Use of Technology in Tax Compliance

1. Use of Technology in Tax Compliance Continuous Monitoring & Auditing

2. Agenda • Reasons for Change • Long Term Vision : Continuous Monitoring & Auditing • First Step: Electronic Bookkeeping • XBRL and XBRL-GL Global Ledger • Standard Audit File for Tax vs. XBRL • Ongoing Studies • Some Screenshots from Developer’s System

3. Reasons for Change • Reorganization of tax auditingunits and establishment of TTIB on 10 July 2011 • Needto create new tax compliance management model • Requirements to improve efficiency in tax auditingby • using ICT as much as possible • going beyond the classical relationship with LTP’sandMNE’s • To reduce compliance costs on the taxpayers • To obtain new abilities to fight effectively with unregistered economy

4. Objective of Supply Chain Monitoring and Auditing Building an continuousmonitoring and auditing information systemfor the supply chain of the goods covered by special consumption tax

5. Traditional & Continuous Auditing * David Y. Chan, Miklos A. Vasarhelyi. Innovation and practice of continuous auditing

6. Basic Design

7. First Step : e-Bookkeeping-Overview - I • It was started by publishing Electronic Bookkeeping Communique on 13th December 2011 • The first common implementation of XBRL in Turkey • No need any paper form for journal or ledger • An important step through structured data flow between taxpayers and tax authority • XBRL-GL (case c - b) is accepted as the legal format for electronic bookkeeping • Reports covered by XBRL-GL (case c-b) in electronicbookkeeping • Electronic Journal • General Ledger

8. First Step : e-Bookkeeping-Overview - II • A win-win solution for taxpayers and tax authority • There is no any central data repository for bookkeeping records • It has created a suitable environment to introduce XBRL-FR taxonomies • It is possible to automate some business processes because of using XML & XBRL • Data import to tax inspector’s system • Applying business rules or schematron • Data analysis • Reporting • Others

9. XBRL* • Developed by a non-profit organization (XBRL International-XII) • Stands for eXtensible Business Reporting Language • One of a family of XML languages • A language for the electronic communication of business information • An open standard and free of license fees • Two important taxonomy groups • Financial Reporting (FR) taxonomies (IFRS, US-GAAP, Solvency II …) • Global Ledger (GL) Taxonomy * http://www.xbrl.org/

10. XBRL-GL (Global Ledger) General Structure Folders Definitions gen : General Definitions bus : Advanced Business cor : Core muc : MultiCurrency taf : Tax Audit File usk : Advanced US & UK ids : Sample Documents plt : Combination of Different Modules

11. SAF-T and XBRL Standard Audit File-TaxVersion XBRL Is specified by XBRL Int. Is being developed by jurisdictions Tries to cover allreportingsupply chains Business Information Financial Information • Was developed by OECD • International standard for electronic exchange of reliable accounting data • Designed to allow auditors access to data in an easily readable format • Designed to capture data from a number of areas found in a typical business accounting system

12. OngoingStudies • Pilotswith 6 LTP’s are being performed (2 of them are Multinational) • Determining a data format to monitor supply chain • Obtaining test data for Q4/2012 • Do not haveany XBRL taxonomiesfornow • Development for someprototype models and software • Model for the link analysis between entities (is being modeled) • VDK.Net.SCC Application ( for supply chain control processes) • VDK.Net.SCC Risk Modeling • VDK.Net.Audit (integrated data analysis and instancedocumentanalyzer)

13. OngoingStudies • PreparationforXBRL-TR Local JurisdictionEstablishment • An official working group with 9 members from different regulatory was formed. • WG has completed its recommendation report for Public Oversight Authority • Business plan and application form arebeingpreparedcurrently • Analyzing to extend XBRL-GL TAF (Tax Audit File) module • Standard Audit File (SAF) definition has not beenapplied in Turkeyso far • XBRL-GL TAF are being analyzedas thestandard file format fortheauditprocesses • Preparation for the introduction of some record keeping requirement

14. Subject Headings for Long Term • Ongoing studies should be developed in the light of following headings; • Progression from continuous monitoring to continuous auditing • Analyzing co-operation compliance model alternative • Discussing the creation of Tax Control Framework • Evaluation of remote access & remote audit

15. ScreenshootsfromDeveloper’sSystem

16. Q&A Arif YILDIRIMSeniorTaxInspectorarif.yildirim@vdk.gov.tr

17. XBRL and Reporting Processes http://www.xbrl.org/Business/Regulators/FFIEC-White-Paper-31Jan06.pdf

18. XML & XBRL

19. XBRL Taxonomies • Taxonomies are the hierarchical dictionaries used by the XBRL community • They define the structure of instance documents (reports) • There are two importanttaxonomygroups in XBRL • XBRL-FR (Financial Reporting) • XBRL-GL (Global Ledger) • XBRL-GL is a special taxonomy developed and recommended by XII itself http://www.ifrs.org/XBRL/Resources/Fundamentals.htm

20. Key XBRL Taxonomies • COREP/FINREP taxonomyforbankingsectorpreparedby EBA • Solvency II taxonomy for insurance and pension funds • IFRS taxonomypreparedby IASB and IFRS • US-GAAP taxonomy-Financial ReportingTaxonomyprepadedby FASB • Global LedgerTaxonomypreparedby XII • …

21. e-Bookkeeping-MainProcess

22. e-Bookkeeping-Main Process