HOW MULTINATIONALS CAN WEATHER THE STORM OF COUNTRY MANDATES AND POINT SOLUTIONS

Christiaan van der Valk, VP Strategy & Regulatory, Sovos

 

For far too long, global businesses would assume that indirect taxes including VAT ought to reside in the domain of local subsidiaries. Now, as tax administrations accelerate their digital transformation strategies, this mindset is not just untenable: it’s a profound danger to the very lifeblood of businesses’ digital transformation efforts.

Across the world, the effects of the sweeping trend of continuous transaction controls (CTCs) implemented by governments – in order to tighten up VAT enforcement – are still being felt by countless organisations and citizens.

Aiming to reduce fraud, manipulation, and errors that can be concealed in summary VAT returns and accounts, tax administrations are increasingly introducing government portals and programming interfaces that allow much more detailed and frequent data sharing with their cloud platforms. In doing so, governments can inch closer to the raw transaction data itself, from which they can analyse business-to-business supply chains and consumer transactions in real-time – without compromising on detail.

Still, it’s no surprise that what began as relatively simple mandates soon can become overcomplicated, with many types of financial and physical supply chain documents introduced over time. An initially limited scope focused on suppliers and their invoices tends to evolve swiftly. Soon enough, more buy-side processes and data are required – and more frequently.

For multinational corporations, keeping pace with real-time or near-real-time reporting of e-invoicing transaction flows is a time-intensive mission. After all, the growing complexity of the exchange of data between tax administrations, businesses, and citizens – topped off with major differences and frequent changes in country mandates – is no mean feat.

What’s more, with such extensive tax administration requirements influencing the direction of digital transformation, dataflows are being drawn into a grand design of data exchanges driven by tax logic, rather than economic logic.

 

Beyond local: the barriers to business optimisation

Undoubtedly, this is a tremendous issue for multinational firms. It’s clear that the patchwork of tax administration-driven digital transformation is complicating matters for multinational businesses – and there’s no stopping the growing trend of CTC mandates being implemented by governments globally. Each country will approach this differently, with varying levels of complexity.

Previously, the truth universally acknowledged was that VAT is a local issue, to be managed by local teams – but this is no longer the case. VAT has evolved far beyond being merely a local issue. Nonetheless, across all geographies, too many companies still favour local technology vendors to manage the flow of core financial and supply chain transaction data. These approaches contradict the need for system consolidation, global processes and data intelligence. Multinationals cannot depend on patchworks of local point solutions to manage regional VAT reporting anymore, so this is no longer a tenable solution.

To avoid missing the mark for different countries’ individual VAT reporting mandates, it’s crucial that businesses understand the increasingly complex interdependencies between digital tax and digital business, the demands on suppliers and buyers alike, and how they vary from one country to the next.

In order to achieve this, a single compliance approach is vital to keep up with changing VAT digitisation mandates, which should be centred around commonality and expert advice on the impact of these changes and how best to face them.

 

Riding the tide of change: commonality, harmony, and unity

Already, too many companies are tied up in a complex web of local contracts, SLAs, and data models. The result is that growing, expanding mandates are becoming non-functional islands within a company’s overall data strategy – which must be avoided. 

The digitisation of VAT enforcement through CTCs and further data-driven methods are flooding the world relentlessly. In an effort to close the VAT gap and enhance economic transparency, governments are introducing and expanding their mandates, requesting evermore detailed transaction data in real-time.  Rather than sink, businesses must ride this wave.

To achieve this sea change, organisations must transform their mindsets concerning the purchasing of technology to inject compliance into core business processes – taking control of their own destiny in the process. Activities such as invoicing may be regulated substantially under tax legislation in various markets, but that shouldn’t add up to a carte blanche to acquire invoicing technology purely for the purpose of tax compliance.

Instead, businesses must safeguard their power to select new technologies and applications based on economic credentials, insisting that such varying applications contribute multi-local compliance through a single expert vendor. This guarantees the exchange of business data with tax administrations exactly where it’s required. Loosely coupling enterprise and compliance functionality as twin domains that address wholly different objectives – business optimisation and tax compliance – enables businesses to reap the most rewards, preserving the flexibility needed to remain competitive in our contemporary global economy.

Ultimately, businesses that adopt this approach – taking the time to understand the specific issues that stand in the way of optimisation – will be the ones that fight the rising tide instead of finding themselves swept out to sea.

 

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