Big Names, Big Tax Problems

March 29, 2016

When it comes to VAT—value-added tax—big names spanning the globe are making recent headlines. Heavy hitters such as Amazon and eBay have made the news after the UK Treasury announced the two corporations will be held liable for VAT fraud committed by overseas sellers using these sites to sell their wares in the UK. While not expected to stop VAT fraud entirely, the Treasury estimates that within four years it will recoup £875 million in lost VAT receipts from sellers who have avoided paying VAT by under-declaring the value of goods, providing invalid VAT numbers, or even cloning VAT numbers that belong to other companies.

Indirect taxes such as the VAT also continue to be a topic of interest internationally following the recession of 2008 and tightening austerity measures in countries such as Greece and Portugal. Recessionary pressures in these countries have encouraged growth in the shadow economy. Greece’s shadow economy alone, for example, is estimated to account for 24% of all economic activity in the country—meaning the Greek tax administration is being denied potentially billions of dollars in tax revenues.

To combat this challenge, Portugal has introduced an incentive program that encourages purchasers to request receipts and then submit e-invoices for their purchases. Receipts that include an individual’s tax number include coupons that can be entered into a lottery, with the lucky purchaser winning a luxury car. After the invoices are submitted, the Portuguese tax authorities then uses CaseWare IDEA Data Analysis software to analyze SAF-T data (Standard Audit File for Tax Purposes) to reveal any possible tax fraud.

These headlines and the approaching fiscal yearend are a reminder for us all to ensure our organizations’ taxes are in order. With the increasing scrutiny of tax returns arising from companies and individuals evading taxes by understating or misreporting their incomes, the pressure is on to be as tax efficient as possible while also avoiding penalties and interest charges.

Increasing this pressure is the issue of dwindling resources: governments are cutting budgets and laying off staff, resulting in less money and fewer auditors available to dedicate to examining tax returns. Add to that the difficulty involved in reviewing the wide variety of tax data, and performing a tax audit becomes even more complex.

For this type of work, data analysis software is an invaluable tool that helps overcome these challenges, allowing auditors to quickly import virtually any type of tax data from almost any source and then examine these numerous files as if they were one. Auditors can then run analytics and perform tasks to reveal any anomalies or non-compliant activities.

Some of the common tests that CaseWare IDEA performs as standard for both AP and AR include:

VAT-specific tests: General tests:
  • Supplier mismatch analysis
  • Analysis by expenditure type
  • Foreign purchase analysis
  • Bad debt analysis
  • VAT % analysis
  • Non-VATable purchase analysis
  • Tax point analysis
  • Tax code analysis
  • Transaction volume profile
  • Repeated transactions
  • Last two digits analysis
  • Duplicate transaction analysis
  • Transaction value profile
  • Benford’s Law
  • Transaction summary
  • Master file/transaction comparison
  • Keyword search
  • Summary by month
  • Round sum analysis

 

 

 

 

 

 

 

 

 

IDEA® Data Analysis software includes these tasks and a variety of analytics to help you complete your tax audit efficiently and prevent your company from becoming the next news headline. You can also visit the IDEA Marketplace, the online store for audit tests, to access a wide variety of apps designed to help you make the most out of IDEA. To learn more about using IDEA for tax auditing, contact us at connect@caseware.com or at 1-800-265-4332 ext. 2800.

 

About Bob Cuthbertson:

Bob Cuthbertson brings a wealth of accounting, auditing and technology experience to his role as Chief Operating Officer at CaseWare Analytics. Prior to starting the analytics division of CaseWare in 2000, initially as CaseWare IDEA Inc., Mr. Cuthbertson was Vice President, Professional Services, of The Canadian Institute of Chartered Accountants (CICA). Mr. Cuthbertson is also a CPA (Ontario) with a specialty in Information Technology (CITP), granted by AICPA, and holds a Bachelor of Commerce degree from Queen’s University School of Business.

Connect:   Bob Cuthbertson

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