Tax Revenue Suite (TRS): Digital Tax Administration (DTA) for B2B Implementation Overview

TRS is a suite of digital taxtech products aimed to increase the state's tax revenue.

TRS offers digital tax administration solutions for B2B, B2C, C2C, return-free tax regimes, excise administration, digital desk audit, and municipal taxes administration, enabling efficient tax collection and enforcement while preventing tax evasion and errors.

Transcript

1. Trusted Global Tax Gap Advisor & Digital Solution Provider for Tax Administrations Tax Revenue Suite (TRS) Digital Tax Administration (DTA) for B2B Implementation Overview Implementation of DTA for B2B with the focus on VAT/GST collection can increase annual tax revenue by up to 150% info@taxtech.digital www.taxtech.digital G107
2. 2 DTT’s Tax Revenue Suite (TRS) TRS is a suite of digital taxtech products aimed to increase the state's tax revenue Tax Revenue Suite (TRS) Digital Tax Administrati on (DTA) •DTA for B2B •DTA for B2C •DTA for C2C DRF (Digital Return-Free Tax Regime) DEA (Digital Excise Administrati on) DDA (Digital Desk Audit) DMTA (Digital Municipal Taxes Administrati on)
3. 3 Summary Error-free collection of the VAT data. Buyers do not submit VAT invoices and use “golden record” of sellers' invoices to reduces administration burden and number of data entry errors Highly scalable automated VAT Administration process not dependent on the subjective judgement by taxpayers and tax officers Elimination of the tax gaps with identification of participants and beneficiaries in VAT evasion schemes Reduced Tax Administration’s time and resources otherwise required for performing manual control work and audits After 3-4 years following successful system launch, implementation of DTA for B2B may increase state’s annual tax revenue by up to 150% Expected Results DTA for B2B supports the 3rd generation of the Digital VAT/GST Administration, via integration with existing tax administration’s IT systems 1. Base DTA for B2B • Sellers on VAT regime compulsory submit electronic VAT-invoices to Tax Administration. • DTA system performs format-logic control and saves data in the secure Invoice Repository for further use. • Buyers on VAT regime get online access to the “golden record” of sellers' invoices, verify its correctness and can get VAT credits and refunds. 2. Advanced DTA for B2B: • Automatic detection of complex Tax Gaps, VAT optimization chains, evasion participants, beneficiaries, and VAT taxpayer risk profiling. • Digital Taxpayer Communications with notifications for voluntary gap closure. • Automatic calculation of VAT payable; prefilled tax returns or automatic accruals with return-free tax regimes. • Integration with Taxpayer Accounting Systems for automatic VAT invoice submission. Focus on the visualization of the simple tax gap Focus on identifying complex tax gaps, optimization schemes, their participants and beneficiaries
4. 4 DTA for B2B Implementation Goals and Objectives Goals Objectives To close the tax gap on VAT and increase annual VAT/GST collection up to 150% To improve the efficiency and reduce costs of VAT administration To prevent VAT taxpayers from submitting erroneous invoices and tax returns and to stop intentional VAT evasion Base DTA for B2B ensures taxpayers’ compliance by: Preventing submission errors Automatically comparing invoice, tax return, and payment data Automatic calculation and visualizing simple tax gaps Advanced DTA for B2B: Improves VAT administration by identifying complex tax gaps and verifying VAT deductions for B2B taxpayers. Enforces VAT compliance and prevents deliberate VAT evasion.
5. 5 Differences in the Tax Administration of B2B and B2C VAT Taxpayers Business to Business (B2B) Business to Consumer (B2C) VAT Taxpayer VAT Taxpayer Legal entities and entrepreneurs applying general tax regimes VAT Taxpayer Non-VAT Taxpayer Retailers vs. private individuals or businesses applying simplified tax regimes Focus on the administration of VAT deductions, to ensure completeness of accruals Focus on ensuring the completeness of revenue accounting via recordkeeping of all invoices (fiscal receipts)
6. DTA for B2B DTA for B2C Simplified Architecture 6 Data from online electronic cash registers (OECRs) VAT Taxpayers (B2B): Manufacturers Importers / Wholesalers Retailers (offline and online) VAT & Non-VAT Taxpayers (B2C): Retailers (offline and online) Private individuals Standard Tax Invoices (VAT Invoices) Simplified Tax Invoices (Fiscal Receipts) Electronic VAT invoices Pre-filled Electronic VAT returns
7. Definitions of the VAT Tax Gap Source: World Bank, IRS 7 Total True Tax Gross Tax Gap Net Tax Gap Enforced and Other Late Payments Voluntary Tax Payments Complex VAT Gap Chains of more than two sellers and buyers involved in the VAT evasion scheme Taxes Legally Owed Taxes Collected Vs. Buyer Reported input VAT for refund Seller Reported output VAT for accrual Input VAT for refund Output VAT for accrual Simple VAT Gap The gap between the Input VAT and the Output VAT The gap between the tax return and tax invoices Must be Equal Simple VAT Gap Tax Gap
8. VAT Return and the Simple VAT Gap 8 VAT taxpayer (Legal Entity) Purchase of goods and services Sale of goods and services Input VAT Output VAT VAT Declaration Input VAT Output VAT Tax Administration Output VAT is transferred to the budget Input VAT is refunded or offset to the taxpayer Verifies the declaration, decides on reimbursement Buyer Claimed VAT for refund Seller Did not reflect VAT for accrual Simple VAT Gap
9. Complex VAT Gap 9 Buyer Claimed refund 3rd Seller in the Chain Did not report output VAT for accrual 1st Seller in the Chain Reported output VAT for accrual 2nd Seller in the Chain Reported output VAT for accrual Output VAT for accrual Input VAT for refund Output VAT for accrual Input VAT for refund Due to the absence of direct transactions between the 3rd seller and the buyer, this simple VAT gap is difficult to spot
10. 10 Principal Methods of VAT Fraud Fraudsters can reduce the amount of VAT payable by: Submitting a claim for deductions for fictitious transactions Inflating the cost of real transactions Not reporting transactions Not paying tax Participants in the VAT Fraud Schemes Beneficiary Individual taxpayer who gains from the VAT optimization Terminal (or terminal company) Seller at the tail end of the chain where there is a simple tax gap and VAT disappears Technical companies Taxpayers in the VAT evasion chain
11. Causes of the Tax Gap and Benefits of Digital VAT Administration 11 Indirect Tax Primary Sectors Tax Gap Causes 1 DTT’s Digital Tax Solutions 2 Potential Outcomes VAT / GST B2B Overstated tax deductions Adjustments Digital VAT Administration for B2B Growth of VAT and other indirect tax collection up to 150% VAT Tax Gap reduction by 5-10 times B2C (business-to- consumers, e.g., retail) Understated income Adjustments Online Electronic Cash Registers (OECRs) and Digital VAT Administration for B2C B2C (online retail, cross- border commerce) Offshore operations (non- resident digital online platforms and service providers) Non-filing of tax returns Digital Tax Administration for Online Economy and Self- Employed [1] Source: DTT’s analysis and estimations [2] For more details, please visit DTT’s site at: https://taxtech.digital/en/solutions/
12. Transition to Gen3 of VAT/VAT Administration Systems 12 Paper or online document exchange. Taxpayers must submit VAT returns in paper or electronic forms Primary and corrective VAT invoices must be presented during audits Manual verification of VAT invoices and returns Generation 1 Registers of VAT invoices are submitted along with the tax returns Registers of sales, purchases, agency operations, and operations with VAT non- payers Manual verification of VAT invoices and returns Generation 2 Electronic VAT invoices are compulsorily submitted by ALL VAT taxpayers instead of tax returns and registers A fully automated VAT administration process verifies gaps and VAT payable and can support a no-return tax regime Generation 3 VAT accrual and extraction in the moment of payment (cash method): The payment is divided into the principal amount and the VAT amount VAT is transferred to a tax account. Does not require tax invoices and is virtually fraud-proof Generation 4 Transition to digital VAT administration We propose implementation of the Gen3 focusing on administration of VAT deductions for B2B taxpayers Tax Administration uses Gen1 or 2 with VAT returns/registers forms filed by taxpayers and partially verified during audits As Is To Be Implementation of Gen4 requires additional discussion and preparation
13. 13 Alternative Approach For faster results, Tax Administrations using 2nd generation of the VAT administration system can supplement it with additional data- matching functional blocks without the collection of electronic tax invoices PRO Faster time to market No need to integrate taxpayer accounting/ERP systems The system uses the invoice registers (Input / Out-put Tax Statements) that are already in place CONTRA The 2nd generation uses unverified taxpayers’ data with unintentional and intentional errors The unresolved burden for cleansing and correcting all received data
14. Taxpayer submits VAT invoices or returns via tax portal, or accounting software using tax APIs 1 5 3 7 2 8 4 6 Format and logical control VAT rates control Data aggregation, comparison and calculation of gaps Creation of electronic claims, if gaps are discovered Communication of the claim to the taxpayer requesting justification or correction Taxpayer submits adjustments to VAT returns or provides justification If gaps/claims are closed and the deadline for desk audit expires, the system closes the audit with a decision to refund the taxpayer, if required Fully Automated VAT Administration Process (Gen3 “To Be”) 14
15. DTA for B2B DTA for B2C Standard Tax Invoices (VAT Invoices) High-Level Architecture of DTA for B2B System 15 Simplified Tax Invoices (Fiscal Receipts) Electronic VAT invoices Pre-filled Electronic VAT returns VAT Taxpayers (B2B): Manufacturers Importers / Wholesalers Retailers (offline and online) VAT & Non-VAT Taxpayers (B2C): Retailers (offline and online) Private individuals DTA for B2B ensures error-free collection of VAT invoices, completeness of accruals, and minimization of the simple tax gap Tax Administration can implement it later with a focus on the completeness of B2C revenue accounting via recordkeeping of all VAT invoices (fiscal receipts) Core Tax Administration Information System (CTAIS) Integration with: Registers of invoices, Personal Accounts, Audits, Taxpayer communications, Web portals, Mobile app Tax Portal Open APIs Open APIs Data from online electronic cash registers (OECRs) Near Real-time Transmission Periodic Transmission
16. Functional Architecture Components of DTA for B2B Project’s 1st stage components (Base) Project’s 2nd stage components (Advanced) 16 VAT/GST Taxpayers Registration Submission and Collection of Tax Invoices Tax Invoices Matching and Verification Simple Tax Gap Detection Claims Management Tax Officer Workplace Base Components VAT/GST Relationship Tree VAT/GST Chains Visualization Complex Tax Gap Detection Advanced Components Taxpayer’s Portal & Tax Administration Information Systems Taxpayer Digital Communication and Notification System Invoice Repository Visual Interface for Taxpayers Integration with External and Internal Systems 1 2 1 1 1 1 2
17. The complete list of functional requirements should be created during the initial phase of the project's implementation. 17 The Base DTA for B2B Registration of VAT accounts by taxpayers via visual interface integrated into Tax Portal Submission of VAT invoices by taxpayers Management of input VAT invoices and VAT tax base by periods by taxpayers Receiving, performing format-logic control and secure storing of tax invoices in the Tax Administration Invoice Repository Simple Tax Gap detection Communication with taxpayers about found errors and discrepancies (tax gaps) Automatic VAT accruals (tax liabilities calculation) based on primary and corrective VAT invoices data Tax Administration’s Tax Officer Workplace for tax officials working with taxpayers' VAT accounts Digital communication between sellers and buyers regarding issued tax invoices in case of any issues or disputes.
18. VAT Invoice Collection and Verification with “Golden” Invoice Records (Base Solution) 18 Buyer 3. Accesses “golden record” to report input VAT for refund Seller 2. Submits eVAT invoice to DTA with output VAT to pay VAT Return = Output - Input Output VAT to pay Input VAT to refund “Golden” Invoice Record They are equal since only Sellers submit DTA Front-end for Taxpayers Integrated into Tax Portal Registering / de-registering VAT accounts Registering tax invoices, working with invoice baskets by periods, and managing the tax base Digital communication between buyers and sellers about issues/disagreements Both the buyer and the seller must use a single "golden" invoice record to enable automatic tax return pre-filling or calculation of VAT to be paid by the Tax Administration The goal is to eliminate simple VAT gaps: The gap between the Input VAT and the Output VAT The gap between the tax return and tax invoices 2 3 1 4 4 5 Secure Invoice Repository e-Notifications about errors and violations 5 Tax Returns Tax Payments Tax Portal
19. 19 Visual Interface for VAT Taxpayers, Integrated in the Tax Portal The system will provide a digital services to VAT taxpayers via Visual Interface, integrated in the Tax Portal, including: VAT accounts re/de- registration Submission of electronic VAT invoices Management of invoices and the tax base Communications with Tax Administration e.g., receiving notifications and correction claims on errors and discrepancies (tax gaps) Submission of rectifications Pre-filling of returns with VAT details and submission of returns Verification of status updates for receipt of VAT invoices by Tax Administration, processing status, refunds, etc.
20. Advanced DTA for B2B The complete list of functional requirements should be created during the initial phase of the project's implementation. 20 The advanced solution adds the following major functional components*: Detection of Complex VAT Gaps and violations > Visualization of VAT flows (VAT Relationship Tree) > Visualization of VAT Chains with detected technical companies, terminal companies, and beneficiaries > VAT Taxpayer Risk Profiling VAT Administration Performance Management via KPIs, Dashboards and Reporting APIs for the Integration with Taxpayer Accounting Systems for Automated VAT Invoices Submission
21. Taxpayer Digital Communication System Tax Gap Detection System Invoice Collection and Verification System with the Invoice Repository The Process of the Digital Administration of the Simple VAT Gap (General Approach) 21 Collection of Tax Invoices Collection, verification, processing, and storage of electronic VAT invoices and returns. Visual graphic user interfaces for taxpayers and APIs for integration with their accounting systems Invoice aggregation and storing Aggregation of taxpayer's invoices by taxation methods, considering advance payments and import transactions Secure storage of invoices in the Tax Repository Data Matching Match seller’s and buyer’s invoices, returns, and tax payments data Determine a simple tax gap between each pair of buyer and seller If the tax gap is found– issue a correction claim Electronic communication system Informing taxpayers about errors by submitting claims to close the tax gap Collecting corrective tax invoices, amended tax returns, or justifications
22. Key Elements of the Digital Administration of the Complex VAT Gap 22 Taxpayer Risk Model Answers does the taxpayer’s entity conduct real activities, or is it used for VAT evasion? Builds taxpayer’s risk profile: sales, tax payments, employees, property, violations, etc. Visualization of VAT Optimization Chains Build a graph (tree) showing links between VAT taxpayers, their status, and calculated gaps. Visualization of VAT flows and VAT chains’ participants. Detection of VAT Optimization Beneficiaries VAT chains analysis tool Automatic detection of technical and terminal companies, VAT evasion beneficiaries Building the evidence base and opening the case for VAT refunds deprivation
23. Detection of the Complex VAT Gap 23 Buyer Reported input VAT for deduction 3rd Seller in the Chain Did not reported output VAT for accrual 1st Seller in the Chain Reported output VAT for accrual 2nd Seller in the Chain Reported output VAT for accrual Output VAT for accrual Input VAT for refund Output VAT for accrual Input VAT for refund Due to the absence of direct transactions between the 3rd seller and the buyer, this VAT gap is difficult to spot VAT Optimization Chain Terminal company Technical company Technical company Primary objective is to find the taxpayer who benefits from the VAT optimization and to match him with the seller in the chain with the simple VAT gap Simple VAT gap Complex VAT gap
24. The tool helps to: Identify VAT fraud schemes in manual and automatic mode Matching counterparties in the complex VAT optimization chains Trace VAT transactions from the simple tax gap to the beneficiary Build a taxpayer’s risk profile for further analysis Taxpayers Relationship Tree for the Administration of Complex VAT Gaps
25. 25 Taxpayer Digital Communication (TDC) System The Taxpayer Digital Communication system manages notifications and simplification of tax administration for taxpayers. Effective communication system has a significant and positive influence on taxpayer compliance. TDC should support: Secure Messaging Chat Outbound Notification Integrations with the Tax Portal and Auditor's Workplace TDC enables the automatic processing of violations based on the identified tax gap Registering a violation in compliance via identified VAT gap Informing a taxpayer about the identified violation Inviting a taxpayer to remedy violations voluntarily by correcting data The process is fully automated and does not involve a tax officers
26. 26 Integration with Tax Administration’s IT infrastructure DTA for B2B components should be integrated with the existing Tax Administration Information System and the Tax Portal. Key integration points: Integration with the taxpayers' authorization and authentication system on the Tax Portal. Integration with the authorization and authentication system of tax employees. Integration with the register of taxpayers to check the status of the VAT taxpayer and build risk profiles with access to registration, accounting, and other data about taxpayers. The complete list of integration requirements and methods should be developed during the initial phase of the system's implementation. Advanced DTA for B2B Components Base DTA for B2B Components Tax Administration Information Systems Tax Portal Taxpayers’ Authorization and Authentication Internal Authorization and Authentication
27. 27 Integration with Taxpayer Accounting Systems Integration with Taxpayer Accounting Systems is essential to ease reporting and minimize the number of errors DTA for B2B supports several integration methods: The complete list of integration requirements should be created during the initial phase of the project's implementation REST APIs to seamlessly upload data and carry out filing operations from taxpayers’ ERP systems 01 Taxpayers can fill out the interface on the tax portal or import data via connectors or via personalized Excel-based templates 02 Support for automated scheduled uploads of documents using secure batch file transfer protocols 03
28. Implementation Roadmap 28 Stage Duration1 Objectives & Key Results 1. “As is” analysis and development of the digital tax administration concept and system requirements 1-2 Qs (1 quarter= 3 business months) 2. Development and implementation of the Base components 2-4 Qs for fine-tuning and integration 4 Qs for pilot operations Going live after 6-8 Qs 3. Development and implementation of the Advanced components Start after 6-8 Qs 2-4 Qs for fine-tuning and integration 4 Qs for pilot operation Going live after 12-14 Qs Analysis results and recommendations Functional, integration and API requirements, user interfaces Non-functional, security and infrastructure requirements Integration with manufacturers of accounting systems. Deployment of pilot sites Fine-tuning and integration of the Base components Conducting a pilot project (test operations) Launch into live operations Fine-tuning and integration of the Advanced components Refining and integration of the module for automatic identification of optimization beneficiaries Conducting test operations Launch into live operations [1] The following estimation is based on ideal conditions projected into the future. Changes in business conditions, requirements, and other influencing factors may change the current estimate. Actual duration of implementation project to be defined depending on the regulation, customer requirements and other factors.
29. Timeline 1 [1] The following estimation is based on ideal conditions projected for the future. Changes in business conditions, requirements, and other influencing factors may change the current estimate. The actual duration of the implementation project is to be defined depending on the regulation, customer requirements, and other factors. 29 Live operation of the Base solution After 6-8 quarters Live operation of the Advanced solution After 12-14 quarters Live operation of the automatic identification of VAT evasion beneficiaries for VAT chains After 18-24 quarters
30. About Us Digital Tax Technologies (DTT) is an international expert in tax gap minimization, a trusted digital transformation advisor & solution provider for national tax administrations. We help tax administrations around the world to reduce the tax gap, improve tax revenue collection and reduce the share of the shadow economy. Our mission is to increase global fiscal transparency, improve tax compliance and administration, and ensure fair competition and welfare. Our team consists of experts with experience in digital tax administration advisory and implementation in various European, CIS, Middle East, and African countries. 30 info@taxtech.digital www.taxtech.digital
31. DTA for B2B Walk-through The following examples are intended for information purposes only and are subject to change according to the final requirements incorporated into the system implementation contract.
32. VAT Account Registration Taxpayer logs in the Tax Portal and can request VAT Account Registration if required
33. VAT Status Registration Taxpayer can register VAT status by filling this form in the personal cabinet, integrated into the Tax Portal
34. Taxpayer’s Profile and Notification Settings 34
35. Registered VAT Account Balance Summary 35 VAT account balance summary by tax periods
36. Output/Input Tax Invoices Summary
37. New Tax Invoice Registration The taxpayer may create a new VAT invoice
38. Input tax / Output tax Invoices For input tax invoices buyer can import seller’s invoice by known ID number
39. VAT Returns Summary by Periods 39
40. Tax Return Registration
41. Declined Tax Return System automatically analyzes submitted VAT returns and can reject them if any mistakes are discovered
42. Tax Officer Workplace – Summary Dashboard 42
43. Tax Gap Warnings 43
44. Tax Gap Warning Details 44
45. Trusted Global Tax Gap Advisor & Digital Solution Provider for Tax Administrations © 2022 Digital Tax Technologies LLC. All rights reserved. The information herein is for informational purposes only and represents the current view of DTT LLC as of the date of this presentation. Because DTT LLC must respond to changing market conditions, it should not be interpreted to be a commitment on the part of DTT LLC, and DTT LLC cannot guarantee the accuracy of any information provided after the date of this presentation. DTT LLC MAKES NO WARRANTIES, EXPRESS, IMPLIED, OR STATUTORY, AS TO THE INFORMATION IN THIS PRESENTATION.