How digitisation affects VAT compliance

The ongoing changing landscape of indirect tax processes and reporting obligations has seen the digitisation of tax authorities around the world gather pace. However, that brings, a corresponding impact on tax functions, giving them little time to adapt to this change. From a compliance point of view, there are challenges as multinationals try to address inconsistent standards across Europe and the world, depending on where they operate.

In a recent Thomson Reuters webinar, a panel of indirect tax experts from Deloitte and Thomson Reuters discussed how digitisation is transforming the end-to-end VAT process. The webinar covered the development of reporting obligations and how digital transformation has influenced this area. It also illustrated how technology helps the tax function adapt to fully understand the requirements within each country.

The expansion of digitisation in tax reporting

E-filing and e-accounting already have a strong foothold in many countries, and tax departments are now seeing improvements in the digitisation of e-matching and e-auditing processes.

As tax systems become increasingly digitised, it is likely that authorities will eventually complete tax returns themselves and present them to individuals for verification. However, this disruptive new phase, known as ‘e-assess’, may not leave sufficient time for corrections to be made. Examples like SDI in Italy use an e-clearing clearing system, which could eventually evolve into digital systems that automatically complete reporting.

VAT compliance activities

VAT activities are typically divided into three areas: record, validate, and report. The digitisation of VAT processes means certain areas now require a reshaping and automation to meet reporting obligations.

• Record: Initial transaction data is collected during the record stage but not recorded by the tax department at this point.
• Validate: The validation stage ensures only tax compliant data is included in the return and, once complete, a final report is filed with the tax department.
• Report: Due to increasingly limited time frames, companies will need support from tax technology during the Reporting stage. Automation becomes critical at this point for specific functions, like ERP-mapping tax codes to Accounts Payable and Accounts Receivable documents and real-time reporting.

Automating VAT compliance

Sascha Weyland, Tax Technology Manager at Thomson Reuters introduced two elements of Thomson Reuters’ Indirect Tax solutions: ONESOURCE Determination, which automates VAT compliance, and ONESOURCE Compliance, which improves the accuracy of tax returns, filings and reporting .  By automating VAT compliance, companies can submit tax obligations in time. While ONESOURCE Determination automates the initial importation, validation, and preparation of data, the final steps are done manually to ensure accuracy and avoid errors. This includes all transaction reviews, adjustments, and filing processes. While this defines the core operation of the software, ONESOURCE Compliance has many additional features that help tax departments to manage the complexities.

Additional VAT compliance features

To assist the VAT automation functions, ONESOURCE Compliance offers additional tax content and features: In-depth content: Extensive country coverage, tax rules, EU OSS, and Import OSS

• Digital tax features: SAF-T, SII, MTD, JPK
• E-filing functions: Automatic return submissions in Germany, UK, NL, Belgium, and more
• Controls: ONESOURCE Compliance has several controls in place to support the optimisation VAT compliance processes and to ensure returns are completed on time. These include validation checks, dashboards, and workflow enhancements. You also get regular email notifications to ensure you never miss a due date.

Challenges faced by digitising VAT compliance

Contrary to popular belief, digital transformation is less about technology, and more about people, data, and processes.

As tax reporting becomes more automated, the role of technology is not to replace people, but to optimise the value of their contribution by removing mundane, repetitive tasks from their schedule and elevate them to become more strategic in their roles coupled with appropriate training.

In addition, businesses need to examine how data plays into their current work and what is needed to succeed. Data quality and flexible reporting are key to accomplishing this.

This ties in with a need to transform outdated processes that aren’t supported by new digitisation procedures. These are just some of the many challenges organisations face as VAT compliance becomes more automated. Meet the demands of digitised VAT compliance procedures and transform your tax reporting functions with Thomson Reuters ONESOURCE Determination.