When I became the CEO of Sovos one year ago, I knew that I was stepping into an innovative company in an industry primed for a seismic transformation. However, even with this knowledge in place, I must admit that the speed and scope of change over the past year has been extraordinary to witness. Here are my observations and predictions on the future of tax and compliance.
We are in the midst of a shift in the way global business is conducted and tax revenue is recognized and collected by governments. The message to businesses all around the world is that global governments will no longer rely on the antiquated way in which you file returns and give them period data – that is being replaced by governments mandating real-time data captured by their approved systems and guidelines- THEY will be the system of record, and they will tell you what you owe – not the other way around. And make no mistake, businesses will bear the brunt if they fail to comply – this isn’t about audit penalties anymore, this is literally about not being able to continue business operations and collect revenue. The ramifications can be in the $billions now for large companies.
I have spent a great deal of time in the past year meeting with customers, learning about their businesses and the role that compliance management plays in their ability to operate. No matter the market or geographic location, through these meetings, some common themes quickly emerged.
First, regulatory compliance is taking on elevated importance within the organization. For the majority of customers I’ve spoken with, it now resides within the C-Suite, typically under the guidance of the CFO. It’s too mission critical to continue to be delegated down the organization.
Second, companies are genuinely concerned that the pace of change and levels of enforcement represent a material risk to the business. If they can’t get compliance right, their ability to operate in and expand into new markets is greatly compromised.
Finally, businesses are being bled dry of resources by regionalized point solutions that only solve for a singular or small number of compliance initiatives. Point solutions may represent the fastest way to compliance in a given situation, but companies have reached a point of critical mass where the total cost of management and associated IT and financial risks are all becoming prohibitive.
Trend or new reality?
During these interactions, customers frequently asked me, when will we see a slowdown in the constant introduction and evolution of compliance mandates? The short answer is, we won’t. There is too much revenue at stake and governments have been on the short end for far too long.
Make no mistake, compliance is an imitation game. Governments continuously monitor their own regulations for ways to improve while looking to other tax authorities for initiatives that are generating results. The result is constant change. Where companies need to adjust is in how they approach compliance.
Businesses need to change their thinking. Instead of continuously playing defense, it’s time to go on offense. You need to understand the big picture of what is going on. It’s a completely different world than it was even a few years ago. Getting ahead on technology and ensuring the interoperability of systems is how you go from reactive to proactive.
I can’t state this strongly enough: If compliance is not a mission critical function within your organization, you are going to fail. It’s that simple.
What comes next for the future of tax and compliance?
I’m not usually one for predictions, but based on countless discussions with industry experts and market influencers, I do have a couple of strong opinions I’d like to share.
One, compliance is now a platform play. CFOs will no longer accept each area of the company having its own solution – much like they wouldn’t allow for multiple ERP or CRM vendors. This is an unnecessary resource drain. Why am I so confident? Because I’ve seen it before. The global compliance industry is closely mirroring what has taken place in several other core technology categories.
Two, businesses will begin to realize and embrace the operational benefits provided by uncompromised data. In the early days of compliance, the stick was the primary motivator wielded by government entities — be compliant or face the consequences. Now, the insights and business intelligence made possible through compliance serves as the ultimate carrot.
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