Mastering global indirect tax filing risk in a real-time world
The tipping point
“What else is out there?”
For indirect tax compliance professionals navigating today’s complex global landscape, this question can cause sleepless nights. The worry is triggered by a combination of relentless risks; a penalty for a return not filed on time, a mistake uncovered in a failed audit, or missing an extra-territorial value-added tax (VAT).
With multiple jurisdictions to monitor, and increasingly aggressive tax authorities, indirect tax compliance professionals are feeling the pressure from a global environment. The rules of commerce and taxation are constantly evolving at an unprecedented pace. Although the direct financial penalties of “non-compliance” may be substantial, the real cost is the cumulative effect of disruptions to operations, diversion of resources from core activities, and the ongoing uncertainty about potential hidden liabilities.
So, efficient and accurate management of indirect taxes, including the critical functions of preparing and filing tax returns and statutory reports, is more essential than ever. For years, businesses have relied on a patchwork of legacy systems, spreadsheets, and sheer human effort for their indirect tax processes. This approach no longer works. The sheer volume and velocity of transaction data overwhelm even the most capable teams, trapping valuable tax professionals in a reactive, defensive posture. They become “data wranglers” who spend their days hunting down numbers and reconciling disparate reports — rather than using their strategic potential to advise the C-suite.
Respondents in the Thomson Reuters Challenges and changes in indirect tax & compliance report said that their organizations are much more inclined to invest in human capital and “more effectively leverage their existing staff through upskilling.” But that requires more money spent on data wranglers — at a time when fewer qualified people are going into the indirect tax field.
Instead, the better solution is to move beyond outdated manual processes and embrace technology that can streamline and simplify navigating this complexity, unlocking productivity. To take back control and ease the burden on their tax teams, organizations can automate the management of their global VAT, GST, sales, and use tax returns and statutory filings.
Companies can deploy an end-to-end solution that manages everything from ensuring accurate upfront tax calculations to reconciling and filing returns. A solution that consolidates tax data from multiple systems and jurisdictions into a single, centralized platform, and that replaces complex, error-prone spreadsheets with an automated process. This approach significantly enhances accuracy and minimizes manual work. Automation helps businesses prepare, review, and accelerate their filing process to meet compressed deadlines and stringent digital reporting mandates in complex international environments.
“It’s becoming increasingly difficult to manually manage indirect tax compliance without generating a lot of additional costs, without slowing down your opportunity to take advantage of fast-moving market opportunities, and to be in a situation where you can feel confident about signing off on not only your tax returns, but ultimately your financials, as well,” says Michael Lucich, Director of Product Sales at Thomson Reuters.
“If you’re willing to accept those costs, those risks, those missed business opportunities, then you can continue to do things the way they were done five or 10 years ago.
“But when we look at businesses that want to be leaders in their market, businesses that want to minimize costs and increase their share price, it’s getting more challenging to do it the way things were done (before technology).”
That sentiment is especially true as deadlines become more compressed and ever-present. “If you don’t have a mechanized way of dealing with all of this, that pressure that you feel at a certain point in the month or a certain point of the quarter — you’re going to feel every hour of every day,” Lucich cautions.
The growing pains: Challenges facing indirect tax professionals today
The pressure on indirect tax professionals is immense and multifaceted, stemming from interconnected challenges that traditional methods and systems simply can’t solve.
Explosive complexity and volume
Tax teams are tasked with navigating a labyrinth of global regulations — VAT, goods and services tax (GST), U.S. sales and use tax, and countless others. Each comes with its own intricate rules, exemptions, and filing cadences.
This complexity is no longer static. Governments worldwide, facing their own fiscal pressures, are aggressively moving toward digital reporting requirements. Initiatives like Italy’s FatMturaPA, Brazil’s Nota Fiscal Eletrônica (NFe), and the broad adoption of Standard Audit File for Tax (SAF-T) S formats across Europe represent a fundamental shift. They grant tax authorities a direct, real-time window into corporate transactions — rather than the traditional window that monthly or quarterly filing once allowed.
Manual processes and the high cost of human error
In the Thomson Reuters report Managing change in indirect tax and compliance, more than 60% of tax professional respondents said they’re still relying on systems that require manual processes.
When tax managers rely on spreadsheets, they must manually export sales data from the company’s ERP, obtain purchase data from the procurement system, and online transaction data from their e-commerce platform. They must spend hours cross-referencing, reformatting, and manually keying data into a master compliance spreadsheet with hundreds of tabs. The process is slow, opaque, and fraught with peril. A single copy-paste error or a misplaced decimal can lead to a material misstatement.
This process also creates a “compliance drag” on the business — the immense cost of paying highly skilled professionals to perform repetitive, low-value work instead of strategic analysis.
Product data challenges across the tax lifecycle
As a business grows, so does the complexity of its indirect tax compliance, largely driven by the journey of its product data. This journey presents deeply interrelated challenges, starting upstream with initial classification and continuing all the way downstream to final reporting.
The challenge begins upstream, in the tax engine, with product mapping. For any business with a diverse or evolving catalog, ensuring correct tax treatment is a monumental headache. Consider a modern tech company that sells physical hardware, a mandatory software license, an optional cloud-based data subscription, and professional installation services. Each component can have a different tax treatment that varies wildly by jurisdiction. Manually and consistently mapping thousands of SKUs like this to the correct tax codes is a nearly impossible, error-prone task.
However, the data journey doesn’t end after the transaction. A new set of challenges arises downstream, within compliance tools. Even if the initial tax calculation was correct, that transactional data must be translated into the precise format required for statutory filings. For example, a country’s VAT return may require the hardware and software to be aggregated and reported under a single “Goods” category, while the subscription is reported separately as a “Service.”
This level of detail creates a critical downstream mapping challenge. An error in the upstream classification will inevitably lead to an incorrect downstream report. Conversely, even perfect upstream data is useless if it can’t be correctly mapped to the final return. Successfully managing this entire product data lifecycle is a primary source of compliance errors and a significant operational burden, particularly for businesses in retail, manufacturing, software, and other technology-driven sectors.
More frequent reporting requirements
Government authorities globally are starting to demand closer involvement in individual business transactions. Many governments now want indirect tax payments soon after a transaction is made — or, in some cases, when a transaction is made. Increasingly, government authorities are telling companies essentially what their remittance expectations are, leaving it to companies to ensure their tax payments come out correctly.
This governmental push has led to the adoption of tools like e-invoicing mandates, which require companies to report transaction details to the government in real-time or near real-time. This allows governments to monitor and verify commercial transactions as they occur, rather than waiting for periodic tax filings.
“This really changes the relationship with the taxing authority,” Lucich says. “So, for companies, it becomes more about ensuring that you have your house in order as it relates to every step of the process, otherwise you risk an audit.”
Along with this increased intrusion at the point of sale comes a tighter focus on ensuring compliance. Companies are seeing an uptick in audits as a result.
Lack of real-time visibility and control
Effective management is impossible without clear, timely data. Yet, most tax teams are forced to navigate by looking in the rearview mirror. They struggle to consolidate financial information from a collection of disparate systems — an ERP, an e-commerce platform, a custom billing system, and perhaps even data from a customer relationship management system.
Without a unified, real-time view of tax positions and liabilities, it’s impossible to be proactive. A company might cross a VAT registration threshold in a new country and not realize it for months. By then, they are already non-compliant and exposed to penalties. Problems are only discovered during a frantic, end-of-quarter scramble, often during a painful audit when the opportunity for simple correction has long since passed.
Data silos and integration headaches
This lack of visibility into indirect tax is a direct symptom of disconnected systems and data silos. In a manual environment, tax teams must constantly engage in a time-consuming cycle of requesting data from numerous sources, reconciling different formats, and validating information — a process of endless data wrangling while deadlines loom.
The integrations that do exist are often brittle, custom-coded connections built on legacy systems and maintained by an overworked IT department. These connections are fragile; an update to the ERP can break a data feed to the tax reporting tool, leading to a scramble for emergency fixes.
This technical debt creates a state of perpetual data fragmentation. Financial data lives in isolated silos, and the tax team must constantly engage in a time-consuming cycle of requesting extracts, manually reconciling formats, and validating information. Achieving the “single source of truth” necessary for confident decision-making remains elusive.
A powerful solution lies in implementing a unified platform that standardizes data formats across all systems. By serving as a central hub for data collection, processing, and analysis, this platform can eliminate the need for fragile, custom connections. This approach enables real-time data sharing, automates validation, and dramatically reduces manual intervention, freeing up resources to focus on high-value tasks like strategic analysis and decision-making.
Manual reconciliation and compliance processes
Even with unified data, a critical challenge remains. The need for reconciliation. This is the process of regularly balancing accounting records by comparing transaction balances between different systems, such as an indirect tax reporting tool and an ERP, to ensure accuracy and identify discrepancies. Manually, this is an immense burden as teams must align e-invoicing data with traditional tax returns, download data from multiple ERP and billing systems, and spend time and effort checking invoices before preparing VAT returns.
To overcome these hurdles, organizations can leverage automated reconciliation tools. Through touchless automation and connected data flows, these tools streamline the entire process. By embedding integration within ERP systems, they ensure transactions are accurately recorded and reconciled from the start. Automated tools can quickly process large datasets, flag discrepancies, and generate customizable dashboards and visualizations. This provides real-time visibility into the reconciliation status, reduces the risk of fines, improves VAT reclaim opportunities, and enhances overall tax compliance.
Heightened audit exposure and penalties
Tax authorities are no longer the slow-moving bureaucracies of the past. They’re now sophisticated, data-driven organizations that leverage analytics to pinpoint anomalies and target businesses for audits.
In this environment, defending a tax position with a collection of conflicting spreadsheets and fragmented data is a losing battle. An audit becomes an archaeological dig through old emails, invoices, and reports. It consumes hundreds of hours from the tax team, finance leadership, and IT. The financial risks of an adverse finding are real, but other costs — such as the diversion of executive focus, damage to investor confidence, and lasting harm to the brand’s reputation — can be even more devastating.
Challenges that indirect tax professionals deal with on a regular basis:
- Evolving tax regulations
- Lack of visibility and increased risk
- Tax team inefficiencies
- Compliance process inefficiencies
The path forward: How technology alleviates these challenges
The challenges are daunting, but they’re not insurmountable. A comprehensive digital transformation that automates the end-to-end process of managing and filing global tax returns, using a solution like Thomson Reuters ONESOURCE Indirect Compliance, directly counters each of these pain points. It creates a new standard of efficiency, accuracy, and strategic control, which is why greater use of technology and automation is their most desired future change.
In Forrester’s The total economic impact of Thomson ONESOURCE Indirect Tax report, interviewees said that their organizations searched for a solution that could:
- Centralize and automate indirect tax processes including filing and statutory reporting
- Provide greater visibility into tax compliance and risks
- Support compliance with tax regulations across all regions of business
“There is definitely a desire to minimize the amount of manual work,” Lucich notes. “When you reduce that, you’re creating efficiencies, generating cost savings, and you’re also minimizing your risk of human error.”
Achieving precision and accuracy with AI-powered compliance
A compliance solution built for today’s global business environment leverages automation and AI to bring machine precision to the entire end-to-end process, from data validation to final statutory filing.
Automation is the first layer, replacing manual, error-prone tasks with systematized, repeatable workflows. AI is the next layer, providing cognitive power and transforming downstream compliance and upstream data accuracy.
In the downstream compliance process, AI is critical for building a touchless and accurate system. AI-powered agentic workflows can automatically validate data, manage the complex reconciliation process, and even resolve compliance issues without manual intervention.
Large-language model (LLM) tools streamline tasks traditionally performed by users, such as managing deferrals, making edits, or resolving discrepancies and mismatches identified by reconciliation tools. Conversational analytics allows users to query their tax data through chatbots, making it easier to gain insights and perform analysis to ensure accuracy.
While AI transforms downstream reporting, it also plays a crucial upstream role in preventing errors from ever reaching the compliance stage. By verifying correct product code selections and flagging irregular tax results early, AI mitigates the risks of collecting or paying incorrect tax amounts. This proactive approach reduces the immediate financial and reputational damage of incorrect transactions and, crucially, prevents the downstream consequences of inaccurate reporting.
Unleashing productivity via cloud and automation
By automating routine compliance, a business liberates its most valuable assets — its people. Tax professionals can transition from reactive data wranglers to proactive strategic advisors. The time reclaimed from spreadsheet manipulation is reinvested in high-impact activities, such as:
- Analyzing the tax implications of new business models
- Optimizing the supply chain for tax efficiency
- Providing critical, data-backed insights for C-suite decisions
Cloud-native platforms are the essential engine for this newfound productivity. Their inherent elasticity and scalability allow the system to handle massive transaction volumes and seasonal business peaks without requiring costly IT intervention or new hardware. This ability ensures the system can efficiently process and reconcile massive datasets, preventing the slowdowns and failures that jeopardize timely filings when legacy systems are pushed to their limits during month-end closing.
Real-time visibility and proactive risk management
A centralized, cloud-based platform is also the antidote to data silos. By integrating seamlessly with ERP, e-commerce, and billing systems, it creates a single source of truth for all tax-related data. This data is then brought to life through dynamic dashboards and reporting tools, providing an immediate, unified view of the company’s global tax posture.
This is where an integrated, automated solution can truly distinguish itself — by integrating specialized AI built upon a foundation of trusted, continuously updated global tax content curated by thousands of experts. This powerful combination enables sophisticated, AI-powered anomaly detection and predictive analytics. The system can proactively flag potential risks — like a sudden spike in exempt sales in a specific state or transactions nearing a foreign VAT threshold — before they become costly compliance failures.
Concerns about the accuracy of AI are valid, which is why the operational model must be “trust but verify.” As Lucich explains, “AI can go out and fetch that information, bring it back to your fingertips, and help you understand why that product is classified and taxed the way it is. But ultimately, someone with years of experience is going to be the one to evaluate whether the information that AI provided is accurate.”
Think of it this way — AI can be a tireless, brilliant assistant that handles nearly all rote work, empowering the human expert to perform the critical, high-value validations and judgments.
Fortifying audit defensibility and seamless integration
When an auditor calls, a modern tax platform transforms a moment of panic into a simple process of verification. The system provides a comprehensive, immutable audit trail for every single transaction. This trail includes not just the final tax calculation, but also the specific jurisdictional rule, the rate, and the version of that rule that was active at the exact moment of the transaction.
This level of granular detail and data integrity fundamentally fortifies an audit defense. Automated reporting capabilities can generate precise data formats required by tax authorities, simplifying responses and turning adversarial audits into collaborative verifications. This confidence is underpinned by modern APIs and pre-built connectors that ensure a seamless, robust integration with the existing enterprise technology stack.
Tools and system requirements to consider when thinking about this digital transformation:
- Cloud-native solutions allow companies to take advantage of the scalable, robust infrastructure to drive automation and AI with no downtime for updates
- Automatic and continuous global tax research and updates on regulations and rates for regions where you do business
- Automated end-to-end workflows for global indirect tax processes
- The flexibility to deal with the changing regulatory complexity
- The ability for real-time data collection and filing
- E-invoicing capabilities
- Integration with ERP system
- Real-time global tax determination for both sales and purchase transactions
- Housing and tracking of exemption certificates
- Easy access to audit defense data and capabilities
- Robust reporting, reconciliation, and tax return preparation
The future-ready tax function
Adopting this technology stack does more than fix problems; it fundamentally transforms the purpose and potential of the indirect tax function. Compliance remains the non-negotiable foundation, but it ceases to be the ceiling. When the immense burden of manual processing is lifted, the team’s focus can shift from defense to offense — from cost mitigation to value creation.
The future-ready tax function uses its new capabilities to become a strategic partner for the business. Instead of only reporting on past liabilities, the team can now confidently answer forward-looking questions:
- As a strategic planner. What are the precise tax costs and compliance requirements for expanding our e-commerce operations into Southeast Asia versus Latin America?
- As a risk mitigator. How will proposed VAT changes in the EU impact our supply chain, and how can we restructure it to minimize exposure?
- As a value creator. During M&A due diligence, what hidden tax risks or synergies exist within the target company’s operations that our valuation models haven’t captured?
This evolution is critical as new trends emerge. Continuous transaction controls (CTCs) are becoming the global norm, making real-time compliance a prerequisite for conducting business. The rise of the Internet of Things (IoT) will create billions of new micro-transactions and taxable events. Good tax governance is also increasingly viewed as a key component of a corporation’s environmental, social, and governance (ESG) profile.
A flexible, cloud-based, and AI-powered system is the only way to ensure your organization is not just compliant today, but resilient and future-ready for the challenges of tomorrow.
The strategic imperative for action
The era of managing global indirect tax with a patchwork of spreadsheets and heroic human effort is definitively over. In a business environment defined by digital speed and real-time regulatory enforcement, clinging to outdated methods is not a viable strategy; it’s an open invitation to unacceptable levels of risk, inefficiency, and lost opportunity.
Embracing technology is therefore no longer an elective upgrade, but a profound strategic imperative. Automation, purpose-built AI, and cloud platforms are the proven, integrated tools required to master escalating complexity, eliminate the persistent risk of error, and fortify businesses against ever-increasing audit scrutiny.
By making this shift, companies achieve far more than just robust compliance. They unleash their most talented professionals from the costly drudgery of manual tasks, empowering them to deliver sharp, strategic insights that lead to more intelligent business decisions and create a durable competitive advantage.
The path forward is clear. Investing in operational resilience, enterprise-wide productivity and the future readiness of your business isn’t just about closing the books with more confidence; it’s about opening new doors to growth. The time for decisive action is now.
ONESOURCE Indirect Compliance by Thomson Reuters automates the management and reporting of VAT, GST, sales, and use tax returns and statutory filings globally. It consolidates tax data from multiple sources and jurisdictions into a centralized platform, replacing complex spreadsheets with streamlined, automated processes. The solution offers real-time tax rates and rules, supports digital tax reporting requirements, and includes powerful data reconciliation and reporting capabilities. It integrates with ERP and other systems and has pre-built connectors to enhance accuracy, reduce manual work, and help businesses stay compliant in complex international tax environments.
Learn more about ONESOURCE.
ONESOURCE Reconciliation
E‑Invoicing to VAT Return is an end‑to‑end reconciliation solution that automates the comparison of e‑invoicing data with VAT tax returns to detect, classify, and resolve differences. Built to work seamlessly with ONESOURCE Indirect Compliance and ONESOURCE Pagero E‑invoicing — while remaining open and agile to other sources — it delivers line‑level matching, compliance‑aware analytics, and clear mapping to impacted VAT return boxes. With configurable dashboards, role‑based access, and an enterprise‑grade, residency‑aware architecture aligned to ONESOURCE 3.0, it helps tax and finance teams accelerate month‑end close, reduce penalty exposure, and strengthen audit readiness across jurisdictions — including emerging prefilled regimes.
