Tax & Accounting Blog

The digitalisation of tax

Blog, Corporations, Indirect Tax, ONESOURCE, ONESOURCE, Technology January 5, 2021

In years to come, we’ll look back at this time as one of the most testing periods for businesses in modern history. The demands to continually adapt in the face of regulatory changes keep coming, whether driven by macro or geopolitical priorities or other issues such as COVID-19. However, whilst some changes may prove challenging, the collective movement to the digitalisation of tax across the EU is hardly surprising.

The rationale for digitalisation of tax 

The move, driven by the recent VAT gap of €140 billion across the EU, is seen as a concerted effort to drive this deficit down. All 27 countries in the EU have a VAT deficit (28 countries before Brexit). The numbers range from Cyprus to €0.08 billion and scale up to Italy with €35.4 billion.

 

And whilst tax authorities across the region have united to tackle the problem, the lack of harmonisation across the different VAT regions in terms of levels and regulation means that businesses have an extraordinarily complex time ahead.

There are, however, some signs of optimism, with recent decreases in deficit losses from 14.3% in 2014 to 11% across the EU. The main concern is whether the emergency tax breaks and temporary changes to the regulations introduced in 2020 will halt this progress.

That said, the drive to digitalise tax and reporting is very much underway.  EU tax authorities choose VAT as their starting point for the digital tax journey before moving on to other tax types and accounting treatments. That is why it is important that businesses address these regulatory demands, educate their employees about the necessity to comply, and appreciate the importance of getting their response right in meeting the requirements. If they can adapt to these changes, then the later tax changes will feel less radical and better prepared.

There is no denying that it will be challenging, particularly from a compliance point of view as multinationals try to address the inconsistent tax standards across Europe and the world, depending on where they operate.

How do you find the right software to digitalise tax?

Without a uniform approach to these tax requirements, organisations should look to ONESOURCE Indirect Tax, which will help them adapt to reporting standards and fully understand the requirements within each country that they operate. There is no doubt that businesses will need greater knowledge across the different markets and adapt to changes as and when they are introduced.

To cope with this upheaval, organisations need to support their accounting and tax teams, acknowledging that the relatively short-term pain will lead to long-term benefits for their business by adopting the right indirect tax technology. Not only does the appropriate technology platform meet the varied requirements of the EU tax authorities, but it will also enable businesses to make more informed and accurate decisions thanks to the level of data granularity now required. As a result, businesses will become more strategic and agile across their operations.