Trusted tax companies; savior or facilitator?

Trusted tax companies are expected to take on the majority of the burden of submitting electronic invoices to the Tax Affairs Organization.

According to IDEA, the companies that can serve as facilitators for the submission of electronic invoices on one hand and can also act as intermediaries in this regard on the other hand, as they hold the optimal number of licenses issued for these companies in consideration of the total taxpayers, are important. The commission set by these companies for providing services to taxpayers is another challenge. Although many individuals have accepted paying commissions under the current government conditions (a mistaken practice that has been experienced in the banking system before), a high commission rate, if implemented, could lead to objections from many taxpayers.

The presence of 6 first-tier trusted tax companies and an estimated 4.4 million taxpayers suggests that this number of companies alone may not be able to meet the needs of all taxpayers.

According to Article 26 of the Law on Point of Sale Terminals and the Taxpayer System of the Tax Affairs Organization, the organization can use the assistance of the private sector to ensure the proper performance of taxpayers in issuing electronic invoices and accurately recording transactions in the taxpayer system, to ensure that taxpayers fulfill their legal obligations. By issuing licenses for them under the title of trusted tax companies, it allows them to take on part of the electronic invoice issuance process.

Although this legal provision may appear to improve and facilitate the process of issuing and submitting electronic invoices, the reality is that, given the limited licenses issued so far in comparison to the number of taxpayers, it may gradually turn into a facilitator for this scheme and keep electronic invoices behind the line of trusted tax companies.

According to what is outlined in the law, trusted tax companies are divided into three categories, each of which can play a different role in the process of sending or educating the issuance and submission of electronic invoices. Trusted tax service provider companies can collaborate with the Tax Affairs Organization in three areas: issuing and submitting electronic invoice data, supporting related equipment, educating taxpayers, and providing technical and non-technical tax consultancy to empower taxpayers.

First-tier trusted tax companies receive licenses for issuing, collecting, maintaining invoices, submitting sales invoices, and providing all services to the country’s Tax Affairs Organization. Essentially, the primary responsibility of these companies is handling the entire process. In addition, first-tier trusted tax companies can monitor the performance of taxpayers and provide supervision. This group of trusted tax companies is responsible for preparing essential financial statements such as balance sheets according to the Tax Affairs Organization’s standards. So far, out of the seven companies that have been granted the status of a trusted tax company, six have received first-tier licenses, and one has received second and third-tier licenses.

Second-tier trusted tax companies only have licenses for educational activities and cannot have practical oversight. These companies mainly provide training on tax duties and point of sale terminal regulations and the taxpayer system to taxpayers. The third and final group of trusted tax companies primarily operates as consultants. They can assist taxpayers in the submission of tax declarations and the completion of information in tax declarations.

The presence of 6 first-tier trusted tax companies and an estimated 4.4 million taxpayers suggests that this number of companies alone may not be able to meet the needs of all taxpayers. This method might be the simplest way to send electronic invoices.

The CEO of Tiss trusted Data Processing, one of the first-tier trusted tax companies, says, ‘According to the law, individuals can send invoices with a trusted tax type without receiving their digital signature and key. This is not possible in any other way. It means that the trusted connection and link to the taxpayer system and the organization’s trusted and verified channels are exclusive advantages that other methods do not have. Therefore, all these services require secure infrastructure for sending electronic invoices. The infrastructure and sending process, as a facilitator in terms of technical, business, and quality support to taxpayers, are regularly reviewed by the Regulatory Authority. So, meeting all the requirements is a continuous challenge for trusted companies, and they must always provide services under the best conditions.’

Costs of Sending Electronic Invoices

The Budget Law of 2023 has emphasized in Clause J, Note 6: ‘The rate of commission and the tariff of trusted tax service provider companies will be determined by the Economic Council. The equivalent of one per thousand of the collected taxes and value-added tax via the taxpayer system is deposited under the revenue code number 110519 solely for the purpose of paying the mentioned commission and tariff to trusted tax service provider companies for the services requested by the Tax Affairs Organization of the country, and any surplus will be refunded in compliance with the deadlines specified in Articles 63 and 64 of the General Accounting Law.’

Based on this, trusted tax companies can charge 111 Tomans for issuing each electronic invoice from legal entities and 11 Tomans from business units. Although this amount may not seem significant at first glance, considering the volume of invoices issued by legal entities and business units, this figure appears unrealistic.

If this commission fee is added to the transaction fees that businesses must pay for each transaction, as well as the taxes they must pay and the expenses of receiving services from trusted tax companies, it is only natural that this scheme will not only lead to failure but also provoke objections from many business units.

In the current circumstances, the government has declared that trusted tax companies should not charge taxpayers for issuing each electronic invoice, and they should bear this cost themselves. Trusted tax companies only charge for the services they provide and for preparing the service platform. Although the government appears to have taken this decision to promote and expand this service among taxpayers, it seems that it can easily result in a situation similar to zeroing the payment network fees in the banking network. Therefore, before implementing this law, the government must make a clear and correct decision regarding the commission rates of these companies, not only to improve and enhance their services but also to facilitate the use of this service for taxpayers.

Challenges Ahead

Trusted tax companies find themselves in the midst of a tax battlefield where they had no prior experience of operating in the taxpayer and Tax Affairs Organization field. In the past year, seven trusted tax companies have obtained licenses, and they have tried to provide services to the best of their abilities. However, the uncertainty about their position on one side and the novelty of the service they provide are among their main challenges.

The CEO of Tiss says, ‘We are at the beginning of the road, and the law is currently being implemented in its initial stages. This novelty will add to the major challenges. Some challenges are anticipated, but the majority of challenges become apparent during full implementation, and they are currently unknown. The legislator and the trusted entity are well aware of this issue, and therefore, maximum flexibility has been considered to deal with challenges and risks.’

In the current situation, empowering individuals and legal entities in systemic and standard work according to the law, as well as educating them on the practical aspects and culture of the law, are among the most significant challenges faced by trusted tax companies. These companies must operate in a way that convinces taxpayers to submit their invoices through a specific process, an action that taxpayers naturally have little interest in performing.

Penahi says in this regard: ‘The regulator in the field of tax law provides updated versions of the system at different times, which imposes a very high technical burden, and we are faced with an explosion of requests and queries in seconds and hours. Therefore, until a version is established that remains unchanged for several months, we have months ahead, and this indicates that the trusted entity must be prepared for changes, both minor and fundamental, at any moment. This means that the volume of operations is very high due to frequent changes.’

This challenge creates a significant technical burden for trusted tax companies, requiring them to employ a larger human workforce, which in turn presents another challenge.

While trusted tax companies find themselves in the midst of a tax battlefield where they had no prior experience of operating in the taxpayer and Tax Affairs Organization field, he explains: ‘Another challenge is human resources and specialized manpower because this is a nascent business, so there is no specialized workforce in this field. Therefore, the growth of individuals in this field is organic and internal, and undoubtedly there is a significant challenge in training, retaining, and monitoring these assets, as with changes in legislation, the volume of strategic changes increases significantly, and we need to have great flexibility for human resources and their retention.’

The next challenge is innovation and solution delivery. On the one hand, the responsibility for cultural promotion and training of taxpayers has also been placed on trusted tax companies, a task that, if not executed properly, can potentially derail a project. Transforming taxpayers from traditional offices to sending electronic invoices undoubtedly requires large-scale strategies for promoting culture, public awareness, and creating the necessary infrastructure.