Transaction-Based Reporting

Transaction-based reporting, or Invoice reporting, sometimes called Continuous Transaction Controls (CTC), is a method of data collection of governmental bodies to reduce fraud and increase compliance. Invoice reporting helps in overcoming the inefficiencies of post audit systems, where the auditors can only check VAT refunds after the facts and mainly needs to use data that is collected by the companies it is auditing . The core of invoice reporting is that all companies within a jurisdiction report their invoices to their tax authority.

History

Invoice reporting was first implemented in Latin America. In most Latin American countries, the invoice reporting is coupled with electronic invoicing and therefore the Inter-American Development Bank calls invoice reporting ‘electronic invoicing of taxes’. However, the key principle is the same as it is defined as ‘electronic invoices that are not only valid for all tax purposes but that are also received in their entirety by the tax authority’. Chile and Mexico were the first and soon others followed.

Over time real-time invoice reporting has proved to be a good tool to fight VAT fraud. For example, Brazil saw an increase of USD 58 billion in tax revenues, while Chile and Mexico reduced their VAT gap by 50%. Furthermore, Colombia estimates that it can achieve the same result if they implement such an invoice reporting system .

Around the same time more and more countries in the Latin American region decided to make use of invoice reporting, China started its Golden Tax Project. Part of this project is the Golden Tax System, which started as a pilot in the 1990’s and is soon to be integrated with every company in the country . Another country in the Asia Pacific region, India, is also implementing e-invoicing to increase compliance . Other countries in the region, such as Israel and Jordan are investigating the possibilities as well .

Tunisia has been a pioneer in the African region as they introduced mandatory e-invoicing in 2016. These invoices are reported to the responsible authorities, and therefore can be considered as invoice reporting. Furthermore, Egypt is also conducting research in the best model of invoice reporting .

The trend and successes of invoice reporting also reached Europe, but there it is not (yet) often combined with mandatory e-invoicing. Countries such as Hungary, Spain and Italy have implemented a variant of invoice reporting in the second half of the 10’s. The successes of these and other systems made France decide to state that it wants to implement an invoice reporting system combined with e-invoicing in 2023 at the earliest and 2025 the latest . The news also reached the European Commission as it stated in their Action Plan for Fair and Simple Taxation Supporting the Recovery Strategy, published in 2020, that by 2022/2023 it ‘will present a legislative proposal for modernising VAT reporting obligations .