In this episode of VAT Talks we’ll be looking at the practical side of VAT with Marinus Peters, partner at INSynQ. Marinus has many years of experience in assisting companies with the implementation of SAP systems and enables them to improve their business processes. Learn more about SAP, why Marinus believes that more countries will introduce an invoice reporting system and why the European Union should prioritise the harmonisation of VAT legislation.
For how long have you been working in VAT and how did you end up in this field of work?
“I have worked with ERP systems since 1996, and I have done all kinds of SAP roll-outs, mainly within Europe. At some point I was confronted with VAT, although I was a controller back then. [laughing] Everyone has its flaws, mine is that I was a controller. Anyway, I was confronted with the complete spectrum of VAT legislation in the EU, and all those controllers were telling me how hard it was to find the right information in their systems. Therefore, at some point, I started my own company. That’s when I started focusing on VAT and to be more specific, on VAT and SAP. The main question I try to answer is: how can I arrange that the amount of VAT is correctly registered in the system, so that people do not have to worry about it and the system is doing what it is supposed to do.”
So eventually you chose to focus on VAT, what is it that you like about VAT?
“Mainly the international character of VAT and in particular the international trade relations. Look, local VAT is pretty simple, most ERP systems can easily handle that. However, international VAT, triangulations, simplifying ABCs, or complicated transactions because we lead goods from Brazil to Singapore with the invoices issued via the Netherlands, that is something where ERP systems run into difficulties and that is what makes it interesting.”
You are a partner at INSynQ, a company that provides SAP implementations and consultancy. Why do companies need this?
“SAP is the world leader in terms of ERP systems, that does not require any further explanation. However, you see that with SAP, but also with other ERP systems, VAT is often a little bit neglected. As I said before, domestic transactions can be calculated and even regular intra-EU exports will not be a problem. However, when it gets just a little more complicated you already need a specialist. Otherwise you could end up in a situation where a deadline is approaching and someone says ‘wait a second, we have a teeny tiny VAT problem and that is not solved yet’. From that point the fines come in and it really becomes problematic.”
“The importance of VAT is also growing because of political developments. A couple of years ago, your system only had to do a simple VAT report and then it had to send it to the tax authority. Now, tax authorities want you to go a step further. For example in Spain, the tax authority asks the taxpayers to provide them with their invoices within 4 days after sending and/or receiving them. In Italy and Hungary this information even needs to be provided real-time. Those tax authorities also validate the invoice and send back a code which you can put on your invoice before you send the invoice to your customer.”
Are there differences between those above mentioned systems in terms of SAP implementation?
“Of course there are differences. A real-time system such as in Italy, is the most complicated. You need to be prepared 24 hours a day, because at the moment an invoice is generated it also needs to be sent to the tax authority. So you really need to monitor that very well. In Spain, you already have 4 days, so if someone is on a short holiday you will still be compliant. The biggest problem is that within a lot of organisations only 1 or 2 people know something about VAT and if they know something about it they often only know the general things. Once it gets more specific then it gets harder. In that case it is essential that your system calculates the right amount of VAT. Besides, in some countries this is quite simple, for instance in the Netherlands, whereas it gets more complicated in Poland. The latter is becoming even more complicated when the new SAF-T legislation is implemented in October.”
We discussed invoice reporting systems, such as in Spain, Hungary and Italy. Do you think that more countries will implement this type of system in the near future?
“Yes, this is definitely the trend now. I think the northern countries will be the last to implement this, whereas southern and eastern countries are already implementing it and/or seriously investigating their options because they see the positive results from Spain for example. Furthermore, countries such as Brazil and Mexico already showed the benefits of these systems and it made them realise that VAT is even a better source of revenue than they thought it was. At the same time, VAT is a tax that is fraud sensitive, as you guys obviously know. So that is another reason why countries are increasingly looking for ways to get a tighter grip on VAT.”
And how are companies responding to the implementation of such systems, are they notified upfront?
“The reactions differed, not only based on the country where they are located but also on the way a company is organised. For example, if you have something like a tax manager (or even multiple if you are located in multiple countries) then you can adapt more easily to changing legislation. However, there are also countries where they announce the change at the very last moment, which makes it more challenging. In those countries, you sometimes need to think ahead and if your organisation is not prepared for that you’ll be too slow. If you don’t have the resources in-house you can go to an external party, but this will also bring additional costs of course.”
Do some of these invoice reporting systems come with a higher cost than others?
“Again, there are many differences between countries. Some seem to want to know everything about the taxpayer. For example, in Poland the tax authority asks the taxpayer for their entire financial records, including their complete VAT returns. Others only need very little information, such as the Netherlands. At most, they sometimes ask for an auditfile. That is not something that scares companies, I always say.”
“Another example of a country that is asking for a lot of information is Greece; they are going for a comparable model as Italy, where invoices need to be sent to the tax authority immediately after they are issued. Furthermore, they want sales and purchase registries. This need for information is in line with the international trend. Governments are embracing big data. It would ease the pain a little bit if governments would do this in a harmonised way, it would also save us some work [laughing]. However, this is not the case and it’s only logical if you look at the EU VAT Directive itself; it is a directive and Member States are free to choose the way they implement it. And as you can see, they are using this freedom.”
Although the collection of all this data has proved to lower fraud, it also comes with risks. What do you think of this data collection from a security and confidentiality perspective?
“Let’s put it this way, security is becoming increasingly important. It should not be possible that once such a system is implemented, the data is exposed. This could allow a competitor of, for example, a big multinational to say ‘let’s see how they run their business’. It is remarkable that we do not hear too much about this security aspect. We don’t know if it is done properly until something ugly happens… Another dangerous aspect, well I don’t know if dangerous is exactly the right word, is that because of this data collection the tax authority suddenly has a lot of information about you.”
In previous VAT Talks we discussed VAT as a fiscal tool in times of crises, see Charlène Herbain, Zsolt Szatmarin and Redmar Wolf. Currently it is actually used, many countries have implemented VAT cuts for example. In practical terms, does such a VAT cut require a lot of changes to your SAP system?
“That indeed requires a lot of changes. It also depends on the tax engine you are using. For example, with some tax engines you don’t have to change your VAT code. They just send you the right VAT percentage. With normal SAP instances, you need to tell the system ‘we are getting a new percentage’ and that means automatically that you need a new VAT code. This is not a problem if you are working only in a couple of countries, but if you have multiple registration in Europe this can be a challenge as you could run out of VAT codes, because over time (let’s say more than 10 years) you are collecting all types of changes. So, if there is a VAT rate change such as the one in Germany now, that means that you need to pick a new VAT code for the system you use and you need to make sure automatic entries are executed correctly.”
“Another question is how are you dealing with the transition period. You’ll probably also receive the old percentage after the new percentage went into force. Think of a credit note to which the old percentage still applies. It is also possible that you use OCR which means that invoices are scanned and are automatically transferred to your bookkeeping records. So, then you need to tell your system that the new VAT rate applies, but that it has to look at the date of issuing and the date the goods were delivered first, otherwise the old rate applies. In other words, it’s a sport.”
In other SAP news, SAP is pushing companies to use SAP HANA. What do you think of HANA and is it easy to implement?
“If you are considering to move to HANA, it is important ask yourself what are the benefits for my company and business processes when I move to HANA?”
“The main difference between both systems is that HANA is a database where the data is only stored once, while with the old version your record is cut into pieces and then stored in multiple tables. Therefore, HANA can make calculations way faster. I think that you only should use HANA if you really need this particular feature. So, let’s say you want to do a MRP (Material Requirements Planning) calculation once a week. With the old version you need to run this for 8 hours, but you can do this from Tuesday evening until Wednesday morning for instance. I could do the same MRP calculation with HANA in only 5 minutes. That’s great, but I did not lose any time with the old version as I did the calculation overnight, so why would I switch? If you want to do such a calculation every hour for example, it is a completely different story. Thus, it depends how you have organised your business processes.”
“In terms of VAT implementations there is no noteworthy difference. However, SAP is working on a tax engine, as they also see what is happening in the market. This is something different from HANA, so you should connect your SAP system with the tax engine.
Another related question is, do I want to store my data in the cloud? This is all about security and access. I can imagine that if you are a company that is doing a lot of R&D you want to minimise the chance of data exposure, therefore you want to keep the data to yourself. But if you are a company with a lot of international traffic and you are in contact with your customers via a webshops, you want to be as close to them as possible. Therefore, you might want to go to the cloud.
If you could give the European Commission one piece of advice regarding VAT and VAT fraud, what would it be?
“Focus on harmonisation, harmonisation throughout the entire EU. I think the Member States have too many freedoms regarding VAT right now. Harmonisation would make it easier for companies, and this is not only important for VAT but also for the SAF-T’s of this world. If I then see what kind of data Poland is asking for, I sometimes think ‘come on guys, how did you come up with this’. I do not think that is proportional and not all taxpayers know how they can provide the right documents in the right way. It might be doable if you are only sending 1 or 2 invoices, but if this number increases it gets harder and harder.”
How would you enthuse the reader for VAT?
“Hmm very good one. Indeed, when I tell people I work in VAT, I rarely hear that it is a ‘sexy’ profession. Still I think, and this would probably mainly enthuse people that already are a little bit acquainted with VAT, it helps to show examples of VAT implementations that went very well. For example, we have Horizontaal Toezicht in the Netherlands and this allows companies to discuss VAT with the tax authority. This creates transparency and shows people that have to deal with VAT returns how their systems came to this specific VAT return. I think this is a positive and interesting development.
We would like to thank Marinus again for his time and for giving his perspective on VAT. 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
- A tax code in SAP contains of two positions which means about 2000 possible combinations (including some special characters which can be used).