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The advantages of real-time reporting through the eyes of the experts

Expertise

Introduction

Real-time reporting is picking up pace in more and more countries in order to reduce VAT fraud and increase compliance. In our previous blog posts, we have highlighted many benefits of real-time reporting for businesses and tax authorities. This time, we want to take a different approach: we ask VAT experts.

Through our VAT talks, we have collected an incredible amount of precious information on real-time reporting developments, ways of implementation, its benefits and its weaknesses. After our first episode where we discussed the VAT experts’ view on confidentiality, we now publish our second knowledge sharing episode: an analysis of the advantages of real-time reporting based on the VAT talks interviews we had with VAT experts from all around the world.

First, we will analyse the advantages of real-time reporting from a business perspective, calling on stage Vinicius Pimental de Freitas and Andrea Parolini. Then, we will shift our perspective and talk about the improvements for tax authorities, based on the experiences of Raul Zambrano and Charles de Wet. Fasten your seatbelt, the journey has started!

Real-time reporting from a business perspective

Real-time reporting has many benefits for businesses, from easier compliance to digitalisation of business processes. Speaking with VAT experts gave us once again the proof of how beneficial real-time reporting can also be for businesses. First of all, Raul Zambrano, Director of Technical Assistance and Technology of the Inter-American Center of Tax Administrations at CIAT, mentions the reduction of compliance costs for businesses through automatic VAT returns and refunds as a benefit for companies. This will increase the efficiency of tax authorities and make life easier for honest businesses. [1]

Furthermore, Vinicius Pimental de Freitas, tax auditor at the state of Rio Grande do Sul in Brasil, highlights that real-time reporting can be a source of legal security for businesses: a buyer can be more sure that his/her VAT return will be approved without being challenged by the tax authority. [2] This is also a source of stability for companies which will be able to more accurately plan their business activities.

Finally, Andrea Parolini, member of the European VAT Expert Group, told us his experience when he was working as economic advisor for the Italian government when real-time reporting was introduced. He told us that both businesses and accountants were sceptical at first concerning this new technology. Fearing it would be a burden on their shoulders. Nevertheless, two years after its implementation in Italy, their perception has changed: speaking with one friend in the accountant industry, he was told that “real-time reporting made their workflow faster and more efficient”.

Real-time reporting seen from the tax authority

Real-time reporting has undeniable benefits for tax authorities, as we have extensively explained in our previous blog posts. Our experts highlighted three of them which we wish to mention here: data analytics, VAT gap reduction and the possibility of monitoring economic activity.

Charles De Wet, VAT expert at ENSAfrica, told us that the only way to assess whether VAT has been correctly applied to a transaction is by using data analytics to interrogate the data and the correctness of the VAT accounting. One of the ways of doing this is through real-time reporting which allows tax authorities to match the VAT return of the supplier with the VAT return of the buyer. [3]

This new technology can help tax authorities to speed up their processes, increase their efficiency and reduce VAT fraud. This is not an hypothesis, but a reality. Andrea Parolini explained this to us, by taking the case of Italy as an example. In Italy, VAT revenues in the first year of the adoption of real-time reporting increased by around €3.5 billion and the time to detect frauds sensibly decreased.

Finally, Vinicius and Raul showed us how real-time reporting can also be used for monitoring economic activity. As an example, they explained how a Ministry of Transportation of a country which adopted a real-time reporting system can apply this advantage. In this example, the ministry could make use of the information collected through real-time reporting in order to define new investments following the flow of invoices. This can also help any other ministry which may be provided with more granular information for their investment plans. Monitoring the economic activity is already happening in Spain and Ecuador and may be particularly helpful during periods of economic depression in order to better assess which companies really need governmental help. At the same time, such monitoring introduces large security risks, which is why it’s essential to implement a confidential real-time reporting system.

Conclusion

Real-time reporting has many advantages, both for businesses and tax administrations. It can make compliance easier and less time consuming, speed up the workflow for accountants while reducing the VAT gap and helping countries to better plan their investments. These are just some of the benefits of this technology and many others will come with new developments and improvements. Stay tuned!

[1] https://blog.summitto.com/posts/vat_talks_raul_zambrano_vinicius_pimentel_de_freitas_ciat/

[2] https://blog.summitto.com/posts/vat_talks_raul_zambrano_vinicius_pimentel_de_freitas_ciat/

[3] https://blog.summitto.com/posts/vat_talks_charles_de_wet/