At summitto, we start our day with a fresh shot of VAT news via VAT Update. We’re sure that a lot of VAT professionals developed the same ritual. That’s why we’re very pleased to be able to discuss VAT with one of the founders of VAT Update, Kelvin Hulsebos! In this episode of VAT Talks we spoke about VAT Update, the latest VAT news and real-time reporting in the European Union.
Could you tell a bit more about your work and how you ended up in the field of VAT?
“I started studying Tax Law at the University of Amsterdam and VAT was one of the subjects that really grabbed my attention. Since then, that was around 1995, I have been working with VAT and I still enjoy that every day. After I finished my studies in 1997, I started my professional career at Arthur Andersen. After Arthur Andersen I worked for a couple big four companies and at a certain moment I started working on a freelance basis. That led to a good opportunity with Shell, which was offered to me via an ex-colleague of mine who owned a recruitment company. Afterwards, I worked for quite a lot of clients as an interim-in house VAT specialist. In general, although it depends on the specific project, I deal with VAT from over the entire world. For example, at this moment I have two simultaneous projects, one where I am responsible for the global VAT whereas for the other I focus on Europe.”
“To link this to VAT Update, when I started for myself I didn’t really have a lot of sparring partners, but I did have a lot of information and sources. At that point I came up with a way to scrape all news in order to get to such sources in an automated way. I then created an online database and at a certain moment there were quite some people making use of it. A couple of years ago, together with my former colleague Bas de Koning we started thinking about how we could bring this to a next level. Then the project really got a boost and VAT specialists from various countries offered their support as a contributor. This year we will probably get very near to the 1 million page views. Furthermore, we have followers on Linkedin and Twitter and we also have our weekly newsletter as well.”
“All in all, we notice that we really can offer exposure and that we are an interesting platform for many companies that contact us with the question if we can publish their message on VAT Update. It’s really cool to see this interaction.”
What makes VAT so interesting for you?
“That’s actually a very good question. On the one hand VAT can be very factual, while on the other also very theoretical. For example, if you read a European Court of Justice (ECJ) court case, you will really get a look behind the scenes. You really see how a company is dealing with its transactions. At the same time it is not too dry, as I also really like the theory. That’s not boring and too factual. It really is a fun subject, also just to think about it.”
Because of your work, both as a VAT specialist and as the founder of VAT Update, you come across a lot of VAT news. What is the most interesting development in the VAT world at this moment?
“That is one of the fun aspects of VAT Update indeed, that I get to see a lot of VAT news from all over the world. At the same time I’m not an in depth expert in all of those subjects of course, but I do really like to follow that kind of news.”
“Regarding your question, I was just looking at VAT Update and searched for fraud. Then you find for example that Poland prevented 50 million in fraud. Remarkably, there are a lot of similar messages coming from Poland as they really set up some sort of task force that focuses on fraud prevention.”
“What also got my attention was the news from the European Union that a new European prosecutor office was created to tackle VAT fraud, called EPPO. Apparently, they have a very hard time to get started, because they struggle with their budgets. This is despite the enormous amount of VAT that is lost due to fraud and it is because, according to themselves, ‘no one’s interested in value-added tax. It’s just not sexy enough.’ In short, they just do not have enough funding and they even still have to hire a large part of their staff.”
“An article about the Bangladesh Tax Authority shows that countries are also using different means to increase taxpayer compliance, for example by rewarding taxpayers for their good behaviour. In Bangladesh, the 140 companies that paid the highest amount of VAT receive an award. Another such solution is a lottery, also implemented in Bangladesh. This system allows you to participate in a lottery via your receipt. I think that in itself, every measure that tackles fraud is a good idea, but what also became clear from previous VAT Talks interviews is that what you don’t want is too many different measures. So it’s hard for me to say what the most successful way to reduce fraud is, but you always have to think about ‘what do we want to solve, how hard is it to implement it and how much energy does it cost to comply with such measures?’”
“In a similar vein, I also came across a message about India, where they create a complete profile of a taxpayer. This profile has an impact on for example its refund, so it might take longer before you get your tax refund in case you have a high-risk profile. On the one hand it stimulates companies to be compliant and on the other hand it also provides the tax authority with tools to do controls. Related, what you also often see is that payment by card is stimulated in order to ban cash. I saw this was being discussed in Italy.”
“In the category of more VAT technical solutions, there is the domestic reverse charge. I saw for example that Sweden is now implementing this for mobile laptops, consoles etc.”
“I also stumbled upon an article discussing VAT fraud in Singapore and I wanted to mention that to show that carousel fraud, or Missing Trader Fraud, is not only a problem of the European Union, but actually all over the world.”
“Lastly, which is not really related to fraud but it did put a smile on my face, was a message from Saint-Kitts and Nevis. Apparently they have a VAT day which looks a bit similar to what they do in the US with Sales Tax holidays. These holidays are certain days or periods where tax rates are temporarily lowered. I thought this was a fun article to point out, because it is not something I’m used to seeing everyday.”
Recently an article appeared in Het Financieele Dagblad, discussing the potential of real-time reporting in the Netherlands. Do you think it is time for the Dutch Tax Authority to push for modernisation?
“I can imagine that the Netherlands wants to modernise the VAT system as they did not really focus yet on real-time reporting for example, like Italy, Hungary, Spain and now also Greece are doing. The main measures the Netherlands, and Belgium as well I believe, is currently taking, are more focused on data analysis. As I’m not an expert in this field, it’s hard for me to decide what is the best solution. I’m also not aware of any preliminary results of already implemented real-time reporting systems. I do know that Russia achieved enormous results with such a system, although I do not know all the ins and outs of that particular system.”
“In itself, modernisation is almost always a good thing, although you really need to be careful, and I’m sure they have thought about this, that you don’t end up with a different system in every EU Member State. Still, if it turns out that real-time reporting is successfully reducing fraud in other countries, it could be a good idea for the Netherlands to also have a look at it. And if they do, they should find a business friendly implementation method for it.”
Regarding the results, we previously spoke with Michel Schrauwen and Oscar Smeets from Deloitte, who showed with public data from Italy and Spain that real-time reporting indeed contributed to reducing the VAT gap. Given these positive results, do you foresee that this trend of real-time reporting will continue?
“As I just mentioned, if those systems actually help to reduce VAT fraud, I think this trend will definitely continue. This trend started in Latin-America, where it was first implemented on a large scale and now you really see it being picked up by EU Member States as well. When that proves to be successful, then this trend will only continue.”
“The main thing that could be a concern for businesses, is that when a new country is introducing such a system, they need to figure out all new rules of that country. As large companies often have many different systems, this could have far-reaching consequences. On the other hand, when you are implementing it in the right way, it can also offer benefits to businesses. For example, in Poland they no longer need to file regular VAT returns, this is replaced by SAF-T.”
What do you think companies would say if such a system were implemented. How can tax authorities make sure companies will not suffer from additional administrative burden?
“Administrative is maybe not the right word. I think you should watch out for a higher general burden. Of course, companies will decide to automate such processes. If this is done in the right way, then there are only some costs in the beginning to set up everything. Afterwards, everytime you send an invoice, it should also go to the tax authority’s portal which could also provide advantages for companies. For example, it could be very helpful if this means that you can send every invoice electronically and then immediately can authenticate the integrity of that invoice. It would be even better if by sharing the information of the invoice with the tax authority you do not have to prepare your VAT returns anymore. You could also think of some efficiency gains because it would allow you to check if the invoice ends up with the right buyer. What you see is that many suppliers try to save costs of the accounts receivable process by automate integrations. I can imagine that it could be very useful in Italy, where everything passes through the SdI platform, that you see the invoice information in your system.”
And what about confidentiality?
“This could indeed be an issue, as it could be harmful when your data is exposed (such as private data) or if it falls in the wrong hands (for example your competitor). I’m not aware if this is currently happening on a large scale, but invoice data is indeed very sensitive data. So, it is important to handle this data carefully. Something related that comes to mind, are the new rules for e-commerce. What you see is that VAT numbers are sometimes hijacked and abused by other companies. For the new e-commerce rules, there is the IOSS number which will soon allow e-commerce companies from outside the EU, e.g. the US, to efficiently import/sell goods into the EU. And already the EU is warning companies that they should be very careful in using this number and not to print it on too many documents for example. This shows that also at the EU level, they are very much aware that such data could be abused.”
Also on the European level, real-time reporting is high on the political agenda. For example, as one could read in the July Tax Package of the European Commission, there are now plans for a (real-time) reporting system for intra-Community transactions. Do you think this is a good idea?
“Again, I would say that any initiative that has the aim to reduce fraud is a good thing. However, I also would say that it would be preferable to just have one system with which you have to comply and not yet another system on the EU level. Still, I think it is a very good idea to try to link the supplier and buyer such as is done in India for example. They basically say that you can only ask for a refund of your GST when your supplier has uploaded the invoice with VAT to the system. That is a very solid and safe system. Currently, companies are a bit ‘lucky’ because this entire matching system is still executed in quite an amateuristic way. So, if you sell goods or services to another EU Member State, then you report that in your listing and also the buyer reports that. However, I don’t think that currently the alarm bells start ringing if there is a difference of a couple of euros. On the one hand this is bad as the whole point of this listing and matching system is to detect these errors, but on the other hand it is also practical for companies as they don’t have to come with an explanation for every tiny mistake.”
“What I think is a big challenge is the tax point. In other words, that you pay the VAT at the same moment. There I often see a difference. So, when a supplier is issuing an invoice mid January, then it will also end up in the books in January. But if the invoice is only booked by the buyer in February, then there is the question if the matching could still be successful. Anyway, all in all I also think that with all those control measures you should also keep it easy to comply for companies.”
If you could give one piece of advice to the European Commission regarding reducing VAT fraud, what would it be?
“Tough one. The first thing that comes to mind, and maybe it’s a bit of an easy one, is that they should choose for a one-size-fits-all solution. I also read in one of your latest articles that it would not be a good idea to force countries that already invested in a real-time reporting system to make use of a different standard. What you should do though for the countries that are currently considering or implementing such a system is to try to harmonise them as much as possible.”
What would you tell the readers to make them more enthusiastic about VAT?
“Just have a look at a couple of fun court cases of the ECJ and then you’ll know soon enough if you like it or not. And you should of course take a look at VAT Update!”
We would like to thank Kelvin again for his time and for giving his perspective on VAT. The opinions expressed in this article are personal. If you have any questions, suggestions or if you want to be our next interviewee, do not hesitate to contact us via firstname.lastname@example.org