Thomson Reuters published its opening speech Tax Technology Report 2021, Indirect tax ?? Much more than just a process, which sheds light on how the growth of indirect taxes is affecting compliance, operational efficiency, and overall revenue in the global business landscape. A striking 80% of global tax managers reported significant indirect tax compliance challenges, highlighting the increasing tax burden on businesses as governments seek additional revenue in the wake of COVID-19. The report’s findings and strategies have been compiled based on responses from over 800 international corporate tax departments of Thomson Reuters’s global corporate customer base in more than 200 countries. Further analysis was conducted based on in-depth interviews with over 30 global tax directors from major corporate tax departments.
As a share of total tax revenue, sales taxes in OECD countries, the countries that make up the bulk of global nominal GDP, have risen to an average of between 25% and 35%. The main focus of the report is on the increasing tax burden on businesses to collect taxes on behalf of the government faster, more efficiently and with more severe penalties for those who fail to comply. ??The tax authorities are becoming more aggressive, so there are challenges that we must face. The burden of compliance is increasing worldwide. How can we alleviate this burden???? commented one respondent. Unfortunately, companies often have to wait to get to the point of the “burning platform”. achieved. or compliance violations before they can muster the necessary internal support and investment to proactively manage the increasing burden on corporate tax departments.
?? It has never been more urgent to keep up with tax complexity, as well as the cost of errors that arise from ever-evolving regulations ,? said Sunil Pandita, President of Corporates at Thomson Reuters. As national and local governments seek to increase their revenues to counter the dizzying losses from the COVID-19 pandemic, tax teams are burdened with the burden of surveys while grappling with ambiguous guidelines, outdated legacy systems, and poor data. The good news is that tax teams are also adding more value than ever before: maximizing sales, predicting cash flow models, and being transparent across the organization. More than ever, tax professionals need smart strategies and tools to mitigate risk and create deep strategic value.
The report highlights the challenges corporate tax departments face today: risking severe penalties for late or undisclosed taxes, or putting customer loyalty and cash flow at risk from overestimating. This predicament underscores the need for companies to have compliance strategies that guarantee speed, efficiency, and impeccable accuracy. Organizations also need to ensure this compliance while battling ambiguous jurisdiction guidelines, legacy systems, and poor historical data collection techniques. Indirect tax ??is a very rapidly changing area of taxation, ?? comments a US chief corporate tax officer. States are always finding new ways to attract more taxpayers to their tax lists. Once one state has an idea that seems to work, you can expect the other states to do something similar.
the Tax Technology Report 2021, Indirect Taxes also identifies a significant area of opportunity for the corporate tax departments. As federal and state governments try to improve fiscal health after the pandemic while avoiding politically sensitive income taxes or stricter tariffs on goods and services, indirect taxes are playing an increasingly important role. The benefit of this environment is better data and visibility, which can pave the way for corporate tax departments to take on a more strategic business role across the enterprise.
Additional insights from the report include:
Fiscal Fears Plague Tax Authorities: The Three C ?? s
Calculations, collections, and compliance are three forces that keep tax managers awake at night.
- Tax departments are reporting growing concerns about not only monies due, but the pace and extent at which taxes are calculated and collected? Speed and efficiency are paramount to compliance success.
- A quarter (25%) of tax directors surveyed identified the impact of e-commerce and digital products as worrying, especially in countries where businesses are not physically present. This is compounded by selling products and services through online marketplaces, which adds further complications as businesses have to decide which legal or regional unit to use on a global e-marketplace.
- Tax departments faced with multiple legacy systems report that they clean up the data before it gets into the tax process. as the primary pain point. One noticed that the team, ??Spends too much time checking spreadsheets and manipulating data without interpreting them. ?? Another aptly commented, ??The control engine is only as good as the data it contains. ??
- Companies with significant growth (through acquisitions in new jurisdictions or expansion into new markets) face the challenge of keeping up with unique regulations or guidelines to avoid harsh penalties for late or inaccurate filings.
Global growth leads to a quagmire with indirect taxes
Tax fears are directly linked to the local and global markets in which companies operate. The biggest challenge facing global companies is the multitude of unique national regulations that must be complied with; US respondents cited rapidly changing government regulations as a major challenge.
- In the United States, respondents repeatedly cited key states, including the much-cited Colorado and Alaska, as a source of concern because of the complexity of their regulations.
- Several countries were regularly identified as particularly challenging by the respondents:
- Brazil due to its tiered indirect tax regulations at the federal, state, and municipal levels, with each of Brazil’s 26 states having their own legislation. In Brazil, too, the penalties were very high: up to 150% for non-compliance.
- China was also often referred to as “very troublesome”. as well as India and Russia.
Automate to extrapolate
Corporate tax departments are increasingly turning to automation to achieve two key benefits: minimize the risk of human error and save time reconciling and editing outdated spreadsheets.
- The majority of respondents said they used some form of IDT software, with different use cases and the full extent to which the software was used.
- Most of the respondents indicated that they needed solutions that were easy to use, required a limited number of steps to collect key data, and understood the complexities and specifics of their business without undue customization.
The advantage: more exposure leads to more influence
Tax teams create more value across the company and take their roles far beyond cracking numbers, Avoid penalties and maximize recoveries. Respondents expressed a desire to move from pure compliance to a more strategic role, with proactive management across all business functions in order to ??Do better analysis to find the root cause of discrepancies and fix them at the source (sic).. ??
This new normal enables strategic, data-driven knowledge, helps finance teams determine new cash flow models, offers more transparency about customer behavior and the supply chain, gains unique insights to support due diligence on acquisitions and new ventures, create better prices and Improving relations with government agencies and authorities.
- Survey participants reported intense involvement in strategic discussions on acquisitions, new product launches, and market entry, demonstrating the financial value and strategic insights gained from the data.
- Respondents who wanted to shift their role to a more value-adding role said visual technology was fundamental to improving their work.
- Corporate tax departments also cited the benefit of better understanding government functions and the data they collect so that they can stay one step ahead of authorities at all times.
Report insights and recommendations for tax departments include:
- Optimize data in a single ERP source of truth.
- Add to the value of proactive compliance and in-house support by making sure there is in-house tax expertise to avoid the battle for resources, as well as high-level finance and IT advocates.
- The integration of better technology, automation and digitization to increase confidence in government calculations, resulting in better control over tax processes and reporting.
As governments continue to seek ways to make extra dollars without upsetting and losing voters, indirect taxes offer an opportunity for better business oversight and new sources of income. In order to take full advantage of the benefits and avoid dangers, tax departments must consider investing in new technology early on so as not to extinguish a “burning platform”. before it burns productivity and profits.
Via Thomson Reuters
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