The EU’s Digital Single Market Communication last May called for “the rapid removal of key differences between the online and offline worlds to break down barriers to cross-border online activity.”
One area that impacts European companies of all sizes and stifles intra-EU competition, is the often conflicting and archaic accounting requirements for small businesses. This relates to all types of data, such as invoices, sales receipts, payments, payroll, etc. that all businesses must keep to comply with local laws.
Having 28 different sets of rules related to returns and record keeping flashes warning lights in the face of businesses looking to enter other European markets.
New research commissioned by CCIA looks at the accounting regimes for small businesses in six EU countries – Germany, Belgium, Hungary, Italy, the Netherlands and Spain.
It analyses the main questions facing businesses when they file returns: Where, how and for how long must the data be stored; what are the legal requirements and requirements for audit and financial reporting; and what, if any, rules exist for companies using cloud-based technologies.
The research offers a surprising picture of the burdens facing businesses: 28 sets of national rules, with different storage and retention requirements act as a serious disincentive for small businesses who want to establish and operate in other EU countries.
For example, in Belgium and Germany, the data on returns must be kept at company premises or on local servers, unless the tax authorities give their explicit approval for an exception.
Meanwhile, the minimum time period that tax data must be stored ranges from four years in Spain to ten years in Germany.
Obviously, bigger companies can more easily cope with red tape associated with operating across the EU Single Market. However, small and medium sized enterprises (SMEs), which constitute 99 percent of businesses in Europe, are hit disproportionately hard.
EU Member States are in the process of digitisation. More than two thirds of Member States either introduced or improved their online tax services in 2015 according to a recent EU report.
Yet the inevitable shift from filing records by pen and paper to electronic returns has not been reflected legally. There are no specific laws or guidance for businesses storing their tax documents in the cloud in any of the six countries surveyed. Similarly, the six countries have differing rules on whether documents should be stored as hard copies or electronically.
Member States’ digitisation of accounting rules is an opportunity to harmonise how company data is allowed to be stored and flow within the EU’s Single Market.
The EU’s Digital Single Market Strategy states that “use of electronic documents should be promoted across the EU to reduce costs and administrative burden for business”.
Specifically, the Commission will this year “propose a ‘European free flow of data initiative’ to promote the free movement of data in the European Union. Sometimes new services are hampered by restrictions on where data is located or on data access – restrictions which often do not have anything to do with protecting personal data. This new initiative will tackle those restrictions.”
The EU has a historic opportunity to remove barriers across the 28 EU Member States and help businesses to store their data electronically.
EU engagement would be hugely helpful for companies of all sizes, and notably for Europe’s small businesses, and help them remove a key obstacle currently inhibiting them from utilising the EU’s Single Market.
Overview of six EU Member States’ rules for handling of tax data
|Where must the data be stored?||Original documents and records should be maintained at the disposal of the tax authorities at their premises. This can be moved for a limited amount of time with exception granted by the authority||There are no specific rules prohibiting accounting or tax data being stored in the cloud or in another country. Documents may be moved to another place but they must be presented to the tax authority within 3 working days on demand.||If data is to be stored on a server outside of Germany, explicit consent from the tax authorities is required. Penalties apply for not meeting this condition.||There are no specific requirements regarding data location. Data can be kept at the company headquarters or at any other location provided that it is communicated to the Tax Authorities.||There are no specific requirements for data to be stored on local servers.||There are no specific requirements for data to be stored on local servers.|
|How must the data be stored? What format?||The original documents and accounting records should be stored but this can be stored in electronic form if the data authenticity and integrity can be maintained.||Electronic data may be stored if it's integrity, completeness and security is ensured. Hard copies must be kept unless converted in line with specific laws.||Most tax relevant data can be stored electronically. Certain tax data must be stored in original format and can't be converted electronically.||Original documents must be stored in a structured way. Electronic storage is allowed providing data is readily available and meets specific laws imposed by authorities.||There is no specific legislation that states that the physical document must be saved. Therefore it can also be electronically.||There are no specific rules regarding how the Data must be stored as long as it's authenticity and integrity is maintained and is readily available.|
|Requirements for legal, financial reporting or audit purposes?||The information must be able to verify authenticity of data based on documents, records and computer systems. It must be provided in a manner that can be understood by the authorities||Data should be produced containing all information regarding the tax base, the amount of tax, tax exemptions etc. in such a manner that it can be used for audit and control.||Original data format is required in certain situations.||The business must be able to guarantee computerised access to the archive and that all documents and data included in the archive are authentic, intact and printable or movable on other electronic devices.||The information must be readily available and must be provided in original format unless converted under specific requirements.||There are specific local regulations concerned with the financial reporting and audit requirements over and above the tax requirements to maintain the authenticity, and availability of the data|
|Standard care for cloud based technologies?||No specific laws on the use of cloud based technology. Tax authorities must be able to understand how any electronic system is used.||There is currently no best practice or specific rules concerning cloud-based services.||There is currently no specific rules concerning cloud-based services.||No specific regulations on the use of cloud based technology. General rule of quality, security, integrity and ability to make changes of the stored documents applies.||No legislation regarding the storage of cloud based services. Provider remains responsible for their data even if another party stores the data.||There is currently no best practice or specific rules concerning cloud-based services.|
|Minimum period data must be held for?||7 years following the period they relate to.||5 years following the period they relate to for general tax data, 8 years for accounting data such as GL.||10 years following the end of the period. 6 year retention applies to certain documents but most companies still keep them for 10.||10 years for legal purposes. Tax statute of limitations is 5 years.||7 years following the period they relate to.||Tax data should be kept for 4 years, accounting data kept for 6 years.|