According to the European Commission, EU countries lost an estimated €140 billion in value-added tax (VAT) revenues in 2018. It’s an astounding amount of money, yet through the introduction of digital tax reporting, many tax authorities have started to make positive inroads into recouping VAT payments from businesses. Whether these VAT losses are down to human error, accounting mistakes, or companies proactively avoiding VAT payments, it is clear that advances in technology have enabled authorities to transform their VAT processes and introduce stricter reporting requirements that are more easily audited.
Digital tax reporting requirements have evolved, and now is the time for indirect tax teams to help their businesses understand and meet these challenges as efficiently and effectively as possible.
One unforeseen complication in the tax process has been the impact of the COVID-19 pandemic. In some ways it has been an accelerant to the adoption of digital transformation across many organisations’ practices, but it is also worth noting that the anticipated VAT loss for 2020 will increase to €164 billion in 2020. That’s a backward step on the marginal gains tax authorities have made in recent years and will no doubt result in them only being tougher on businesses not meeting tax requirements. The challenge for corporate tax departments is far greater than ever before.
No matter the global political and socioeconomic changes on the horizon, businesses have to face up to these data challenges and ensure that they stay current with continually changing tax requirements. The question is – how do multinational corporations stay ahead or, at the very least, on par with so much variability in digital tax reporting requirements between jurisdictions?
To drive greater understanding of your tax challenges, indirect tax teams need to work across the business to identify pain points, utilise tax technology to save time and money, introduce efficient indirect tax management, and use tax data analytics to help make informed business decisions.
Timescales will differ whether you have business interests in the UK, Spain, Norway, Germany, or Poland – or indeed in any other territories – but meeting these digital tax reporting requirements is a must.
Adopting an indirect tax software solution can help address many of these data challenges by allowing you to structure data and standardise your tax compliance processes. If you follow best practices, you’ll be able to draw new insights from that data and make better, more strategic decisions across your operations. From there you’ll find that the following procedures will help you address the data gap and, ultimately, give you a vision for unified compliance processes:
- Centralised collation of data
- Standardisation of data
- Management of data to assist with reporting
- Automation of data access for compliance processes
- Identification of trends and anomalies in the data
Planning for the future and complying with digital tax reporting requirements like UK MTD and Polish JPK
Outlining best practices is one thing, but ensuring your business is able to meet them is another. The implementation of an automated software system will identify anomalies and data gaps in the transactional data flows which, in turn, will feedback to source systems, helping you to take the best course of action.
A robust tax technology platform will enable you to assess the data across different markets. You’ll be able to gain a better understanding of how these territories are performing, the individual challenges they face, and make more informed decisions on your company’s future investments. For example, if you’re looking to expand into new markets, you’ll be able to forecast the level of investment required, the barriers to overcome from an operational point of view, and, importantly, when you’ll become profitable.
Similarly, with the right technology solution in place, you’ll be able to address forthcoming VAT changes. HMRC has said there will be no further extensions to the Making Tax Digital (MTD) deadline, with fines becoming a real possibility from April 2021. Poland’s Jednolity Plik Kontrolny (JPK), which is similar to MTD, has already reached the stage in its introduction where it requires API enabled returns to be made, and many other countries will follow suit.
If you can stay abreast of such changes, then the ripple effects of tax reform will be far less on your business because you will have tools and time to prepare.
Delivering ROI for corporate indirect tax departments
The days of getting tax “just right enough” have passed. Tax penalties are now a reality, and indirect tax teams can ill-afford to be caught on the back foot.
Indirect tax teams, therefore, need to clearly articulate that investing in tax technology like ONESOURCE Indirect Tax Compliance will deliver a return beyond the tax department, benefitting the entire organisation. For example, cashflow and its negative impacts can be forecasted and addressed appropriately, rather than being nasty surprises. Or purchasing of different currencies can be planned ahead and secured at better rates. These might seem like small gains, but when deployed across an entire organisation operating across multiple jurisdictions, they can quickly add up to considerable savings. The epitome of true ROI.
Organisations that aspire and work towards such automated processes will find that a high degree of configuration is required as well as the need for multi-talented teams from across the company with knowledge of the business. This knowledge and experience, combined with a tax technology platform delivering true digital tax reporting, will bear witness to greater benefits for your organisation and simplify compliance with tax authorities.
Download our ebook “Mind the data gap: Automating indirect tax processes” to learn more.