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RTvat: The use of Real-Time technology to improve tax collection

Real-Time VAT solution


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To organise a presentation or to talk in more depth about a real-time VAT solution, contact cwilliams@RTvat.eu

EU treatment on sales of digital goods and services to change from January 2015

The change in EU regulations for the settlement of VAT on digital goods and services from January 2015 is causing confusion and risk for many merchants. Given the shortness of time available before this new regulation comes into effect, merchants and auditors need to have a reliable solution that can handle the new requirements in an efficient, cost-effective and simple-to-manage system.

RTvat has a software solution that can manage conversion between currencies for merchants both within and outside of the EU and the Eurozone, while KPMG has considerable experience and expertise in tax management. Together there is an opportunity to create a system that will enable a merchant to offer a superior product to EU consumers, while relieving that merchant of most of the obligations involved in calculating and settling the due VAT to the correct Tax Authority.

While this change in the way in which VAT is applied is initially only for the relatively low volume sales involved in digital goods and services, it is anticipated that it will also be extended to include physical goods as a second stage of implementation. Outside of the EU, there is every chance that other countries will also follow this consumer-centric model for their VAT and sales tax collection policies.

The RTvat system is designed to handle:

  • Pricing the product at the appropriate price, including VAT, based on the buyer’s home location.
  • Converting and displaying the total price in the buyer’s home currency, while guaranteeing that the merchant will receive its full asking price in its own home currency.
  • Preparing and submitting all VAT returns in the correct currency for up to 28 tax authorities.
  • Managing refunds in real time and at no additional cost to the merchant.
  • Recovering any reclaimable VAT for the merchant from other transactions wherever possible.

Merchants will be required to undertake only small changes to their systems, primarily integrating with the RTpay API to identify and intercept each customer request and switch them to the reseller system. In return, they will benefit from the huge advantage of being able to sell to the worldwide market without the risk of considerable expense from the misfiling or incorrect calculation of the correct amount of VAT.

Contact RTvat for further details on how we can be of help.

New EU study shows VAT Gap increased to over €190 billion

A new study comissioned by the European Commission estimates that the VAT Gap - the difference between how much VAT should be collected and how much is actually collected - now stands at around €193 billion per annum - that's over half a billion euros per day, or €22 million per hour lost to the EU's exchequers through fraud and evasion. This represents over 1.5% of the EU's GDP.

The study points out that "Econometric estimates of the determinants of the VAT Gap show that VAT compliance appears to fall when tax rates are increased, at least in countries with weaker tax enforcement" - a somewhat self-evident conclusion.

The Commission's response to this massive haemorrhage? "...the Quick Reaction Mechanism, adopted in July 2013, will allow Member States to react much
more swiftly and effectively to sudden, large-scale cases of VAT fraud. Eurofisc, which was launched in 2010, also facilitates stronger cooperation and coordination between Member States to in combating organised VAT fraud, especially carousel fraud"

In other words, the Commission believes that simply increasing information sharing and co-operation between national tax authorities is a sufficient response.

At RTvat, we believe there is a simple, cost-effective and efficient way to drastically reduce the amount of VAT fruad, and help to close the VAT Gap; modern payment systems are perfectly capable of calculating and extracting VAT in real-time on each transaction, removing the need for merchants to collect and account for VAT on behalf of their Tax Authority, and removing the opportunity for collected VAT funds to be misappropriated.

See a copy of the European Commission > Study to quantify and analyse the VAT Gap in the EU-27 Member States

See > more information on RTvat's solutions


New paper on the efficient collection of VAT

In an article entitled 'Are ‘reverse charging’ and the ‘one-stop-scheme’ - efficient ways to collect VAT on digital supplies?', published in the World Journal of VAT/GST Law, Marie Lamensch, a doctoral researcher at the Institute for European Studies, Vrije Universiteit Brussel, Belgium, considered the efficiency of the collection of VAT, particularly with regard to electronically supplied services.

In her paper, Ms Lamensch referenced the RTvat proposals as follows:

"The RTvat project, which is aimed at curbing missing trader types of fraud, suggests eliminating the possibility of suppliers receiving VAT from their customers (and eventually disappearingwith it, or claiming credit without first remitting the tax due), by organising the collectionof the tax at the level of banks.

Virtually all digital supplies are paid for by electronic means. Electronic payment is therefore an essential complement to e-commerce. Transposed to the digital supply sector, the collection of VAT at the level of the banks in charge of organising online payments, as suggested under the RTvat project, would remove unimplementable collection obligations from online suppliers’ shoulders, and at last take account of the specifics of the e-marketplace. For that purpose, the existing online payment schemes could be coupled with the appropriate software which would extract the relevant data collected by banks in accordance with KYC regulations,
as follows:

  • When the customer enters his credit card details in the ‘secure payment area’ in order to proceed to payment (often using a token or similar device), his bank identifies him (status and location) with certainty, based on the data provided upon opening the account, that were verified as is required under the KYC regulations.
  • The supplier enters the transaction price, exclusive of tax, in the payment system. A software program then calculates the related amount of VAT that is due, based on the status and location data that were collected by the bank upon the account being opened.
  • The customer makes one single payment (price including tax), and the bank transfers only the net price to the supplier, retains the VAT, and wires it to the competent VAT au thorities. Reverse charging becomes unnecessary. Importantly, payments to suppliers are coupled with payment of the VAT due to the tax authorities.

As long as the payment is made by electronic means, any kind of payment device or system may be used, including intermediary payments systems like Paypal, because suppliers do not need to check customers’ credit cards details as is the case under the current system. Intermediaries simply channel the information. Likewise, the use of foreign credit cards would not create distortions either, because a bank issuing a credit card knows when the customer is a non-resident, and only this information is relevant for applying the correct tax rate. The tax is paid at the moment of the transaction, and in a completely transparent way, which also has the advantage of reducing risks of fraud. Finally, tax authorities may proceed to VAT refunds on the same day as they receive the related VAT payment, which also results in an advantage in terms of cash flow for suppliers."

Ms Lamensch's paper makes many good points, particularly with regard to the EU Commission's ongoing discussions on the future of VAT and how this compares with the 1998 OECD recommendations on e-commerce.

However, it should be noted that Ms Lamensch has not fully considered RTvat's proposal for implementing a central server based 'gateway' through which all electronic payments, of whatever type would flow. The consequence is that while commercial banks would remain important partners in the collection process, they are not the primary point at which due taxes are extracted - this would instead occur at the central server level, overseen by a trusted third party - in most cases, the country's Central Bank.

If you would like to download a pdf copy of the full article, please go to http://www.hartjournals.co.uk/wjovl/sample.html

We are grateful to Hart Publishing Ltd, publishers of the World Journal of VAT/GST Law, for making this article available.

Professor Ainsworth cites RTvat as providing the most promising solution for preventing Missing Trader fraud

Prof Ainsworth article in IBFDIn a recent article for the International VAT Monitor, published by IBFD, Prof. Richard Ainsworth, Adjunct Professor at Boston University School of Law, considered three potential solutions for solving Carousel Fraud in the EU. His conclusion was:

“The only solution that is actually capable of preventing missing-trader fraud and also limits several other forms of fraud is RTvat...”

“...RTvat is by far the most-promising and practical solution for a robust VAT system.”

Richard T. Ainsworth, “Technology Can Solve MTIC Fraud – VLN, RTvat, D-VAT certification”, International VAT Monitor 3 (2011), pp. 153-160, cited with permission of IBFD, see http://online.ibfd.org/kbase/.


TAXUD Green Paper on the future of VAT

The TAXUD Directorate of the European Commission has invited comments from interested parties on their recent Green Paper "On the future of VAT: Towards a simpler, more robust and efficient VAT system".

Although this paper, which was produced following a report from PWC for which RTvat provided some input, contains some small steps towards a sensible technology-driven system in which VAT is split from the transaction and remitted directly to the Tax Authority, its proposed solutions contain a number of major flaws - and the timescales towards which they are working are ridiculously long. While we are losing €2 billion every week in uncollected VAT, can we afford to wait another 10-15 years to plug this gap?

Below you can read a copy of the Green Paper, together with the response which RTvat has submitted to TAXUD.

> TAXUD Green Paper on the future of VAT

> RTvat response to the TAXUD paper


Chris Williams, RTvatThe KISS approach to changing VAT collection for the better

The huge losses in VAT revenue across the EU are well recognised, with latest figures from the Commission showing that only 55% of the potential VAT revenue is being realised. By introducing real-time collection across all Member States, this figure could be significantly improved and the resulting additional revenue to tax authorities and budgets would significantly ease many economies' current austerity issues.

This presentation was given by Chris Williams to a meeting of the Interntional VAT Association in Amsterdam in May 2011.

> See further details of the RTvat proposals on real-time VAT collection in the EU


The Real Time VAT Project - presentation by Chris Williams

• €300 million per day lost in VAT fraud -
• How to halve that by moving to real time
• Cut the Administrative Burden for companies –
• And tax authorities
• EU, USA and the rest of the world – which first?

Presentation for IBC's 15th Annual VAT & Financial Services Conference 24/03/2010 VAT: CUTTING EDGE DEVELOPMENTS

Chris Williams heads the non-profit group RTvat which has created an efficient vehicle for tax authorities to counter Carousel and other Missing Trader fraud. His experience in banking and the derivatives markets, along with a team of fraud analysis and transaction processing experts, has brought about the option for tax authorities to greatly reduce this enormous hole in EU financing.

RTvat and EU emissionsRTvat: A real-time solution for improving the EU Emissions Trading Scheme, removing intra-EU Carousel fraud and reducing other financial vulnerabilities

Presentation to European Commission's Anti Tax Fraud group in Brussels 05/11/09

Chris Williams and Richard Gray

RTvat real-time tax solutions

RTvat solutionsFrom its initial focus on the specific problem of VAT fraud within the EU, RTvat has expanded its non-profit consultancy service to incorporate all areas of tax under-collection and fraud. The use of modern technology can bring about dramatic increases in tax revenue, while reducing the administrative burden for tax payers and collectors alike.

For developing countries there is an opportunity to overhaul the tax administration at a fundamental level without the obstacle of outdated or legacy systems, moving directly to electronic collection and reporting. While changing from cash-based economies can be difficult at the consumer level, the encouragement of e-invoicing for B2B transactions can bring about simple, real time tax collection options.

VAT Collection

RTvat collectionVAT fraud has been identified as a significant EU-wide problem, with current estimates showing costs to EU governments of over  €120 billion per annum in lost tax, of which €25 billion is viewed as being directly linked to carousel fraud.

This is money paid by the taxpayer which is being lost to the EU member state governments and put into the hands of criminals and fraudsters; just think what could be done with €325 million per day if it were channelled into schools, hospitals, charities or leisure and community projects. Alternatively, it's been estimated that if all the lost fraud were recovered, VAT could be cut by over 1% across the board.

The collection of VAT on behalf of national tax authorities imposes an increasingly difficult and time-consuming adminsitrative burden on businesses both large and small, and the collection and reporting systems are largely unchanged since the tax was first introduced in the 1950's.

The Real-Time Solution

RTvat real-time VAT soultionAt RTvat, we believe there is a simple, effective and cost-efficient way to stamp out the opportunity for tax fraud and recover the billions of euros currently being lost, as well as significantly reducing the administrative and reporting requirements. It requires a change in the way that tax is collected and accounted for, moving away from a system based on invoices - which is complicated, creates a mismatch between business settlement cycles and tax settlements which is exploited by fraudsters and creates the need for many adjustments - and towards a system based on actual settlement of the transaction.

Using technologies and control systems that are already well-established in the credit card industry and where relatively little re-scaling or re-configuration would be required, this can be achieved at low cost and with little difficulty for companies. The resulting system will meet the 2012 Lisbon target for the reduction of bureaucracy for all businesses.

An intra-EU VAT solution of this kind will eradicate all carousel fraud and, at the same time, ensure a level playing field for all companies.

In order to make this happen, we need the agreement and political will of all of the member states – and we need it quickly, so that we stop this enormous loss happening every day. It’s a simple and quick solution to a growing problem and could be put into place within just a couple of years.

Other taxes

RTpay websiteThe advantages of Real-Time collection can be applied not only to indirect taxes such as VAT but equally to a range of other national and international central financial collection and distribution systems, including for example PAYE, Corporation Tax, Commodity Taxes, Customs Duty and even Benefits Payments. RTvat is working proactively with a number of governments and organisations to develop systems which are efficient, effective and resistant to fraud. See www.rtpay.org

To find out more about our Real-Time tax solutions, contact us.

"Other industries can manage Real-Time settlement with no problems, and have been doing so for years. There's no reason why we can't process tax payments in the same way."
Chris Williams, Executive Committee Chairman, RTvat
RTvat's real-time VAT settlement solution

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