This article is the first installment in a two-part series on how to manage new complexities in the indirect tax space.
New indirect tax compliance challenges are unavoidable, and the pace of change is only accelerating. One noteworthy consequence of this is that tax authorities are being pressed from multiple angles. Not only must tax authorities help fund the operations of their jurisdictions and maintain a regulatory and enforcement approach that is fair, consistent, and predictable, they must strive to achieve a sensible balance between these two sometimes-dueling objectives.
In other cases, political risks are producing what one might call “unknown unknowns” for tax authorities. No one knows what the indirect tax consequences of Brexit, for instance, might be because Parliament has been unable to reach a consensus on terms of the withdrawal from the European Union. This is an example of an uncertainty that massively impacts tax departments by making it challenging for them to plan.
What can get lost in discussions about macro complexity and the tax function is that greater certainty for tax authorities does not necessarily equate to greater certainty for tax departments. In fact, many instances of a tax authority’s job becoming easier can mean a tax department’s job becoming more difficult, if (and only if) the right technology isn’t in place to solve for those new demands via automation and intelligence.
In the case of Brexit, it is uncertain how tax compliance will change until details of a transition are solidified. For tax departments, the question with respect to Brexit is whether and on what timeline it will pull the United Kingdom out of the European Union’s single market, thereby creating the need for a drastically different tax framework for both imported and exported goods and services.
The Value Added Tax (VAT) in the EU is a general, broad-based consumption tax assessed on goods and services purchased or sold for use or consumption within the EU. VAT is not charged on goods or services exported outside the EU. Simply put, if the UK remains in the single market, this tax treatment can, in theory, remain consistent. But if the UK leaves the single market, the current treatment of cross-border transactions will be replaced with something else, and there is no consensus as to what a new solution might be.
Leaving the EU with a transition agreement is referred to as a “soft Brexit,” while leaving without any transition agreement in place is referred to as a “hard Brexit.” The current deadline for Parliament to act is October 31, 2019. If there is no transition agreement in place by that date, and no further extension granted, then the UK will default to a hard Brexit, with potentially drastic consequences for businesses.
How We See It
Complexity is growing, both in the number of trends that produce it as well as the intensity of the consequences for tax departments that it creates. Indirect tax teams produce significant value to their companies — and nearly everyone wants to automate processes because doing so reduces risk, lowers cost, and makes the work of tax more dynamic and exciting.
Having the tools in place that allow teams to respond quickly and thoughtfully to these landmark changes will be more crucial as this complexity increases. Automation with indirect tax technology solutions ensures that your team has real-time access to accurate content, updated as soon as regulations change, so that your team doesn’t have to spend time constantly updating and reacting to the latest information. And the best tools feed this content directly into your calculations. Instead of scouring sources for how and when rates and rules are changing, you can feel confident that you’re getting tax right the first time, every time.
The pace of change in our connected world will only intensify as time goes on. More than ever, it’s important to have automated tax software to safeguard your indirect tax team, take care of manual tasks, and get you the information you need faster, so that your team can focus on more strategic, value-added work. With global tax determination software, you can calculate correct tax amounts in milliseconds and easily handle millions of transactions daily for your complete global footprint — including complex markets, such as Brazil, India, and the U.S.
Want more information on this subject? Register for our upcoming webinar, “Managing New Complexities in Tax: Brexit, Wayfair, and VAT Reform.”