Electronic Invoice (VAT) Fernando Barraza Aurea Hervias Servicio de Impuestos Internos (SII) - CHILE (Chilean Internal Revenue Service) Fifth Meeting of.

ElectronicElectronic InvoiceInvoice(VAT)(VAT)

ElectronicElectronic InvoiceInvoice(VAT)(VAT)

Fernando BarrazaAurea Hervias

Servicio de Impuestos Internos (SII) - CHILE(Chilean Internal Revenue Service)

Fifth Meeting of the FTA Taxpayer Services Sub-GroupFifth Meeting of the FTA Taxpayer Services Sub-Group11-13 October 200611-13 October 2006

Istanbul - TurkeyIstanbul - Turkey

Pre-filled Tax Return Systems & Third Party Reporting Systems

CHILE – Demographic CHILE – Demographic FeaturesFeatures

From north to south: 4,500 kmFrom north to south: 4,500 km Size: 750,000 sq kmSize: 750,000 sq km Coastline: 6,435 kmCoastline: 6,435 km Land boundaries: 6,171 kmLand boundaries: 6,171 km Border countriesBorder countries:: Argentina 5,150 Argentina 5,150

km, Bolivia 861 km, Peru 160 kmkm, Bolivia 861 km, Peru 160 km Two levels of government: Two levels of government:

National and MunicipalNational and Municipal 12 Regions plus a Metropolitan 12 Regions plus a Metropolitan

Region (MR)Region (MR) Population: 15 millionPopulation: 15 million 35% of population in MR35% of population in MR

National (tax revenue=19% of GDP,National (tax revenue=19% of GDP, about US$ 19 billion)about US$ 19 billion)

• VAT (50% of TR, 19% VAT rate)VAT (50% of TR, 19% VAT rate)• PIT and business profit tax (25% of PIT and business profit tax (25% of

TR, 17% rate for BPT, which is TR, 17% rate for BPT, which is integrated with PIT)integrated with PIT)

• Excise tax (gasoline, oil, tobacco, Excise tax (gasoline, oil, tobacco, cigarettes, liquors, wine, and beer)cigarettes, liquors, wine, and beer)

• Stamp taxes (tax on loans)Stamp taxes (tax on loans)• Customs duties (very small)Customs duties (very small)

Municipal (1-2% of GDP)Municipal (1-2% of GDP)• Property tax (administered by the Property tax (administered by the

SII)SII)• Commercial and vehicle licensesCommercial and vehicle licenses

CHILE – Taxation RegimesCHILE – Taxation Regimes

• Chilean IRS (Servicio deChilean IRS (Servicio de Impuestos Internos, SII)Impuestos Internos, SII)

3,700 staff3,700 staff Headquarters (9 departments, Headquarters (9 departments,

function-based organization)function-based organization) 16 Regional offices (4 at the MR)16 Regional offices (4 at the MR) 1 LTO (Large Taxpayer Office)1 LTO (Large Taxpayer Office) 60 local offices60 local offices Virtual Office at Internet: Virtual Office at Internet:

www.sii.cl

CHILE – Chilean IRS (SII)CHILE – Chilean IRS (SII)

i.i. Taxes emerges from economic activity developmentTaxes emerges from economic activity development

ii.ii. Compliance is based on self-assessmentCompliance is based on self-assessment

Tax system in Chile is based on two main principles:Tax system in Chile is based on two main principles:

Businesses developmentBusinesses development Professional activitiesProfessional activities entrepreneurshipentrepreneurship

Assume taxation knowledgeAssume taxation knowledge Sanction for not complianceSanction for not compliance

Imply tax Imply tax compliance compliance liabilitiesliabilities

Cost of Cost of compliance, and compliance, and for not for not compliancecompliance

Nature of Chilean Tax System and Nature of Chilean Tax System and Features of Tax ComplianceFeatures of Tax Compliance

Internal Revenue Service’s Internal Revenue Service’s MissionMission

To administrate the Internal Tax Legislation To audit and facilitate Tax compliance of

taxpayers To reduce the transaction costs and

contribute to increase the productivity of the agents of our economy

To encourage the modernization of the state administration and the e-government

All above, to contribute to the Chilean economic development

Proposal of Annual Income Tax Proposal of Annual Income Tax ReturnReturn The general objectives of this Project were:

• Facilitate and simplify by self-services, the complex process of the annual income tax declaration, improving tax compliance

• Reduce the number of declarations disputed, reducing the number of taxpayers who have to be audited

• Help to reduce tax evasion• Achieve 100% of tax declarations by Internet

The specific objectives were:• Offer Proposal Pre-filled of Annual Income Tax Return to

taxpayers with complete information• Offer partially Proposal of Annual Income Tax Return to

taxpayers with partial information, which they must complete

• Minimize tax compliance costs, using all information about taxpayers that the chilean internal revenue service receive into sworn declarations from the third taxpayers, such as companies, employers, banks, clients and providers

On line Tax ReturnsOn line Tax Returns

This graph shows the comparative evolution among the two kinds of declarations. In 2006, 97,04% of the tax declarations were submitted through Internet (2,070,643) and 2,96% in paper form (63,289)

1,132,933

926,278

1,403,193

638,720

1,663,720

341,388

1,984,383

76,289

2,068,637

63,289

0

500,000

1,000,000

1,500,000

2,000,000

2,500,000

De

cla

rin

g

2002 2003 2004 2005 2006

Year

Online vs Written - Tax return

Online forms Written

Proposal Pre-filledProposal Pre-filled current steps current steps

Extend this feature to other declarations such as the Monthly Tax Declaration and Payment (VAT tax returns)

We are working on replicating the model based on information submitted by the companies, clients and suppliers

One way to get it, was the Electronic Invoices (e-Invoice)

What is it?

The electronic document “e-Invoice” has the same legal value than traditional on paper Invoice

It is generated by an electronic process in the format and procedure defined by the Chilean Internal

Revenue Service

Digital signature is necessary to guarantee integrity, authenticity and no repudiation of e-Invoices

Strategic alliance with ICT companies to promote the electronic invoice adoption

ELECTRONIC TRIBUTARY DOCUMENT EXCHANGED BETWEEN COMPANIES

(to collect VAT through the companies that sell/buy products or services)

Electronic InvoicesElectronic Invoices

Electronic InvoicesElectronic Invoices

Others electronic documents related are:

Credit Notes Debit Notes Delivery Guide Service Invoices Export/Import Invoices

Standard messages (XML) Typing elimination (pre-filled suppliers & clients data) Standard printing (PDF417 print code) Fast queries of documents It is possible of adding publicity Improves relationship between suppliers and clients

Increases productivity and competitiveness

Reduces process costs

Electronic InvoicesElectronic Invoices

Enable pre-filled VAT tax returns without third party reporting (data are captured in the

commercial transaction source)

Tax Administration online software (free)Available to Micro & Small

Companies

“Off the shelf” SoftwareMedium companies

Customized SoftwareMedium & Big companies with

ERP

“In house” softwareBig companies

Electronic InvoicesElectronic InvoicesSolutionsSolutions

1.847 companies are emitting e-Invoices (large companies push to small companies)

29% (749) is Micro & Small Companies 589 Government Agencies are receiving e-

Invoices (biggest catalyst) 565 companies waiting for authorization to

begin operation 105.501.975 million e-Invoices emitted 20% of total invoices is electronic Brasil began the adoption of the same model

Electronic InvoicesElectronic InvoicesStatusStatus

Recepción de DTE en el SII

611731

824906825771

1.0961.238

1.367

1.660

1.884 1.861

1.587

2.157

1.949

2.2242.371

2.761

3.077

3.510

3.949

4.455

4.666

5.512

6.084

5.9805.812

873892

899929

1.961

5.555

5.332

4.7144.777

5.550

23 23 24 32 35 40 4055 65 80 80

86 93 106139153155163

201206237262

301

383

459

538

669

740

1520

1807

1379

12271127

939

1022

24

831

200

1.200

2.200

3.200

4.200

5.200

6.200

Período (Año/Mes)

Do

cu

men

tos R

ecib

ido

s (

Mil

es)

0

200

400

600

800

1000

1200

1400

1600

1800

2000

Em

iso

res A

uto

rizad

os

Electronic InvoicesElectronic Invoices

Electronic InvoicesElectronic InvoicesMicro & Small CompaniesMicro & Small Companies

Facturación Electrónica MiPyME

85

374

660 712

865 845

1136

945

14911559

1830

2481

2981

29

7099

133

174204

242

277

333

384

449

557

749

0

200

400

600

800

1000

1200

1400

1600

1800

2000

2200

2400

2600

2800

3000

SEP-05 OCT-05 NOV-05 DIC-05 ENE-06 FEB-06 MAR-06 ABR-06 MAY-06 JUN-06 JUL-06 'Ago-06 'Sep-06

Períodos

Do

cum

ento

s E

mit

ido

s

20

120

220

320

420

520

620

720

Co

ntr

ibu

yen

tes

Au

tori

zad

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Internal Revenue Service’s Internal Revenue Service’s SummarySummary

The main channel to communicate with taxpayers is by Internet (Website: www.sii.cl) 100% third party information, annually 97% income tax returns, annually 54% VAT tax returns, monthly 87% of total income taxes ($), annually 83% begins activities or commencement of

business on line, monthly 70% electronic personal services invoices, montly 20% electronic companies invoices, monthly All taxpayers access to SII’s Website

authenticated with password or digital signature

Electronic tax compliance services have to aim to…

Provide high quality taxpayers services to simplify, facilitate and improve tax compliance (increase taxpayers awareness)

Minimize tax compliance costs (taxpayers visits to SII offices, banking, and any other organizations that require tax information)

Optimize and strengthen SII enforcement capability to use and manage good taxpayers information

Produce demonstration effects to other public agencies about ICT adoption, and also to private sector

Encourage use of ICT, and improvements at taxpayers’ business cycles as a result of its adoption

Lessons we can learnLessons we can learn

• We have noticed taxpayers increasingly prefer SII´s electronic solutions for tax compliance: www.sii.cl is clearly recognized and highly appreciated by taxpayers

www.sii.cl the fourth most visited Web site in Chile

www.sii.cl has been given several awards (nationally and internationally)

• Our electronic tax compliance approach has helped us to achieve several objectives: Increase efficiency and effectiveness of tax compliance, for taxpayers and tax administration Incentivize productive and competitive improvements Increase transparency and awareness of tax compliance through citizens’ direct participation

Final commentsFinal comments

Enable pre-filled all tax returns (future)

Thank you and visit…Thank you and visit…

The SII’s Virtual Office at InternetThe SII’s Virtual Office at Internet

Fernando [email protected]