It might not quite be THAT red phone that’s ringing, but rest assured, management is currently dealing with a serious problem, and they are looking at IT to solve it for them.
There are two things that make Boards and C-Suites nervous beyond all else. Risks that have the potential to impact the bottom line and company/brand reputation. This current issue can do both and fast if not dealt with timely.
I’m talking about government tax mandates.
Now you may ask, haven’t government mandates been around for decades? Why the urgency now? Yes, they have been around for a long time, but they have never existed in their current form or had the ability to impact your operations so quickly.
Allow me to explain. In the past, organizations around the world were required to report on transactions after the fact and pay the amounts they were legally obligated to pay. If they didn’t, the government might get around to auditing them a few months or years down the road and assess a penalty if things were found to be out of order. In the grand scheme of things, it was a minor inconvenience for businesses and not a real deterrent for having faulty processes or negligence.
That all began to change a few years back when governments began looking at a tax gap that was growing with no easy solutions to reign it in. Think I’m exaggerating? According to the 2021 report on the VAT Gap issues by the European Commission, in 2019 alone EU countries lost out on €134 billion in Value-Added Tax (VAT) revenues legally owed to them by businesses.
This was a wake-up call to every country that employs the VAT system of taxation anywhere in the world. Not only were they losing out on much needed revenues, but the problem was growing worse. Something needed to be done and done fast or they wouldn’t be able to fund vital programs in their countries.
Fast forward to today. Countries have taken a serious look at the problem and have decided that technology is the answer. They have invested heavily in digitization and have brought their capabilities not only up to par with business, but in many cases, probably for the first time in history, have surpassed the capabilities of private industry to monitor and report on financial transactions.
Today, there is no more reporting after the fact. Governments have set up shop right in your data stack and are reviewing transactions in real-time. And with real-time monitoring has come real-time enforcement. If you are not reporting the information the way the government has mandated, you can expect swift action ranging from expensive fines right up to the revocation of your business license in that country. Both would be devastating shots to your company’s financial outlook and reputation.
This is why there is so much urgency to get IT on board and have a strategy to address the issue on a global basis. Things are only going to get more complicated and the ability to scale systems to meet changing tax mandates in all places you do business has become a top priority for companies.
It’s a new world out there as far as VAT is concerned and this is a lot to come to terms with. If this is new information to you or you are in the process of coming to terms with how it impacts your organization, I’d encourage you to remember and share the following five things with your colleagues:
1. The government is in your data
Real time tax reporting is becoming the new norm for businesses worldwide. Governments are no longer satisfied with receiving data after the fact and are now requiring a permanent presence in your data stack.
2. Government data mandates are taking control away from companies
With government mandated e-invoicing taking the world by storm, businesses are left with little time to prepare for this shift. To remain operational and comply with these mandates, IT must create a strategy to ensure that they are meeting mandate obligations while keeping with the parameters of long-term plans and budgets.
3. Data mandates are moving and evolving quickly
As governments are rapidly moving towards mandated e-invoicing implementation, organizations are now faced with an extremely short window to update their tax codes and mandates. For IT departments, overseeing and executing these changes will become one of their top priorities.
4. Data mandates lack consistency from country to country
For international organizations staying up to date on new processes, technologies and regulations are all essential components to running a successful business. However, the different approaches being adopted by each individual regulatory authority are causing a lot of uncertainty for businesses. The challenge for IT is to create the infrastructure that allows the business to meet the individual mandates of each country’s regulatory authority, while also integrating with one another to provide a real time global dashboard of the organization’s compliance status.
5. Governments have increased the severity and speed of enforcement
Tax authorities are becoming more aggressive than ever to close tax gaps. With the use of digital tools and processes, governments can quickly expedite compliance and track tax fraud effectively. In today’s digital world, penalties can be swifter and more severe than in the past. IT needs to ensure that transaction data is presented to regulatory authorities in the format and time frame they demand.
I’m hopeful this information will give you some things to think about as you work through the changing realities of global tax mandates.
After reading this, if you have questions, feel free to reach out to our experts.
Sign up for Email Updates
Stay up to date with the latest tax and compliance updates that may impact your business.