The digitization of tax authorities has come a long way since its beginnings in 2003. Tax administrations have realised the benefits that technology can bring to VAT reporting. Countries around the world have adopted continuous transaction controls (CTCs) and e-invoicing, with new tax administrations joining the trend every year.
There are four trends that all businesses should be aware of and have a plan to address.
1. Continuous transaction controls
Every country has its own approach to CTCs for how information is sent, system authentication, process orchestration and implementation.
This variation isn’t an issue for local businesses but for international companies that operate across multiple tax authorities it can be a challenge.
Invoicing and document flows can become easily fragmented, making it difficult to centralise processes. The balancing act of consolidation and optimisation whilst ensuring compliance is tricky, especially when new tax mandates are introduced with short deadlines.
Tax technology provides a strategic approach to managing tax controls in multiple countries.
2. Destination taxability
E-commerce is cross-border. This can cause headaches for governments from a tax perspective. Taxability for digital services is evolving and governments are closing the tax gap and tightening laws.
Known as destination taxability, governments are enforcing tax reporting and payment at the point where goods are received. E-commerce businesses are having to adapt and understand tax mandates and rates in every country where their consumers exist.
This is an added complexity and is impacting overall costs and day-to-day operations.
3. Aggregator liability
The introduction of CTCs has meant tax administrations are approving every transaction in real-time. These cloud-based tax portals require significant infrastructure but to alleviate the operational burden authorities have put the onus on marketplaces to pay and report tax of international vendors.
Tax authorities are continuing to look for new aggregators and it’s likely multinational businesses and their solution providers are the next target.
4. Standard Audit File for Tax – SAF-T
Tax authorities are using technology to better understand how businesses deal with transactions from an accounting perspective. Governments are asking for copies of all accounts to ensure that all taxes are paid.
Many governments within the European Union now require accounting data to be submitted on-demand, known as a standard audit file or SAF-T. The SAF-T format provides significant insight into how businesses account for transactions and other financial movements.
Companies need to ensure that records held internally and by the government are kept in sync, and if they aren’t they need to explain why.
Digital transformation is not only a business trend but a tax administration trend. Businesses need to ensure they’re equipped for the impact this digitization will have on their business processes.
A case-by-case, country by country approach is unsustainable for trying to navigate this change and new tax mandates.
A siloed approach to SAP S/4HANA migration will leave businesses exposed and unprepared for this shift. Multiple SAP instances and legacy software will need to be standardised.
Now is a critical time to consider your organisation’s digital tax strategy and how to use cutting-edge, forward-looking tax technology to remain relevant in today’s changing and unpredictable environment.
Download Top Tax Considerations for SAP Customers to learn how you can prepare for the changes coming your way.