As the World Gets Smaller, Think Bigger About Global Tax Compliance

Christiaan Van Der Valk
March 20, 2024

For the past few weeks back, my colleagues and I have been talking a lot about the importance of a global strategy when it comes to addressing today’s modern tax environments. On the heels of Sovos introducing the Sovos Compliance Cloud, many in our company’s leadership team have blogged about related topics and the critical global tax compliance issues that are impacting businesses all over the world.

Our CEO Kevin Akeroyd wrote about the global business landscape, tax compliance and why the market was ready for an integrated approach to reporting and transaction compliance. My colleague Steve Sprague, chief product and strategy officer, wrote about the five steps to modern compliance and why they are critical for your business, especially as it relates to trading internationally. And finally, CTO Eric Lefebvre explained why the math for managing compliance by point solutions simply doesn’t add up.

Today, I’d like to focus on why timing has become so critical to ensure that your business is ready for the complexities of modern, cross-border compliance and how best to prepare for changes on the horizon. As vice president for strategy and regulatory, it’s my job to monitor the global tax landscape, talk to customers on how they are managing and adapting to new standards and preparing them for what is to come.

Let’s face it, the world has never seemed smaller as it relates to commerce. With the stroke of a key or click of a mouse, you can literally purchase an item from a supplier or seller in any country in the world. That click is also very likely to reverberate deeply across global supply chains, triggering countless successions of orders and invoices to warehouses and assembly sites to deliver a custom product just-in-time at your doorstep. And every one of those sales and purchase transactions in the chain sets in a motion a whole range of global tax compliance complexities that governments are continuously tweaking, modifying and adjusting to ensure that every amount of legally owed tax revenue is collected.

Ensuring that taxes are properly assessed and accounted for has been an ongoing process since the Pharaohs of Egypt first began assessing a tax on grain harvests. It’s just gotten a lot more complicated as the world has shrunk. And over the past decade or so, this has been accelerated even more due to the introduction of digitization. Governments have seized every opportunity with technological progress to get more and more reliable information more quickly, often without too much concern about the impacts on business processes and systems.

Which brings us to where we are today. Across the globe the entire tax and compliance system has undergone seismic change. From the introduction of continuous transaction controls (CTCs) to the push for standard audit files from accounting systems, the tax authorities want to remove the human factor from tax enforcement and audit entire business ecosystems automatically by eavesdropping on in-flight transaction data.

Not only do tax authorities often underestimate the need for business involvement in the development of these new tax automation mandates, but they also do not consult much with each other across borders. The result of this is a growing patchwork of rules and regulations use the same basic principles, but where no two countries have even remotely comparable requirements in practice.

This has become problematic for many businesses who are attempting to manage these processes across multiple countries. The natural reaction has been to recruit point solutions per country – and often even per type of requirement within a single country. Having underestimated the magnitude of this global tax automation tsunami for too long, many businesses are quickly finding themselves overwhelmed and underprepared. Point solutions are akin to the cuckoo’s baby in another bird species’ nest, often appearing foreign and disruptive to the existing ecosystem. Their ability to scale and communicate with other solutions have proven time and time again to be woefully inadequate.

As governments continue to introduce new standards and modify existing ones, point products become part of the problem rather than forming a solution. And as with many things, poor planning often leads to poor decisions which continue to compound over time. For multi-national businesses, the time has come to once and for all break the cycle and reliance on your country-by-country, mandate-by-mandate approach to compliance management.

As the world gets smaller, it’s time to think bigger when it comes to compliance. Embrace transparency and the need for a single source of truth in your reporting. Apply the age-old martial arts mantra of ‘Jū yoku gō o seisu’: yielding overcomes strength. Use the fact that tax administrations don’t trust businesses, while businesses trust themselves. Tax requirements for data consolidation and transparency will often be a step ahead of your own data insights and AI projects. Use the information and data you are gleaning from global tax compliance as a competitive advantage. The one constant will be change, however, when you have a centralized strategy in place you will be prepared to quickly address challenges without sacrificing success.

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Author

Christiaan Van Der Valk

Christiaan Van Der Valk is vice president, strategy. Elected a World Economic Forum Global Leader for Tomorrow in 2000, Christiaan is an internationally recognized voice on e-business strategy, law, policy, best practice and commercial issues. Formerly co-founder and president of Trustweaver (acquired by Sovos), Christiaan also holds long-standing leadership roles at the International Chamber of Commerce (ICC) and the European E-invoicing Service Providers Association (EESPA). Over the past 20 years, he has presented at and authored key papers for international meetings at the Organisation for Economic Cooperation and Development (OECD), the Asia Europe Meeting, World Trade Organization and several other UN agencies. Christiaan earned his Master of Laws degree from Erasmus Universiteit Rotterdam.
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