To avoid costly errors and hefty fines, international tax directors have urged multinational companies to standardize their in-house VAT reporting processes.
Concerns about standardizing in-house tax data processes have grown in importance in light of the large number of employees who left their jobs following the COVID-19 pandemic. Many businesses that lack automated processes and procedures are now experiencing knowledge gaps.
Companies must automate and standardize their processes as a result of complex business models and increased VAT compliance in the form of e-invoicing and real-time VAT data reporting.
This has prompted multinational corporations to re-examine reporting processes across their entire operational value chains in order to ensure high audit quality tax data and to improve standardization and automation.
"If you only automate part of your business then for everything still done manually, it means you need different training guides, different test scripts, different support systems," says Andrew Bohnet, managing director of Innovate Tax in the United Kingdom. "When a person leaves, you then have to do it all again."
According to Bohnet, the risks of bad tax data are especially high when businesses rely on employees to maintain manual reporting systems rather than using automated processes.
One of the main drivers for improving standardisation and investing in off-the-shelf technology solutions, according to Vikas Garg, director and head of indirect tax at Siemens India, is frequent changes in goods and services tax (GST) regulations, often at short notice.
"We are happy to purchase something that gives us up to 60 to 70 percent standardisation and allows us to simply plug it [the technology solution] into our systems and start using it from day one," he says.
Misaligned VAT regulations across the various jurisdictions in which multinational companies operate is one of the main challenges they face. As a result, businesses develop bespoke reporting systems based on manual inputs for each country.
The frequent changes in national VAT regulations, as well as the risks posed by personnel changes due to job moves, present a challenge for such systems.
As a result of regulatory changes, businesses are exposed to systemic risks such as inadequate internal reporting processes and weak data management procedures.
Data leakage, including the loss of vital customer or business information, is a significant risk for legacy systems.
For businesses, tax data stored on company systems or cloud solutions poses a significant security risk. A data breach could reveal details about a company's business model, customers, suppliers, costs, and profits.
It could also have a negative impact on a company's value and share price.
At the ITR Indirect Tax Forum in Brussels recently, a leading German tax director stated that the importance of tax data security could not be overstated.
"Oh, it’s a big thing … it is so important for us; it’s less about the financial data we are concerned about, but the client data."
"It’s client names or client revenues that you don’t want compromised," he added.
According to Bohnet, it is far better to standardize company-wide solutions in-house rather than rely on local conventions to ensure that business procedures, such as data processing, are consistent.
He claims that this will allow businesses to map their centrally standardised data to external systems like e-invoicing, as well as control and decide how and to whom their data is released.
The amount of data that businesses are now required to submit to tax authorities makes using formats like Excel nearly impossible. As a result, businesses must adopt advanced automated technologies that transfer data from ERP systems to government tax reporting platforms.
According to Mohan Nusetti, senior vice president and head of indirect tax at Lupin India, standardizing procedures is critical as more companies are required to share VAT data with tax authorities in the form of GST and e-invoicing.
Internal tax departments are making significant progress in standardizing their procedures. This entails automating routine VAT reporting tasks and implementing digital capabilities that provide tax authorities with real-time transaction-level data.
"Before the introduction of GST, tax teams spent about 70 to 75 percent of their time on compliance issues and now it’s down to about 25 percent because most of it is digitally enabled," Nusetti says.
It is no secret that as more tax authorities around the world embrace e-invoicing and real-time tax data sharing, the rate of digitalisation will accelerate.
More businesses are likely to turn to tax-related technology solutions like SAF-T to integrate their systems internally and with tax authorities' real-time reporting systems.
Multinationals should be wary of technology integration specialists who use manual tax solutions rather than automated processes across their entire tax control frameworks, according to some tax experts.
As tax data compliance requirements become more stringent, including the requirement to provide real-time data to tax authorities, more standardization and automation of reporting processes will be required.
Instead of seeing this as a cost, businesses should see it as a way to protect themselves from the risks of poor tax data management, reporting, and, ultimately, audits or fines for non-compliance.
By fLEXI tEAM