6 Possible Pitfalls in the Pursuit of VAT Compliance

November 23, 2023

The convergence of traditional Value Added Tax (VAT) and transactional compliance regimes is creating new obligations and responsibilities for companies doing business around the world. When it comes to VAT, compliance is so much more than just reporting.

Here are six pitfalls you should avoid in the pursuit of VAT compliance:


1. Making the wrong VAT decision at the outset

Companies with multijurisdictional supply chains must ensure their VAT determination decisions are accurate every time. Managing the validation process with VAT Determination software that checks validity before invoices are cut can save time and improve data accuracy from the outset.

It’s also best practice to complete your buyer VAT ID checks at this point in the process to avoid nasty surprises later. Checking manually can be incredibly resource-intensive so using a solution that can automate this for you can save both time and hassle.


2. Not having a legally valid invoice

To be considered legal for VAT purposes, invoices need to meet a specific set of requirements which vary by jurisdiction. Without legally valid invoices, you may be presented with a host of problems when the time comes to reclaim input VAT. If you have accepted an invoice that doesn’t tick the boxes that make it legal for VAT purposes, you invite the scrutiny of the tax authorities.

Aside from possible fines, the delay while anomalies are reviewed can impact your cash flow and cause reputational damage. Even in a paper world, VAT deduction is not permitted for improperly formatted invoices.


3. Missing reporting deadlines

With VAT obligations always growing and adapting, the pressure on internal tax teams is greater than ever. Each government has its own approach to penalties for late submissions or overdue payments. Manual processes can no longer be relied upon to meet the demands of the authorities on time, and with accuracy.

It’s possible to streamline the reporting process using software, outsourced services or a hybrid approach; what’s best for your business depends on how your tax team is organised.


4. Manual error

With new requirements coming thick and fast, teams are working harder and faster. As a result, opportunities for manual error are at an all-time high.

Manually processing VAT invoices can be incredibly time-consuming and leaves room for oversight and human error. Even individual errors can lead to bigger problems down the line, attracting the attention of the authorities and impacting your ability to do business.


5. Challenges with data extraction and mapping

Extracting the right data from the appropriate system modules, and then processing and mapping it so that it can be summarised, is a complicated and detailed task. To complicate matters further, each jurisdiction has its own unique reporting requirements you must meet. Automating these processes can improve accuracy and your ability to comply.


6. Not reviewing data prior to submission

Preparing VAT Returns, EC (European Commission) Sales Lists, Intrastat Declarations and other country-specific reports for regular submission can be demanding. Add in the need to prepare a SAF-T (Standard Audit File for Tax) report and the complexity intensifies. SAF-T requirements differ by country, including transactional data (about sales and purchases) and accounting data at a minimum, but often need information about assets and inventory as well.

Combining detailed data from different source systems with an exacting submission format means the report cannot be easily eyeballed to check for possible errors. Tax Authorities use software to analyse the SAF-T filings   they receive and decide where to follow up with further auditing. To safeguard the quality of the submission and avoid a call from the tax authority, it’s essential that data is thoroughly analysed before it’s submitted – ideally using tools of the same calibre that each Tax Authority is using.


It’s never been more important to seek the right advice for VAT. Admitting you need help can be a daunting but crucial step, but the fear of non-compliance should be a bigger concern.

Simply put, there comes a time for every multinational organisation when managing complex tax obligations in-house just isn’t viable anymore. Consolidating your compliance with Sovos gives you access to industry-leading software, consulting services and regulatory experts, all of which are focused on ensuring you’re compliant now and will remain so in the future.

To find out more, get in touch today.

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Sovos was built to solve the complexities of the digital transformation of tax, with complete, connected offerings for tax determination, continuous transaction controls, tax reporting and more. Sovos customers include half the Fortune 500, as well as businesses of every size operating in more than 70 countries. The company’s SaaS products and proprietary Sovos S1 Platform integrate with a wide variety of business applications and government compliance processes. Sovos has employees throughout the Americas and Europe, and is owned by Hg and TA Associates.
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