It will be mandatory to report on SAF-T format to the tax authorities from January 1, 2020.
The introduction of SAF-T in Norway has been a "buzz" these days. We have seen articles in media. In addition, there are many consultants that offer to help companies to become SAF-T compliant before the deadline. We experience increasingly questions about both when the requirement of reporting on SAF-T will be due and not at least what it means for the individual business. Our advice to you is: "don't panic". The requirement to report on SAF-T format is postponed to January 1 2020 or later.
What is SAF-T?
SAF-T is an abbreviation for "Standard Audit File-Tax" and is based on an OECD template. There are several countries in Europe that have introduced a form of SAF-T reporting. Unfortunately, the there are many differences between the implementation in different jurisdictions. For further information please see our previous blog
In connection with the digitization and automation of controls, the tax authorities will request that financial information is reported online in an xml. format.
In the first phase of SAF-T, mandatory from January 1 2020, the tax authorities will upon an audit request that the general ledger and the customer and supplier specifications (sub ledgers) are provided in xml. format. Upon request, the required documentation will be delivered through www.altinn.no (public portal for exchange of information)
It is our understanding that the SAF-T reporting requirement will be expanded. See the illustration of the timeline below:
Pros and cons of the SAF-T reporting
One of the purposes of the SAF-T format is to establish a standardized template for exchanging financial information between companies and other stakeholders. When the businesses are able to report in a SAF-T from at their accounting system, it will also make it easier to change accounting system.
For the Tax Administration, the reporting via SAF-T implies the possibility to automate controls. That will lead to more frequent controls performed more efficient. In our view the companies should therefore perform more automated controls over their accounting data to verify their compliance with the VAT regulation. If errors are identified and corrected before the tax authority perform a control, no penalty tax will be levied.
For the auditor it will also be an advantage to be able to extract accounting data in a standardized format. This will simplify the auditor's ability to make standardized analyses.
What is important to keep in mind?
Basically, the Tax Administration have assumed that system vendors ensure that accounting systems are able to deliver information in an xml. format. I.e., the system vendors have to ensure that their accounting systems complies with SAF-T.
Companies that are subsidiaries of international businesses or have in-house development systems, can not rely on the system vendor to ensure their SAF-T compliance. In such cases a SAF-T converter may be required. However, "don't panic" it is two years before the requirement enter into force. However, the Companies should start the process to identify how they can be able to report in the xml. format.
The requirement to provide financial information on SAF-T-format only applies upon an audit in the first phase. Based on dialogue with the Tax authority, it is our understanding that a Company is compliant if it is able to produce financial information on SAF-T-format within reasonable time after notification of an audit.
Expectations to the extension of the scheme
In the first phase SAF-T requirements are limited to that general ledger, accounts receivable and accounts payable can be made available in a standardized electronic format. Based on the limitation in the requested information in phase one, the SAF-T reporting will be relevant for VAT-controls. We expect extensions of the reporting obligations to other areas.
The Tax authority has nominated an administrative body to develop SAF-T further. Both the association for auditors and accountants in Norway will participate in this administrative body.
Based on the signals we have received from the Tax authority, it is expected that the system of reporting on the standardized format will be expanded and in the long run take place more regularly. We therefore recommend to find a solution that is robust for:
- extensions of the requirement of reporting and
In most cases the system supplier have the responsibility to ensure SAF-T compliance
The system supplier must update their systems in order to be SAF-T compliant. It is therefore important that the businesses have a dialogue with their system suppliers about their roadmap to ensure that accounting systems will be SAF-T compliant before January 1 2020. We also recommend that you challenge your system suppliers on how future extensions of SAF-T are handled.
For those businesses that have developed self-improvement systems, or other systems where one can not expect that system supplier ensures compliance with the SAF-T, it is now time to plan for how to be compliant within January 1 2020. It is not a requirement that SAF-T reporting must be an integrated part of the existing system solutions. It is possible to prepare reports on SAF-T-format with your own SAF-T-converters.
Use SAF-T as a leverage to ensure the quality of the VAT-reporting
Even though the deadline to comply with SAF-T is January 1, 2020, the business should as soon as possible after the SAF-T-functionality is in place in your accounting systems perform checks of the VAT-reports.
We recommend that businesses performs automatic control of its data material to ensure the quality. Based on our experience, it will be easy to uncover:
- differences between VAT-reporting and accounting,
- double bookkeeping of invoices,
- the appropriate VAT-treatment of purchase of services from abroad,
- the use of appropriate VAT rates and
- errors in deductions as some examples.
As mentioned above, errors that are corrected before an audit will normally not lead to penalty tax.
This blog post is written by Marit Barth and Torkil Hindberg.