any IT system implying an increase in the amount of data gathered by tax authorities with business associations first.

Finally, Marie Lamensch, member of the VAT Expert Group of the European Commission, stressed how businesses are very much concerned about the issue of privacy: “businesses are aware of the need to protect their data and their obligations towards the protections of their client’s information”. We agree with Marie and think that a real-time reporting solution should take into account the businesses’ needs, also concerning data protection.

Lesson 2: looking for a balance in the amount of data gathered

Another important issue raised by VAT experts when discussing cybersecurity is the amount of data gathered by tax authorities. Cyrille Sauterau, head of the French Forum National de la Facturation Électronique et des Marchés Publics Électroniques told us that tax administrations need structured data in order to run the auditing process. “Everything that is free text is of no use for automatic processes” and should rather not be collected by tax authorities in our opinion.

This view is also shared by Fabiola Annacondia, Editor of IBFD’s International VAT Monitor and the EU VAT Compass book. She sees that some countries are asking for a lot of information and wonders if tax authorities will be capable of analysing all the information they are asking for. Fabiola raises indeed an important issue which can be summed up by asking if the proportionality principle is respected?

Conclusion

In conclusion, our concerns about cybersecurity and data protection are shared by the VAT experts we had the opportunity to speak with. On the other hand, countries are not always accurately taking into account such challenges, often storing invoices in plain text on centralised platforms. Like all VAT experts, we share the hope that no attack or data breach will affect any real-time reporting solution, but we also think that countries should rather act now in order to avoid this possibility.

We would like to thank all VAT experts that have previously joined us for an episode of VAT Talks and hope that many more will follow in the near-future.