By Andrew Hocking, VP of Tax Technology at Sovos
The tax environment around the world is becoming increasingly complex. With individual countries digitising parts of their tax system, such as the Making Tax Digital regime in the UK, the European Commission has also announced its plans for VAT digitalisation called VAT in the Digital Age (ViDA). The reforms aim to modernise tax collecting systems throughout Member States allowing them to adapt to the requirements of today’s digital era.
While digitalisation in the UK and Europe is still in the early stages, many countries in Latin America in some ways pioneered the modern tax system, with some of their e-invoicing models well over 20 years old. It seems now that any country that is not on their way to digitalising their tax systems, will be very soon.
For businesses operating across borders, these developments have far-reaching implications and it has been an ongoing challenge to keep up changes and avoid non-compliance. Differences and inconsistencies between state, national, regional and global regulations have posed a significant problem. In addition to this, e-invoicing and other regimes are providing revenue authorities with a more detailed image of taxpayer information, meaning it is more important than ever that businesses know what information is being supplied to the government in real time.
To meet new demands, businesses are investing in compliance software, or tax technology, to adapt their systems and automate the fulfilment of compliance requirements across multiple jurisdictions. To ensure an organisation is prepared for future regulatory changes, these solutions should be able to adapt to current and future requirements, meaning scalable systems are ideal as the digitisation journey continues.
Businesses that are not prepared and fail to look long term, run the risk of incurring non-compliance fines and reputational damage, and increased cost of investing into point solutions. The key to this, therefore, is taking a holistic approach and embedding tax compliance in the broader enterprise systems strategy, rather then relying on point solutions.
Cross-department collaboration
The convergence of tax and IT has made it necessary for IT to play a more prominent role in compliance. What was once a finance or tax department led process now often includes IT as a key stakeholder or leading the digitisation of tax and regulatory reporting. However, with personsonel not necessarily having the right tax skills, and finance leaders lacking IT knowledge, collaboration will be a crucial component for compliance success.
IT department will be increasingly relied on to implement technical solutions that facilitate tax compliance, such as e-invoicing systems, ensuring data security and integrating existing business systems with new tax software.
The tax department, meanwhile, will continue to be responsible for traditional jobs such as recording, calculating and declaring VAT. Responsibilities will also be broadened to a business advisory stance, determining tax risk strategy and in house advisory services. While tax and IT deparment functions are widely different, collaboration is crucial to ensure that technical solutions meet tax requirements and fit in smoothly with exisiting business processes.
Ensuring collaboration shouldn’t be too challening. Businesses should focus on setting up processes for clear communication and a common understanding of objectives and requirements around tax. It is cruciual for management to assume some responsibility and provide the resources to set up these processes. This should include preparing for any resistance to change, providing appropriate training to help employees understand new technology and appreciate how digitisation can enhance a focus on master data quality and other downstream business processes. Much of this comes down to a positive corporate culture and setting compliance as a key business goal.
Thriving in the digital world
By taking a strategic and forward-looking approach, businesses need to stop viewing tax as a short-term problem. Companies that are able to adapt to changes in the global tax landscape will stand to benefit from not only more efficient tax reporting, but also wider insights into how the business is functioning, and spotting opportunities to optimise business processes. Companies that switch from a reactive to proactive approach to tax will be more likely to thrive in today’s digital sphere and be better prepared for challenges or changes in mandates.
Tax software offers a range of compelling business benefits, including streamlined processes, reduced human error, cost savings, and real-time data insights for informed decision-making. As companies embrace digitalisation and automation, now is the opportune moment to capitalise on these advantages.
