Professor Richard Ainsworth of Boston University, an expert on international sales tax collection and fraud prevention, offered an overview of the extent of the problem at the forum on modernizing sales tax collection in NYS held by State Senator Liz Krueger in 2016. According to Ainsworth, New York State loses around a staggering $1.7 billion each year due to electronic sales suppression. “Zapper” software, which allows users to falsify sales receipts, previously came in the form of CDs or USB thumb drives, but increasingly sophisticated software is now available to download online, making it nearly impossible to track down producers. Professor Ainsworth’s written statement can be viewed here.

The zapper Case in Minnesota roots from New York City

Recently, a fraudster from NYC caused a lot of troubles for the Minnesota Department of Revenue. The authorities charged Mr. Hailong Li with manufacturing and providing Sales Suppression devices to businesses, helping them commit tax fraud. They elected this as the first case charged under Minnesota’s electronic sales suppression devices law enacted in 2017.

The specific software called “Happy World” helped business owners modify their sales records, enabling them to reduce the amount of sales tax they owed to the state without leaving one shred of audit trail. And although Mr. Li, the creator of the software, denies ever selling it to people since the law came to force in 2017, the authorities still arrested him due to firm proof that he did just that. He provided his customers with remote support using TeamViewer to log into their terminals and tweak the sales records. During the first investigation of Osaka Duluth, Minnesota Revenue officers seized a flash drive containing Mr. Li’s software program. The authorities discovered Happy World in a second criminal investigation of Shogun Burnsville and the third case of Raku, Inc.

According to this law, (Minnesota Statute: 289A.63.2(b), with reference to 609.03.1), a maximum sentence of 5 years in prison or $10,000 fine. Sometimes, it can be both.

Having firm and harsh laws against tax fraud is a very good way to fight it, however, it is usually not enough. Mr. Li is only one of the people caught red-handed; all over the USA, sales suppression devices and software keep preventing the States from collecting taxes properly. This is further feeding the grey economy, as well as endangering consumers’ rights. If a certain business owner isn’t paying sales taxes, shouldn’t this mean that the prices for the consumers are lower as well? No, it’s not.

How Can TaxCore Help?

TaxCore is not new to the American market. Moreover, it already works in the State of Washington. To be more precise, the State of Washington Department of Revenue has entered into an agreement with well-known restaurants – and its proving to be working effectively.

The authorities caught the owner of the restaurant using a sales suppression software, however, the plea that resulted in an agreement helped TaxCore enter the US market.The business owner accepted the implementation of a monitoring software into their restaurant. Naturally, by breaking the law, the fines were huge. The business owner even had to pay for all the taxes they tried to hide.

The reason why TaxCore was the one chosen as a monitoring system for the restaurant was due to its transparency and flexibility. The owner still had access to the full functionality of the POS, including plug-ins for popular delivery services, while the monitoring in the background is active.

In a developed country such as the USA, there are usually no issues with internet connectivity, which allows for business owners to connect to the Department of Revenue 24/7. This means that with TaxCore, the business digitally signs and directly forwards every single receipt issued to the DOR server.

TaxCore notices discrepancies

This leaves no space for tax and sales fraud because the system detects any discrepancies (e.g., the system will detect sudden gaps in forwarded receipts for a certain amount of time, mismatches with the POS ticket sequences, and similar issues). Even if the internet connection is unstable, using a secure element, TaxCore lets business owners save their receipts until the internet connection is back, without customers noticing because verification service will work regardless of the mode POS is in at the moment.

Moreover, TaxCore’s proof of audit technology can easily disable a business from issuing any receipts at all if the system misses or can’t audit some of them. Additionally, TaxCore’s receipts come with a customer scannable QR code (or in this case, a guest) and can easily report if something doesn’t sit right with them.

Using a taxpayer who committed tax fraud as testing grounds for a pilot project was a very good decision by the State of Washington. It proved that it is possible to educate and correct taxpayers easily, but more importantly, it proved that TaxCore is the perfect system that leaves no space for tax evasion. Years after authorities caught them committing tax fraud, the business owners in Seattle are still using TaxCore and are completely abiding by the law.

The post TaxCore vs Electronic Sales Suppression (ESS) Software appeared first on Dti.

Tax Fraud in the EU

Only in 2017, the member countries of the European Union lost approximately EUR 137.5 billion to tax fraud according to data on the EU’s official website. Unfortunately, this trend continued up to 2019 where not much has changed and the loss is still measured in billions. The issue hides behind the differences in tax collection between the members. For example:

• Luxembourg – 0.7% VAT gap
• Sweden – 1.5 VAT gap
• Cyprus – 0.6% VAT gap

Evidently, tax collection and paying for taxes in these countries does not present an issue. However, the situation in some other EU states is completely the opposite:

• Romania – 35.5% VAT gap
• Greece – 33.6% VAT gap

These results mostly indicate the performance of national tax administrations and whether they require modernization or not.

Using Zappers as a Means of Tax Evasion

Zappers are add-on programs that merchants with ECRs or POS systems often tend to use. The problem with them is that they don’t skim all sales, and they never skim credit card transactions. This allows for a lot of space in tax evasion that tax authorities have no way of detecting.

Disappointingly enough, zappers are mostly used in developed economies – for example, Sweden, Germany, and Spain, just to name a few. In Sweden alone, approximately 70% of the ECRs have Zappers installed. Therefore, Sweden is suffering great amounts of tax loss every year that could help boost the economy even further.

Out of the EUR 137 billion in tax loss in the EU, about EUR 20 billion is lost in the restaurant sector alone. The four countries that lose the most in tax revenue are Germany, France, Italy, and Spain.

Total Tax Revenue losses in the USA

On the other side of the pond, the situation isn’t much better. Compared to most of the Western governments, the USA falls very far behind. In 2018, tax revenue at all levels of the US government was 24% of the overall GDP.

The States are behind most EU countries, such as France, Denmark, Belgium, Czech Republic, Turkey, and Greece. They are also behind some Asian countries, such as Japan and South Korea. Making tax revenue losses in the USA, a big issue.

How Are Countries Fighting Against tax revenue losses?

Given that most developed countries are well aware of these problems, which methods are they exactly using to fight against them? Unfortunately, the methods being used are quite outdated and still rely on traditional audits. However, the governments are slowly realizing that the best way to fight technology is with technology.

TaxCore has helped developing countries such as Fiji and Samoa completely evade issues similar to these. Thanks to the complete digitalization of tax collection, any fraud or evasion is noticed immediately. Once a potential tax fraud is discovered in real-time, the tax authority can immediately send out an inspector to investigate the issue. This further motivates taxpayers to abide by the law and the loss of annual tax revenue remains at its minimum.

To find out how TaxCore can help governments battle tax fraud, feel free to contact us.

The post Tax Revenue Losses – in the USA and in the EU appeared first on Dti.

DTI also presented its new form of fiscal receipt that comes with a QR code at the bottom which customers can scan with their phones.  Subsequently, this turns an every-day consumer into tax authority compliance which results into easier business monitoring. This is an idea that The House of Representatives in Washington liked, especially because the USA has recently been looking into countries that digitalized their tax collecting systems.

Washington is currently the only state in the US making significant progress in solving a tax compliance problem that robs the states of up to $21 billion annually. Just last year, criminal case involving Yu-Ling Wong, owner of the Facing East Restaurant in Bellevue, Washington was settled. At the first glance, the case reveals a fairly routine example of a small business using two sets of books and avoids $395,000 in taxes owed to the state (Washington v. Wong, Wash. Super. Ct., No. 16-1-00179-0, plea entered 8/30/17) but it also reveals a culture demand from computerised POS systems to create fictitious records and deceive any auditor. The beens were  spilled by the testimony of the sales suppression software installer who told the judge in the statement of his defence that most every other restaurant do the same. 

Professor Richard Ainsworth, who has written extensively on ESS, zappers and phantom-ware, said the most sophisticated systems reconcile differences with the retailer’s inventory systems and financial records. ‘‘If you sell 50 hamburgers, it’ll eliminate 10 of the hamburgers,’’ he said. ‘‘So the state auditor is looking for something that’s not there. These zappers are not only erasing the data, they are erasing the backup files. The really good ones also adjust the inventory list, so it’s like they only bought 40 hamburgers in terms of meat and rolls.’’

The Department of Revenue in Washington State is looking to receive legislative support to adopt best international practices to solve this problem. 

The post DTI Presenting TaxCore at the House of Representatives, WA appeared first on Dti.