According to tax experts, corporations are being forced to establish standardized indirect tax compliance methods throughout their global operations due to the push to digitize tax reporting.
International standards for e-invoicing and real-time reporting, according to tax directors, are pushing multinationals to adopt standardized technology and procedures. The actions come in response to coordinated attempts by international tax authorities to tighten restrictions.
The manufacturing company Trane Technologies' assistant director for EMEA indirect tax, Nora Bafrouri, believes that enterprises should view the push toward digitalization as beneficial.
According to Bafrouri, "The digitalisation requirements are forcing us to standardise and streamline both processes as well as systems, resulting in better internal tax controls."
She thinks that responding to several regulatory changes concurrently in various jurisdictions has been one of the biggest obstacles faced by global corporations.
Regarding country-specific modifications to indirect tax laws, Bafrouri asserts, "It is fair to say that none of us has a good view on what is happening on the other side of the world."
Some tax directors have standardized their indirect tax compliance procedures in order to avoid battling flames from multiple sides.
Another factor is that businesses are putting the finishing touches on preparations for the global wave of live reporting regulations.
In recent years, multinationals have had a variety of difficulties complying with international indirect tax laws.
These have included increasing transactional reporting requirements, precise information for each corporate agreement, and regional regulatory differences.
One of the key advantages of global digitalization is that it has prompted companies to use uniform technological solutions throughout their foreign operations.
Some tax experts have also attempted to incorporate lessons from nations with sophisticated indirect tax structures and regulations.
In addition to making efforts to stay ahead of the regulatory curve by implementing changes before they become law, Johnathan Davies, global head of indirect tax at Anglo American in London, claims that his organization has made great strides in meeting the requirements for transaction-level reporting.
"Even if it’s not necessary in most countries that we are in, we are implementing our systems [technology] in a way that we can meet requirements that we think will be needed in the future," adds Davies.
He claims that by doing this, the company will approach compliance in a proactive rather than just reactive manner.
When referring to nations that are leading the way in digitalization and regulatory reform, Davies adds, "We are saying, let’s make that the bar for everywhere, and let’s implement solutions across our end-to-end that can enable us to meet that standard."
In order to take advantage of existing solutions, businesses must also consider regulations and regulatory standards from a worldwide perspective, according to Bafrouri.
She says that rules in Latin America, where digitalization requirements have been in place for some time, may teach us a lot of things.
Tax authorities claim that certain businesses have begun to move toward technical convergence as a result of digitalization.
This has mainly gone against the trend of tailoring automation systems to meet the demands of individual nations.
According to Bafrouri, "What we are trying to do is to deliver solutions that are not too local."
She claims that by utilizing pre-existing solutions and putting them to use in their many industries and jurisdictions, Trane has been able to do this.
Additionally, this has forced businesses to simplify their automation technologies.
However, many businesses have found that the expense and complexity of maintaining a single system across several jurisdictions is prohibitive.
Some have instead resorted to using a core ERP system that is heavily customized to meet certain operational demands.
Additionally, tax directors now feel a greater sense of pressure to make sure they have the right automated technologies in place to address compliance and legislative changes.
According to Bafrouri, "We have to make sure that we have solutions ready for when tax authorities publish changes."
Businesses have been required to gain more control over their indirect tax functions, which is one of the primary benefits of digitalization.
It is critical for businesses to be aware of prospective regulatory changes and to have a plan in place to address them.
This also applies to data and how it is maintained within organizations, according to Alex Bunnett, associate product manager at Thomson Reuters in the UK.
According to him, businesses might gain from centralizing their data management and storage infrastructure to make it simpler to manage some areas of their tax operations.
Data consolidation tools as well as tax engines [software used to calculate taxes] may be used in this, according to Bunnett.
Additionally, some companies have used tax data repository systems. This has made it possible for businesses to gather data from many storage locations and put it all in one location.
According to Bunnett, "They [businesses] can use that data for downstream tax processes and compliance."
He claims that because they lessen the need to customize various systems, these tactics are especially beneficial to businesses.
According to Bunnett, the drawback of having several customized systems in place is that they add to complexity and are challenging to sustain in the face of regulatory changes.
"A data transformation tool can help the tax team maintain control over the data adjustments that need to be made on a regular basis," he claims.
Additionally, it frees up tax teams from having to routinely consult their IT departments or launch ad hoc system developments in order to fulfill compliance requirements.
It is no secret that the majority of businesses continue to struggle with poor data quality. Businesses may, however, take measures to enhance their performance.
These include putting in place thorough checks and controls on corporate data and using tactics for mistake detection.
Additionally, this demands for more stringent procedures to guarantee that the data that will be needed later on is accurate right away.
According to Bunnett, one of the major advantages of using checks and controls on input data is that it lessens mistakes and the load of compliance on tax teams.
In ERP and accounting systems, he continues, "we are increasingly seeing the ability to create these kinds of rules and logic."
Some companies have adopted strategies that involve using feedback loops from their compliance staff to reduce changes and errors.
This entails extracting the modifications that must be done, returning them through the ERP system via an API, applying automation, and putting the required permissions in place before automating the last changes in the ERP.
The majority of firms want to make sure that the information in their ERP systems is in line with their tax returns or filings.
According to Bunnett, "Having these feedback loops to identify discrepancies and correct data in ERP systems automatically is a great first step toward achieving clean data for your tax reporting."
Companies may create high-quality data while lowering compliance mistakes when these feedback loops are paired with reliable processes inside finance departments.
According to Davies at Anglo American, high-quality data may be crucial for making better overall company choices in addition to being valuable for compliance considerations.
"It enables us to add value to the wider business by reducing our trapped indirect taxes and improving the cashflow position," according to Davies.
Instead of merely being perceived as an expense, it "drives metrics that the business really values," he continues.
Although these digitalization initiatives might help protect firms against future changes in both regulations and business processes, unraveling the intricate web of systems and settings they now utilize will be a significant problem.
This is crucial to ensure that system upkeep and update expenses are properly handled while promoting consistency in the procedures used to generate high-quality data.
Digitalization is essential for helping companies to maintain compliance and stay out of trouble. The massive push by firms to implement standardized indirect tax compliance processes throughout their operations is a significant byproduct of this automation process.
By fLEXI tEAM