UPDATE NOV. 15 2018: This is more relevant than ever! Many millions of euro have been lost in the stock yield scandal. All discussions focus on how it was even possible and why the tax authorities didn’t see it coming. But stock yield is not the only vulnerable area. What about the ongoing case of EU VAT refund fraud? Is the door to the treasury room still wide open?
We are probably all quite frustrated with our society and treasury having been cheated out of many billions DKK in the well-known “Stock-dividend scandal”.
But unfortunately, there is a risk that society could lose more money – if we aren’t smart and don’t use the technological tools that we have. When money is disbursed by the public authorities, based on an almost manual processing – and when the volume of applications becomes too large – the chance of proper control diminishes, and fraud becomes too easy and too obvious. This risk is present right now with EU VAT reclaim.
When employees travel in other european countries, costs like hotel, restaurant, car rental, taxi etc. will be charged, billed, and paid in the local currency and include the local VAT rate. But VAT-registered companies have the right to have their VAT refunded. However, they must apply to the local country for the refund of the VAT.
Right now, anyone can submit for EU VAT reclaim – simply by entering seemingly valid information in the Common European System of EU VAT Refund. If you’re smart enough to find valid VAT numbers – and make each transaction small enough – then the likelihood of control is close to zero. It does not take much imagination or technological ingenuity (AI / IT robots) until you have a veritable money machine that can quietly milk this system for significant amounts.
Instead of shying away from the use of technology, we must embrace it, and use it to our advantage, in our effort to find a solution. It is no unreasonable requirement that if you want to get your EU VAT refunded, you must make the payment electronically wherever possible. Most times with a credit card. This will make it possible to automate the process from the payment to the EU VAT refund. A unique opportunity we mustn’t pass up. There already exists mobile app solutions where the credit-card users transaction shows up in the app immediately after using his card. The transaction can then be enriched with relevant information and the corresponding receipt can be paired to the transaction by taking a picture of it.
This should be the basis from which we want companies to be able to reclaim their EU VAT.
With this solution, there is a very visible and secure transaction audit trail from the payment to the refund. It should even be mandatory to have the payment transaction ID stated on the refund application, and not the billing number from the receipt, as it is today. It would likely be a more secure model with the transaction ID because it proves that an expense has actually been paid. It would be possible for the authorities to conduct an automated verification of the validity of the EU VAT refund claim via the ID on the payment transaction and it would increase the quality and lower the cost of the security measures.
For businesses, the big advantage is that they only need a credit card app, then they have all the necessary data to get their EU VAT refunded. Such a solution will often be a natural part of a Travel Expense Management solution (often called TEM).
The authorities in the various EU countries already accept a digital receipt de facto, and in the future, we will start to see receipts go from being physical to digital.
In cases where the payment is not digital, you could appropriately increase the requirement both for documentation and for checking the transaction. One might even consider some form of a deduction in the VAT refund, to motivate the employee and company to make the payment digitally.
Let’s digitize and enrich payment transactions – and deliver solutions to companies and tax authorities – to make life easier for law-abiding companies – and as hard as possible for those who seek monetary gain through illegal practices.