Global companies are increasingly using different tactics to address today’s onerous tax compliance burdens. Some rely on outsourcing to third parties, some have in-house teams to manage VAT compliance and reporting, and others look to shared services to centralise tax filing and reporting tasks. In each approach, technology is essential to keep pace with today’s complex, and ever-changing, tax compliance mandates.
VAT Reporting Landscape
Technology has changed the way businesses grow, enabling them to create new products and services, delivered through a complex supply chain, available to consumers through new sales channels. Just as technology changed businesses, it is now transforming how governments around the world are regulating. Governments are:
- introducing more aggressive regulations that control all aspects of the supply chain, down to the transaction level, to enable data triangulation.
- requesting rapid-response, shifting from slow, manual processes that take weeks or months to real-time reporting that can be easily audited in days rather than years.
- working closely together and sharing data to close loopholes.
In Europe, the European Commission and individual countries, such as Spain, Norway, Hungary, Italy and the U.K., are taking actions to adopt technology for VAT compliance and reporting. More countries will likely follow suit as these countries show success.
Therefore, regardless of a company’s tax compliance strategy, technology plays an important role to help simplify operations, acquire capability, decrease costs and mitigate risks.
Outsourcing Tax Compliance
When companies outsource tax compliance, they hire a third-party accounting firm to manage the entire process on their behalf. In today's dynamic tax compliance environment, ad hoc consulting and point-in-time tax reporting is no longer sufficient, leaving companies potentially exposed to significant risks.
Technology enables companies to supplement outsourced tax functions with real-time, granular functionality to ensure compliance with eInvoicing and financial reporting regulations for accurate VAT reporting. Technology can also be quickly updated to ensure compliance with new or updated government requirements - whether it’s a small line-item change or a major evolution in the process - minimising the need for additional consulting services.
In-house Tax Compliance
Some companies may have the expertise and resources in-house to handle tax compliance within their organisations. While this may seem appealing to those with robust finance, accounting, tax, compliance and IT departments, the process can be extremely resource intensive, requiring employees from multiple departments to have significant local knowledge of mandates in terms of tax, web services, certifications and processes. They must have the capacity and resources to update business processes and internal systems, and stay up-to-speed on changes in every country in which the company operates.
Technology can help bring these disparate groups together, enabling in-house teams to collaborate in meeting tax compliance requirements. In addition, technology enables companies to centralise data from multiple countries, improving productivity, efficiency and transparency of their tax liabilities.
Shared Services Tax Compliance
Initially used for activities such as payroll and benefits administration, inventory or information technology, the shared services business model is becoming more widely adopted by companies to meet their tax compliance needs. This approach enables teams to focus on their core function, rather than be sidetracked with basic administration and operational tasks. Shared services allow greater economies of scale, simplify operations, improve efficiency and provide clearer visibility for better decision making.
Technology plays an important role in shared services for tax compliance. It can help businesses centralise, standardise and automate processes on a global level. These features are becoming increasingly critical as more countries require every transaction to be managed in real-time, line by line. Errors and non-compliance can result in significant fines, fees or even stoppages in business. Additionally, technology can help shared services to become a center of excellence if data analytics capability is included.
Complex VAT regulations and the transition to real-time government visibility into business transactions are forcing companies to re-evaluate the approaches taken to ensure tax compliance. While technology has a role to play in both outsourced and in-house activities, the move to a shared services model offers even greater benefits - from cost savings and risk reduction to business intelligence and data analytics. To learn more, download the Sovos Shared Services Playbook.