Keeping pace with the taxman: how to remain in control
- The digital landscape for Tax is fast evolving and keeping up with both region-wide and country-specific legislation is an ever-increasing challenge for businesses worldwide. The sweeping fiscal reform of reporting standards (often referred to as SAF-T) and the demands of real time reporting are creating significant hurdles for Tax teams – all the more difficult to overcome when organisations are less than confident they have the right data, technology, processes and resources in place to meet growing regulatory demands. In this context, business change/ transformation programmes underpinned by ERP implementation/ reimplementation, represents a unique opportunity to get things right first time – both for today and tomorrow.
A new tax dawn
Tax authorities have traditionally relied upon taxpayers to self-assess their liabilities, and the competency of the data, processes and systems underpinning their business. This has led to gaps arising as a result of data, processes and systems not being designed with Tax in mind. Change is on the cards: tax authorities are now required to up their game after being forced by governments and agencies such as the OECD to address these gaps. In order to do that, they have decided to go digital. They’re progressing well in their endeavour: many tax authorities are now leap-frogging taxpayers by acquiring data specialists and innovative technology. After being under-resourced and in the technology dark ages for years, they now find themselves ahead for the first time in history - demanding more data, real-time reporting and electronic invoicing.
There is an additional challenge, especially for businesses operating internationally: each tax authority seems to have their own view on what should be included – or not - in the reporting standard reform. In Italy, the tax authorities want to know levels of detail down to the individual licence plates of the lorries that move goods. In Spain, tax information has to be reported every day directly to the tax authorities. E-invoicing is mandatory in Indonesia, while in Brazil, the tax authorities have to approve your invoice before you are physically allowed to move goods. Every country across the globe has their rules.
Businesses are unprepared
For tax controllers who have lived for years in spreadsheets fixing things after they have happened, it’s time to be more proactive to address these issues or risk severe penalties. Tax calculations and reporting needs to be accurate and compliant first time. Data, processes and systems must be set up right to achieve this. Furthermore, the amount of time tax departments spend gathering and reconciling data is cumbersome, impacting motivation. Data historically obtained and utilised from other functions such as Finance, Procurement, Treasury, also needs to change to reduce tax teams’ loads. Tax must align and design their data side-by-side with them. This is especially important as, globally, the new tax legislation and standards being introduced – whether SAF-T or the US sales tax, Wayfair etc. - is creating increased volume and frequency of data needed by the tax department. However, according to recent Deloitte research, only one in five businesses are satisfied that they have the right technology in place to deal with these increasing digital demands . It is therefore, no wonder why 70% of the Tax Heads we have spoken to claim that responding to SAF-T and real time reporting requirements are a significant driver of their investment in digital/technology.
Tax is often seen as a lower priority for technology investment – and have been left out of scope in many major ERP projects. However, setting-up change programmes to achieve right first time within the ERP will translate into a much faster response to changing regulations, and better risk management.
Using ERP implementation to respond to the tax digitalisation imperative
Tax wanting good data, processes and a system designed with tax in mind is not a new thing: it’s been asking for this for years. The costs of achieving this within an existing ERP environment has historically been insurmountable for all but a few (lucky) organisations. Furthermore, Tax is often seen as a lower priority for technology investment – and have been left out of scope in many major ERP projects. However, setting-up change programmes to achieve right first time within the ERP will translate into a much faster response to changing regulations, and better risk management. It also represents a real opportunity for businesses to reduce costs, achieve greater operational efficiencies and reduce manual input – and more time spent on “setting rules”, monitoring processes and exceptions to improve quality and “future-proof” systems. By migrating to a new environment such as S/4HANA will help establish a single source of truth to ensure that the first-time right rule is followed in invoicing, posting and reporting.
Seventy-eight percent of the Tax Heads Deloitte surveyed said using technology to free up time to invest in higher value tasks is a driver for investment . Tax does not just want to get it right and catch up with digital requirements, it also wants to be able, at last, to become active commercial partners.
1,2,3 Deloitte Global Tax Management Survey, 2019.