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Analysis of transactional data for VAT purposes

Analysis of transactional data for VAT purposes

Analysis of large bases of transactional data may tell you an interesting story about your VAT compliance status. It may reveal system errors, misinterpretation of tax rules, important trends, missed opportunities and even more.

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Senior Manager, Tax, KPMG in Bulgaria

KPMG in Bulgaria

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‘Big data’, ‘data analytics’, ‘data mining’, ‘data storing’: these are all fancy words which have become a business jargon for the last few years. But can these be related to tax somehow? And in particular to VAT? Sure they can!

Big data is the heterogeneous mass of data created and stored in the ERP system of your company every minute. It is exponentially growing day after day, month after month, year after year. And it is there for you to use it. Fortunately, technology advances so fast that it is now feasible to analyse the entire mass of relevant data (e.g. transactional and master data) available for a specified period of time instead of performing analysis on a sample basis and extrapolating the conclusions reached. This increases tremendously the accuracy of the tests and the results obtained. Tests may vary from the most simple and straightforward one to really sophisticated analytics which require special IT tools and may reveal:

  • Repetitive errors caused by omissions in the initial configuration of the ERP system or by persistent misinterpretation of the law or by a genuine human error
  • Poor master data records containing for example counterparties/products erroneously marked as ‘VAT irrelevant’ or wrong VAT identification numbers of key counterparties
  • Missed opportunities such as omitted input VAT deduction or effective payment of VAT where reverse charge may be applied
  • Need for improvement of internal processes – anything from fraud prevention to speeding up the input VAT deduction.   

An additional and quite specific use of data analytics for VAT purposes in Bulgaria is provided by the new e-service of the National Revenue Authorities introduced in the summer of 2017. In particular, VAT registered entities now have access to a list containing all records reported in their suppliers VAT Sales ledgers, where the requesting entity is shown as a counterparty. This gives a unique opportunity to verify whether there is a match between our purchases and the sales reported by our vendors. Any discrepancies must be carefully considered and investigated since they may reveal major VAT risks (e.g. purchases with no corresponding sales record may imply that your joint and several liability may be engaged for your suppliers’ VAT liabilities) or missed opportunities (sales records with no corresponding purchases may be an indication of omitted input VAT deduction).   

The benefits of data analytics in tax may be huge and businesses are more and more interested in exploring this opportunity further. The main challenges encountered are issues with storing and extracting proper data, lack of skills and experience in processing and analyzing such massive amounts of data, lack of technology tools enabling the analysis, lack of internal resources in terms of available man-hours. With its dedicated Processes&Technology team and proprietary software solutions, KPMG in Bulgaria has successfully addressed these concerns and may provide a helping hand.

Antoaneta Krasteva - Nikolova, Senior Manager, Tax presented the topic at the 2018 KPMG Business Seminar for clients.

© 2018 KPMG Bulgaria OOD, a Bulgarian limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.

KPMG International Cooperative (“KPMG International”) is a Swiss entity.  Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm.

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