TBI Expert View is our focused look into the evolving world of global VAT and what changes companies should be making for 2022.
Taxback International’s Chief Product Officer, Eamon Clune, and our Chief Marketing Officer, Nora Duggan discuss the evolving changes within VAT compliance.
Taxback International’s Chief Product Officer, Eamon Clune, and Chief Marketing Officer, Nora Duggan discuss global tax changes and the benefits of digitalisation for businesses who adapt sooner rather than later.
From his years of industry experience, Eamon offered insights on common problems he’s seen companies encounter and provides a step-by-step breakdown on what companies should do as they set about on their digital journey.
Tax offices are being challenged to do more with less. So, in part, this is really about utilising automation and technology to drive down costs and the need for manual human intervention.
But it’s also about cracking down on tax evasion and fraud.
The VAT gap is the difference between the expected VAT revenues and the amounts actually collected. In 2018 in the EU, the VAT gap reached around €140. It’s not insignificant so tax offices are digitalising is to significantly reduce this gap.
The complexity of global VAT affects businesses in many ways. For example, real-time reporting is forcing businesses to re-engineer their entire tax processes to support these new requirements.
As with everything, it starts with data. To get on top of real-time reporting requirements, businesses must overcome difficulties in accessing their tax and financial data. This becomes even more difficult when it is spread out among multiple ERP systems. Or if data is structured or formatted differently from one system to the next.
Businesses must also keep ahead of new rules, understand their impact, and cope with the speed of changes.
Fortunately, the OECD introduced some standard frameworks — such as the (SAF-T) – which is great, in theory. However, the implementation of these standards generally occurs on the national level, resulting in numerous differences from one country to the next.
Traditional workflows are heavily dependant on excel and email. These processes are simply unable to meet the standard of new and evolving requirements.
One of the primary problems with a traditional model is the amount of manual work that must be done.
After downloading data from the ERP, a preparer will typically spend a considerable amount of time manually manipulating, re-formatting, and re-structuring the data to get it into a consistent format. Only then is it ready to start preparing the return.
But this process has to be repeated for every return and is repeated again and again every month. Incredibly repetitive and very time-consuming.
Preparers typically use excel to filter and sort the data and perform a series of checks on the data. So clearly, lots of manual work and inefficient processes are a big pain point.
Another big consideration is managing risk. With all these manual processes being performed in a short period of time, it becomes likely that human errors will be made. These could result in significant fines and penalties with the tax office.
Another problem, the traditional approach lacks visibility and control. The Indirect VAT Manager must have visibility over the whole process to ensure all the returns are running on time. But they also lack control to make sure if, for example, someone is on annual leave they can delegate their responsibility to someone else, or if a return is running late that it can be escalated to someone else.
These traditional approaches are a thing of the past because they are too manual and cumbersome they don’t lend themselves well to the requirements around digitalisation and real-time reporting and they fall short of the audit trail requirements needed by most of the tax offices.
By automating the entire workflow, time spent on manual work is eliminated and inefficiencies are avoided.
Rather than a preparer spending time checking data, the platform performs all the checks, so the preparer just needs to focus on fixing the errors identified by the platform. This is a massive time saver.
Many manual steps are eliminated so the potential for human error is greatly reduced. Additionally, the risk is mitigated by introducing advanced controls such as the ability to automatically notify users when an action is required, the ability to escalate if action is overdue, or the ability to delegate if a user is sick or on leave.
Most enterprise-level compliance platforms will have the capability to process the data in near real-time and deliver a full audit log, meeting the real-time reporting requirements.
In addition, some compliance platforms will also have an advanced analytics capability to deliver insights, trends, and forecasts on the compliance process while also making the necessary on-time payments to the tax office.
There’s a number of key pieces of advice Eamon supplied during his Expert View episode. Firstly, an important piece of advice he always gives businesses starting on their digital journey is to make sure they have the right level of support within their organisation.
They should also elect a project sponsor or champion who understands the changes that are happening in the compliance industry and understands the importance of staying up to date with these requirements.
Decide if they wish to licence software and deliver the solution in-house or want to outsource the entire compliance process to a specialist supplier.
Establish a budget and as part of this businesses should conduct an ROI exercise. It could be helpful to calculate the costs of the existing solution and that could act as a benchmark when establishing the budget.
Next, draw up a list of all the companies’ requirements, rank them by priority and invite selected tax technology vendors to participate in a tender process.
The process again:
Make sure the provider has a solution aligned with and capable of achieving your corporate goals. Search for a provider that is progressive and meets the current and future requirements of the tax office. Ensure the provider can provide an automated data acquisition process to facilitate real-time reporting.
The accuracy of your VAT return is directly related to the level of checks conducted on the transaction data. So when selecting a 3rd party provider, take note of the number of standards and customised checks and validations performed within their platform.
In Eamon’s opinion, the ability to deliver very strong Analytics and meaningful insights is absolutely essential. Some providers have strong data analytics, trend analysis, and use artificial intelligence (AI) and Machine Learning to uncover risks and surface trends. Other providers offer little in terms of data analytics.
Remember, a VAT return is not done until the payment is made to the tax office. Look for a provider with an integrated capability to make direct payments to tax offices.
Lastly and probably most importantly, look for a partner that will work with you. One that is flexible and will listen to your needs and is responsive to those needs.