Digital transformation is no longer only for businesses. Governments are quickly adopting digital models to better collect every type of transactional tax including value-added tax (VAT), goods and services tax (GST), and sales and use tax. As expected, digitization is putting increased pressure on businesses to respond.
In this new era of modern taxation, companies are facing mounting complexity, rising costs and unparalleled risks. As a result, 57 percent of compliance professionals from financial services firms rank compliance technology transformation as one of their top three strategic initiatives in 2018.
New digital models are being mandated and implemented by governments across the globe. In Europe, the European Commission recently paved the way for individual countries to mandate electronic invoicing (eInvoicing) with Italy became the first country in the E.U. to do so starting July 1, 2019. This means the details of every single business-to-business transaction will be collected by the government – in real-time. Several countries in Latin America already use this model and, as a result, are doing away with summary tax reports altogether in some cases.
Since these governments now have complete visibility into the money flowing in and out of businesses, they can send eAssessments – essentially, a tax invoice – instead of relying on businesses to calculate and report taxes owed. Mexico, for example, rolled out an electronic auditing program. After collecting comprehensive transactional data from sellers, Mexico automatically compares it to the sellers’ monthly tax reports. If the system finds discrepancies, it automatically issues an eAssessment with interest and penalties already added.
In many regions, including Latin America, businesses must now comply with these new mandates or risk lost customers due to decreased trust, fines and penalties, operational shutdowns, or even cash flow disruptions.
Bottom line – tax enforcement is now embedded in the most important business processes, changing the world of tax and disrupting decades old business processes. As a result, tax is driving digital transformation in finance and accounting departments. Now more than ever, businesses need a new approach to tax automation to ensure compliance. That’s why 45 percent of CFOs in a recent study cited increasing costs of compliance as the number one barrier to growth in their businesses.
How can businesses keep up with the digital transformation of tax?
First, it’s crucial for businesses to adopt a center of excellence for tax that brings people from multiple departments and disciplines into a single, unified operation. Then, these teams can work to identify and implement the right solutions and integrated software platforms specific to their unique needs. To centralize and automate processes for effective tax determination and information reporting, consider solutions that offer global tax determination, complete eInvoicing compliance and a full range of tax reporting solutions.
In today’s always-on business models, solutions should be all-encompassing, capable of doing the hard work for businesses while providing access to tools and data through the business systems already in use. In addition, solutions should be prepared for the future of compliance, which means they should be:
- Accurate: The only way to safeguard businesses from compliance risks is to ensure 100 percent accuracy and bulletproof audit defense. With today’s technology and process automation, that’s now an achievable objective.
- Data-driven: The standardization required for effective compliance gives companies new data-driven insights for identifying issues and improving processes.
- Proactive: In this ever-changing legislative environment, finance, accounting and compliance professionals must constantly look forward, providing insights to help their businesses predict what will change next.
- Strategic: With standardization, automation and new levels of data, compliance should be used to enhance business performance.
With advanced preparation and by implementing the right systems and solutions up front, businesses can do their part to reduce the friction between their company and governments. As governments continue to adopt digital transformation to enforce tax regulations, finance and accounting professionals must do the same to ensure compliance, improve accuracy and keep their tax operations running smoothly and efficiently.
Andy Hovancik is the President & CEO at Sovos, a leading global provider of software that safeguards businesses from the burden and risk of modern tax. As governments and businesses go digital, businesses face increased risks, costs and complexity. The Sovos Intelligent Compliance Cloud combines world-class regulatory analysis with a secure and reliable cloud software platform to create a global solution for tax determination, e-invoicing compliance and tax reporting. Earlier this year Sovos revealed its cloud platform, which is the only platform enabling businesses to solve the challenge of global tax and business-to-government (B2G) reporting for companies today and into the future.