This blog was last updated on August 5, 2024
Global companies and those with global aspirations face a critical decision when evaluating their indirect tax compliance requirements and processes. Do they think globally or locally? Do they understand that indirect tax automation is not a luxury but an imperative? Do they view their automation decisions as a series of tactical choices or a single strategic opportunity?
The stakes are incredibly high and the choices an executive leader makes has enormous consequences. Will the indirect tax compliance function continues to represent an ever-increasing cost center, or will it transform into a team that empowers growth and expansion? Can it evolve into a department that has all existing tax compliance requirements locked down and is not only ready for the next compliance challenge but also the source of insightful business data and metrics.
The changed landscape
Tax compliance is all about the data. Long gone are the days where governments rely on periodic filings and the occasional audit as a means of ensuring accurate compliance across their tax base. These days, tax authorities want your data, they want it now, and they want it in a pre-determined format. In the earliest stages, this requirement manifests across US states in the increased frequency of fully remote, digital audits. In this new world where auditors are not sitting in your conference room, touring your facility, and interviewing your people, companies emerge from audits unscathed when they can produce clean, consistent, and complete data that lines up precisely with what they filed through their monthly returns.
In its full manifestation, countries across the globe are turning to Continuous Transaction Controls (CTC’s). In these places, companies must provide transactional-level data in real (or near real) time and have that information validated and approved by the tax authority prior to an item being shipped or a sale being completed. Further, once a country stands up a robust CTC regime, its a small step for the government to pre-populate a VAT return for you to review and sign.
In this world, companies cannot afford to simply concern themselves with their ability to transmit their transactional data at the correct time and in the correct format. Rather, it’s imperative that, no matter the source system, the data they submit is accurate and complete. Accurate tax determination flowing into a single source is a huge component of this picture, but access to clear and correct transactional data also provides strategic value well beyond compliance.
What does this mean for tax automation?
In short, it requires a complete re-think. In the old days, the critical stakeholders were representatives from the IT and Tax. Depending on which team held ultimate sway, a decision was reached based on ease of integration, minimization of disruption, the ability to effectively solution existing challenges, and/or personal/professional relationships existing within a particular department, division, or geographic region.
While these factors continue to be important, they do not nearly represent the full picture. What organizational leaders must do today is seek out a trusted and automated could-based compliance platform that stands ready to do all the following as part of a single integrated solution:
- Robust Determination – The platform must be able to provide the correct tax answer with respect to Sales/Use Tax, VAT, GST, and all related requirements for everything you sell and purchase today and will sell and purchase tomorrow. The experts behind the platform should be tracking changes from the moment they are proposed to the minute they are reacted and stand ready to enhance and evolve their platform as rules and requirements change.
- Complete Reporting – Compliance is not complete until the necessary filings are transmitted and, when necessary, the funds remitted. The right solution will seamlessly integrate their determination engine with a reporting solution that reports the right amount of tax in the right boxes on the right return and transmits it to the proper tax authorities before they could even start to think about issuing a late filing/payment notice.
- Commitment to supporting e-Invoicing and CTC’s – These new requirements as they have taken hold in Latin America and emerged in Europe and now Asia, have enabled revenue authorities to efficiently enforce their tax compliance mandates, close their tax gaps, and more effectively fund their governments without enacting new levies or raising rates. But remember, successfully transmitting the transactional details is only the first step. The transmittal must have a correct tax determination standing behind it, be identically reported on a periodic return, and be compliantly archived for when an auditor inevitably comes knocking.
- Seamless Integrations – A “great” tax automation platform is one that connects effortlessly with the rich ecosystem of technologies within your organization. Whether it be your eCommerce channel, brick and mortar retail, B2B, B2C, or back-office purchases, or even a whole new set of technologies inherited from a recently acquired company, a fully optimized compliance function is one where disparate data flow into a single source through a standard integrations or flexible API’s.
- Always On – Tax compliance never takes a break, and neither should your automated platform. Continuous transaction controls are just that – continuous. In some countries, if you can’t validate your invoice, you cannot ship. If you can’t ship, you can’t bill, and if you can’t bill you can’t receive payment. Even putting CTC regimes to one side, eliminating downtime remains critical. If your solution blips and does not determine tax correctly at the moment in time when your customer is ready to buy, the liability will fall to you. If your online system doesn’t calculate tax when you customer is ready to check-out, you could lose the sale. If you report and remit just a second after the deadline, you’ll be to be assessed a significant failure to file penalty or failure to pay penalty, or both.
- In the Cloud – Not every company has fully embraced the benefits of cloud technology but if you are going to move to the cloud, tax automation is a great place to start. By adopting a cloud-based compliance platform, you can enable the dismantling of regional and functional silos, making tax compliance a centralized function that can be efficiently performed by a disparate and de-centralized workforce. On a more practical level, cloud based solutions eliminates much of the organizational effort around keeping the software up to date. No longer do you need to worry about whether you’ve applied the latest tax content update which captures an important local rate change or whether you are on the newest version of the software that supports an evolving requirement. Its all done for you behind the scenes, without lifting a finger.
- Data and Analytics – A tax compliance team, even one that has automated solutions in place is still viewed as a cost center. A wise executive leader, however, can change the perception of tax compliance by adopting a solution that provides insight into future liabilities and can help evaluate the risks/rewards of entering new geographies or markets. Even better, a resourceful leader can take advantage of the fact that all transactional-level data is now stored in a single source of truth and use that unadulterated raw information as a means of providing meaningful business intelligence and analytics.
Beyond indirect tax automation
The best providers of indirect tax automation also invest in people. A comprehensive platform will fail to live up to its promise if it’s not implemented correctly. While larger organizations will often turn to trusted partners to provide guidance during the implementation process, the best automation providers have a team of in-house technical experts who understand their own solutions and are able to tap into a deep history of best practices, allowing their clients to steer clear of the many pitfalls that can cause even the most well planned implementation to fail.
Likewise, the best providers don’t skimp on technical support. When a challenge emerges, you will want someone who is immediately available that is ready, willing, and able to work with you to fix your problem. That team needs to understand enough about tax and a lot about technology and how customers properly, and sometimes improperly, use tax automation to meet their compliance requirements.
Equally important is the roster of subject matter experts keeping the tax automation platform up to date. There are those that consider this function as basic table stakes and presume that all providers perform this function sufficiently well. They make this assumption at their own risk. A world class tax automation platform provider will have a team of tax and regulatory experts with deep subject matter experts, ideally leaders in their field that are committed to tracking new rules and requirements in real time and focused on accounting for those new rules in their solutions before they become effective. Optimally, these experts also have a degree of influence with both legislators and regulators, offering thoughtful insight into how new and evolving requirements can be adopted and enforced in a way that allows businesses to comply with minimal cost and burden. These experts also cannot sit behind an unscalable wall. They must be out front, providing insight into existing requirements and forward-looking trends and always available to talk with their clients.
Concluding thoughts
A CFO will find themselves in an uncomfortable position if forced to tell their CEO that their business is at risk for not meeting existing compliance requirements. According to Bloomberg, 82% of companies are in this exact position. That discomfort is only slightly diminished when a CFO is confident in their current compliance but believes that the cost of remaining complaint as the business grows and evolves will only increase. According to a study conducted by Accenture, 90% of companies find themselves in this situation. By contrast, a CFO stands apart when they are confident that their selected indirect tax automation platform provider stands ready to support them with every tax compliance requirement that they might encounter but also can support the business with meaningful insight and intelligence. Now that would be true comfort.
