Learn how the rapid pace of change in global regulations and reporting requirements is increasing the importance of tax compliance.
Compliance may not be the most glamorous task facing indirect tax (IDT) teams, but the rapid pace of change in global regulations and reporting requirements is turning the humble compliance function into a rapid-fire gauntlet of continuous challenges.
The main goal of compliance is of course to ensure all taxes are reported in accordance with the relevant regulations, accurately, and on time. However, with governments around the world rolling out new requirements for E-invoicing, real-time reporting, and other data-intensive tax initiatives, compliance is becoming increasingly complex. Governments everywhere suddenly want more data in ever-shrinking windows of time, so companies must adapt their systems and processes to meet these demanding new tax reporting obligations.
Tax and electronic invoicing technology can certainly help companies streamline their compliance processes by automating the way data is gathered and transmitted in the proper format and proper way, to tax authorities. However, before jumping on the technology bandwagon it maybe helpful to understand some of the challenges compliance professionals are facing, and why a universal technology solution to these issues is preferable to the disparate region- by-region approach so many companies attempt but inevitably abandon.
E-invoicing mandates: coming to a government near you
One of the most popular digital mandates being adopted by governments around the world is E-invoicing—that is, electronic invoices that automatically report transaction data between companies and governments. In the next two years, more than a dozen countries (e.g., France, Spain, Belgium, Poland and Japan) plan to introduce E-invoicing mandates, and each has their own version, which makes compliance that much more difficult.
Governments like E-invoicing because it helps prevent fraud, creates greater transparency, and improves the accuracy and timeliness of value-added tax (VAT) and goods-services tax (GST) reporting. However, E-invoicing involves a certain level of integration between a company’s ERP or other financial platforms and a government’s network (e.g.,PEPPOL), which can raise compatibility issues. Although some regions of the world, like the European Union, are attempting to create a framework (VAT in the Digital Age) of requirements for e-invoicing, at this time there is no clear standard to follow. Companies must not only understand the reporting requirements of each individual country in which they operate today, but must also be aware of evolving regulations as more countries come online, each with its own rules.
E-invoicing vs. real-time reporting
Depending on the country, E-invoicing may or may not be combined with real-time reporting, which requires companies to report VAT data in real-time, or close to it.
Real-time reporting gives governments unprecedented access to a company’s transaction data as it is happening—and, to facilitate it, company and government systems need to be in continuous communication. In countries where real-time reporting and E-invoicing are combined, sellers are often required to submit e-invoices to a central government authority for approval even before a sale can take place.
Real-time reporting is impossible without integrated computer systems that are in constant contact, as is real-time transaction monitoring, or any other immediate data exchange. The increasing complexity and speed at which tax departments must operate to meet these kinds of reporting obligations is only possible using specialized technologies designed to integrate for that purpose.
Compliance management
Managing the compliance process is yet another area where complexities can easily multiply.
For example, a multinational corporation (MNC) that operates in thirty countries must keep track of all the regulatory changes in each jurisdiction in which it operates, as well as different data formats, filing requirements, and deadlines. In order to remain compliant under these circumstances, corporate tax departments must create separate tax workflows for each individual country and have systems in place to monitor any relevant changes in local tax law.
Again, trying to manually gather, consolidate, and validate all the data necessary to meet these different compliance obligations is extremely time-consuming, and the chances of making a mistake remain disturbingly high. Responding to new legislation can be difficult as well, both in existing markets and those targeted for expansion.
Rising costs
Along with increasing speed and complexity, global compliance costs are rising. Unless a company evolves beyond manual processes and disparate systems, the ever-expanding need for more data at greater speeds can stress a tax department and its supporting IT resources as the workload mounts and outstrips the resources needed to manage it.
Trying to keep up with the agility needed without the proper tools eventually leads to mistakes, which can be costly to investigate and fix. Moreover, non-compliance for any reason can prevent companies from obtaining business contracts in many countries, and inaccurate invoicing can result in penalties and other business restrictions.
What are the benefits of automation?
As a result of the digitization of tax and invoicing compliance by governments around the world, MNCs should consider investing in platforms that automate all or most of these processes.
In addition to ensuring reporting accuracy and timeliness, IDT software helps:
- Contain compliance costs
- Eliminate unexpected cash-flow issues
- Avoid penalties and fees
- Reduce overall risk
- Remain current on changing tax laws
- Prevent the disruption of normal business operations
Within the enterprise, a quality solution should also be capable of integrating corporate ERP and financial systems with government networks and their customers’ invoicing systems. Furthermore, digitizing and automating key elements of the tax process helps streamline workflows so that tax teams have more time for activities and analyses that add value to the enterprise in other ways.
E-invoicing and tax compliance in a changing world can be expensive and time-consuming, but with the right e-invoicing solution, it doesn’t have to be.
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For related resources, visit the following:
White paper: E-invoicing compliance: A world of complex challenges for global organizations
Webinar: The future of compliance: Simplify E-invoicing complexity with a universal solution
White paper: The State of the Corporate Tax Department Report 2024
Press Release: Thomson Reuters forms strategic partnership with Pagero Group
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