In today’s global economy, ensuring compliance with various indirect tax laws and regulations across regions and countries can prove challenging for the tax professionals tasked with ensuring that their companies always remain fully tax-compliant.
The lack of standardisation amongst tax authorities globally exacerbates this problem, as does the complex, and constantly evolving landscape of rules and regulations that they must take on board to avoid the risk of their companies being penalised for non-compliance.
“One of the biggest problems for multinationals is that tax regulations change so frequently on a country-by-country basis,” explains Sergio Silveira, director of product management ONESOURCE/ERP Partners Integrations at Thomson Reuters, pointing out that as different countries’ tax laws change so quickly “it is difficult to stay compliant.”
“The lack of standardisation among countries is another big problem. In some regions, like the European Union (EU), there is now more standardisation, but in other regions, such as Latin America, tax regulations are different on a country-by-country basis. There is no high-level standardisation.”
He points out that in the EU, the introduction of VAT in the Digital Age (ViDA) reforms, which will lead to a common standard for e-invoicing across Europe and influence e-invoicing mandates globally, represents is a big step in the right direction, making life easier for tax professionals.
“However, we have not yet seen this level of focus in other parts of the world,” he admits.
“One of the main challenges is that many countries today are more focused on resolving other problems that have arisen in the current economic climate, including the possibility of a recession. However, they do need to raise more money to resolve the economic issues they face and that means collecting more in taxes.”
Lack of tax standardisation
The lack of standardisation in indirect tax laws is evident in the variations observed in tax rates, tax structures, filing processes, and deadlines across different countries. There are also many variations in tax incentives and exemptions.
“There are huge differences from one region to another – and even within countries like the United States, the system is very complicated with different filing deadlines in different states,” says Silveira.
“Some jurisdictions also still rely heavily on paper whereas others are moving to e-filing. The filing deadlines are also different – some are monthly, some are quarterly, and some: annual.
“Tax incentives and exemptions also vary from country to country with this being very dependent on what a particular country’s government wants to achieve. Some countries, such as Mexico and China, are export-orientated and offer exemptions from tax to boost their export volumes, because this is their main goal.”
The tax regulations that apply in different countries are also subject to variations in interpretation.
“Even within countries, like the US, where there is a system of state-level taxes, there are different interpretations of the tax laws on a state-by-state basis – and differences in how the tax rate is split and where the money goes. These principles are set by the US government and different freedoms are allowed to different states,” says Silveira.
He adds that the classification of products for tax purposes also varies. “This is often the case with new products to market,” he says, identifying new technologies, including new devices, as a typical example. “When a new product is launched, there can be huge differences in how it is classified in different countries, and therefore the VAT rate that is applied.”
A big challenge for tax accountants
Global variations in tax laws, and the speed at which they change, present numerous challenges to tax accountants working for multinationals in terms of the vast amount of tax information they must keep up to date with, as well as the associated administration and cost burdens.
“Being tax compliant is the number one challenge,” says Silveira. “Tax professionals need to ensure their companies are tax compliant, but this is very difficult to achieve when you have so many differing regulations globally that change so frequently.
“There can be many severe consequences from being non-compliant including the risk of fines,” he continues. “But fines are just about paying money – the more serious concern is the loss of reputation a company can suffer if it is fined. Big non-compliance issues will be reported by the media, and when a company is selling its products globally, this may stop other countries from buying them. The loss of reputation can result in a big loss of business.”
He adds that opportunities may also be missed. “With so many different regulations to follow, many tax professionals are not always taking full advantage of the various exemptions that can be applied – and hence they are missing out on opportunities to save their companies money,” he says.
Resolving the tax compliance jigsaw
Silveira points out that as different countries’ tax regulations change on an ongoing basis, it is vital that tax professionals receive ongoing training, but he also notes that in the current circumstances, “it is impossible for tax professionals to be fully up to date all the time.”
However, this challenge can be alleviated by employing tax experts, focused on the tax regulations of each country in which a company operates, within internal tax teams, as well as seeking the services of external advisors.
Another way forward is to deploy the services of a third-party software provider that enables tax departments to introduce greater automation into their tax administration and compliance processes. The introduction of new technologies can also play a big role in bringing down the cost of tax compliance at a time when many companies are looking to make cost savings.
Silveira points out that new technologies can eliminate many of the manual processes many tax professionals face so that they can focus on “what really matters”.
“Greater automation enables tax professionals to reassess what they currently do in their day-to-day jobs when ensuring compliance and apply more time to looking out for opportunities in areas such as tax exemptions, which will save their companies money,” he says.
Here, he identifies Artificial Intelligence (AI) as an efficient new technology tax teams can deploy to not only help them identify these new opportunities but also identify any anomalies in their tax administration and compliance, which still represents a manual task for many tax professionals.
When it comes to selecting a third-party solution provider to ease the pressures faced by tax departments in tax administration and compliance, one major player is Thomson Reuters, which offers ONESOURCE, an end-to-end solution for the whole transaction lifecycle: tax calculation, e-invoice submission, and post-audit indirect tax filings.
Silveira explains that as a cloud-based solution, ONESOURCE can relieve many of the difficulties tax professionals face in keeping abreast of ongoing changes to tax regulations globally.
“By using one central solution in the cloud, tax information – and tax changes – can be quickly uploaded to the cloud and made readily available,” he says, noting that the use of edge computing ensures that tax professionals are quickly updated on new tax requirements. “For many tax departments, making any changes on a system-by-system basis can be very difficult but a central solution in the cloud operates in real-time and is available 24×7 – and there is no downtime in the event of software updates or tax updates.”
He adds that their solution also offers ease of integration with other company systems including Enterprise Resource Planning (ERP) systems.
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