Chris Zangrilli, VP of Technology Strategy at Vertex
Global banks are paying a tax they haven’t accounted for. Not a regulatory levy or a compliance fine, but the compounding operational cost of tax systems that don’t talk to each other.
When tax systems do not work well together, hours of work gets lost fixing mismatched VAT treatments across jurisdictions. Tax teams instead create manual workarounds to put band aids over gaps between systems that were never designed to talk to each other.
According to Deloitte’s 2025 Tax Transformation Trends survey, integrating tax data across the organisation ranks as a top three challenge for 30% of tax leaders, and the consequences of failing to do so are becoming harder to absorb. On top of this, nine in ten now expect tax disputes to increase in the years ahead. Where data is difficult to consolidate, inconsistencies follow. And inconsistencies are exactly what regulators are becoming better equipped to find.
These concerns have been around for years, resulting from an overspill in critiques of fragmented infrastructures. And for global financial institutions, this is a burgeoning cost that needs to be nipped in the bud.
The architecture of the problem
Global banks rarely operate from a single unified technology stack. It’s typical that systems will have been inherited from previous acquisitions, built locally for specific regions, or be built atop legacy infrastructure that cannot be easily retired. For many institutions, the honest answer is that the core systems underpinning tax determination are simply not built for the environment they are now operating in.
In the tax world, this means that the exact same transaction could be categorised differently based on which system processed it and which jurisdiction’s rules applied at the point of determination. VAT recovery rates suffer when input tax is inconsistently captured.
Further to this, cross-border transactions can become particularly complex. Inconsistent treatment across regions creates a plethora of compliance risks and financial exposure. And, of course, with every time a regulatory change is introduced, as does an expensive round of integration for institutions managing tax across disconnected platforms. At a certain point, patching legacy infrastructure to meet modern reporting standards stops being viable. The question shifts from how to maintain what exists to when to replace it.
A regulatory environment that does not stand still
Sitting on top of an already complex technology problem is a regulatory environment that is moving the goalposts entirely. The pace of digital reporting change alone is enough to make the co called ‘status quo’ completely unattainable unworkable.
The EU’s VAT in the Digital Age (ViDA) package introduces mandatory e-invoicing and real-time digital reporting for intra-EU B2B transactions. Cross-border trades are also required to be reported transaction-by-transaction within five days of invoice issuance. That is not a reporting cadence any organisation can meet by assembling data manually from disconnected systems after the fact. With each new mandate comes the need to convert a data quality problem into one that is not compliant. Fragmentation that could previously be papered over now has a deadline.
Tax authorities across Europe are steadily building systems over time that can compare transaction-level data with filings almost in real time. And financial institutions that still rely on fragmented tax determination across multiple systems will need to pose the question to themselves of if their data is ready for the level of scrutiny that’s to come.
The compounding cost of inaction
Compliance operating costs for retail and corporate banks have risen by over60% compared to pre-financial crisis levels, and regulators are shortening the timeframes in which compliance must be demonstrated. For many finance and tax leaders, the instinct has been to manage fragmentation tactically, adding resource where reconciliation backlogs grow, building point-to-point integrations as requirements emerge. That approach made sense when regulatory demands were stable and the consequences of inconsistency were tolerable.
Neither condition holds today.
Organisations that have not yet addressed the underlying architecture that has built the foundations of their tax determination environment are only absorbing increasing compliance risks with each new jurisdictional requirement that comes into place without necessarily seeing that build up reflected on any single report.
Integration as the answer
The good news is that more and more global banks are now integrating tax determination directly into their core finance systems, rather than treating it as a downstream process that is checked later – but they need to move faster. The distinction is significant. A tax engine that applies consistent determination logic at the point of booking is applying the consistency at the beginning, rather than downstream from a compliance function that periodically corrects afterwards through manual reconciliation.
The benefits of getting this right are well documented, but so is the failure mode. When companies move to modern systems, integrating end-to-end tax processes should be top priority. Because without the proper integration, organisations simply recreate the same old problems using newer technology.
Tax is entering a new phase. What was once viewed primarily as a compliance function is increasingly becoming a technology and data challenge. As reporting requirements become more digital, detailed, and immediate, institutions are being forced to confront the limitations of fragmented tax environments. Those that engage now will have access to a broader range of options than those arriving at the same conversation under regulatory pressure.
The hidden cost of fragmented tax determination eventually comes to light in the form of penalty notices and failed audits. For global banks, it’s up to you. You know you’ll need to react at some point. Will it be now, or will you be forced to later?
