Electronic Invoice (VAT)

1. Fifth Meeting of the FTA Taxpayer Services Sub-Group 11-13 October 2006 Istanbul - Turkey ElectronicInvoice(VAT) Pre-filled Tax Return Systems & Third Party Reporting Systems Fernando Barraza Aurea Hervias Servicio de Impuestos Internos (SII) - CHILE (Chilean Internal Revenue Service)

2. From north to south: 4,500 km Size: 750,000 sq km Coastline: 6,435 km Land boundaries: 6,171 km Border countries: Argentina 5,150 km, Bolivia 861 km, Peru 160 km Two levels of government: National and Municipal 12 Regions plus a Metropolitan Region (MR) Population: 15 million 35% of population in MR CHILE – Demographic Features

3. National (tax revenue=19% of GDP, about US$ 19 billion) VAT (50% of TR, 19% VAT rate) PIT and business profit tax (25% of TR, 17% rate for BPT, which is integrated with PIT) Excise tax (gasoline, oil, tobacco, cigarettes, liquors, wine, and beer) Stamp taxes (tax on loans) Customs duties (very small) Municipal (1-2% of GDP) Property tax (administered by the SII) Commercial and vehicle licenses CHILE – Taxation Regimes

4. Chilean IRS (Servicio de Impuestos Internos, SII) 3,700 staff Headquarters (9 departments, function-based organization) 16 Regional offices (4 at the MR) 1 LTO (Large Taxpayer Office) 60 local offices Virtual Office at Internet: www.sii.cl CHILE – Chilean IRS (SII)

5. Nature of Chilean Tax System and Features of Tax Compliance Tax system in Chile is based on two main principles: • Taxes emerges from economic activity development Imply tax compliance liabilities • Businesses development • Professional activities • entrepreneurship • Compliance is based on self-assessment Cost of compliance, and for not compliance • Assume taxation knowledge • Sanction for not compliance

6. 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 Internal Revenue Service’s Mission

7. 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 Proposal of Annual Income Tax Return

8. On 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)

9. 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) Proposal Pre-filled current steps

10. Electronic Invoices What is it? ELECTRONIC TRIBUTARY DOCUMENT EXCHANGED BETWEEN COMPANIES (to collect VAT through the companies that sell/buy products or services) 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

11. Electronic Invoices Others electronic documents related are: • Credit Notes • Debit Notes • Delivery Guide • Service Invoices • Export/Import Invoices

15. Electronic Invoices Reduces process costs Increases productivity and competitiveness Enable pre-filled VAT tax returns without third party reporting (data are captured in the commercial transaction source) • 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

16. Tax Administration online software (free) Available to Micro & Small Companies “Off the shelf” Software Medium companies Customized Software Medium & Big companies with ERP “In house” software Big companies Electronic InvoicesSolutions

17. 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 105.501.975million e-Invoices emitted 20% of total invoices is electronic Brasil began the adoption of the same model Electronic InvoicesStatus

18. Electronic Invoices

19. Electronic InvoicesMicro & Small Companies

20. 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 Internal Revenue Service’s Summary

21. Lessons we can learn 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 • Encourage use of ICT, and improvements at taxpayers’ business cycles as a result of its adoption • Produce demonstration effects to other public agencies about ICT adoption, and also to private sector

22. We have noticed taxpayers increasingly prefer SII´s electronic solutions for tax compliance: Final comments • www.sii.clis 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 • Enable pre-filled all tax returns (future)

23. Thank you and visit… The SII’s Virtual Office at Internet Fernando Barraza fbarraza@sii.cl