Understanding Continuous Transaction Controls (CTC)

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Continuous transaction controls (CTC) represent a significant shift in how tax authorities gather business transaction data. Unlike traditional methods relying on post-transaction audits and taxpayer-reported information, CTCs enable law enforcement agencies, such as tax administrations, to collect data on business activity in their countries in real-time or near real-time. This data is obtained directly from business transaction processes or data management systems, offering a significant improvement over:

• Retroactive Audits: Traditional audits involve obtaining information on transactions long after their conclusion, making the process inefficient. CTCs address this by providing a real-time or near real-time view of transactions.
• Reliance on Taxpayer Records: Traditionally, tax authorities rely on data stored by the very businesses they seek to audit. CTCs remove this dependency by creating a dynamic business transaction ledger accessible to the tax administration.

CTC Models and E-Invoicing

The type of CTC model a country implements can influence how e-invoices are used:

• Centralized Model: In this model, businesses must send e-invoices through a government-controlled platform. This platform validates the invoice data before it can be sent to the buyer. E-invoicing becomes mandatory and ensures all transactions are reported to the tax authority in real-time.
• Decentralized Model: Businesses can send e-invoices directly to buyers, but they must also submit the invoice data electronically to the tax authority simultaneously. While e-invoicing might not be mandatory, it simplifies data reporting for businesses under CTC.

Benefits of CTCs

This shift towards real-time data collection offers several advantages:

• Enhanced Tax Compliance: CTCs provide tax authorities with a more accurate and timely view of transactions subject to taxation. This reduces discrepancies between reported VAT and actual collections, closing the "VAT gap."
• Combating Fraud and Evasion: By continuously monitoring business activity, tax authorities can proactively identify suspicious transactions that might indicate tax evasion or fraud.
• Streamlined Processes: CTCs can simplify tax compliance for businesses by automating data reporting and reducing the need for manual interventions.

The European Union (EU) is a leading force in adopting CTC models, with several member states already implementing various forms of e-invoicing and transaction reporting.

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