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The management of tax master data has never been as important as it is right now.
In the era of digitalisation, tax data is widely recognised as an essential component of any tax setup; helping to power efficient and reliable determination, reporting and compliance.
But what is tax master data? What should it include? And why is it now so crucial?
In this article, we’ll attempt to answer those questions.
What is tax master data? 7 things it must include…
Tax master data entails details about customers, suppliers and key contacts held either on a business or individual level. It most commonly relates to identification, relationship and tax status information.
Best-in-class tax teams will hold extensive data relating to every aspect of their operations, including customer and supplier details, product classifications and contact information.
What’s more, they will deploy systems that ensure the accuracy and completeness of their information. Gaps or errors in master data will only lead to a failure to determine or apply tax correctly – and, ultimately, non-compliance.
There are dozens of data fields you can record and maintain in pursuit of master data magnificence, but we consider these seven elements to be non-negotiable:
1) Entity information
The most essential data of all. This includes information about the legal entities within an organisation, so you’ll need details such as company names, addresses and registration numbers.
2) Customer and supplier data
To complete certain documents and invoices, you’ll need customer and supplier details. This typically includes the tax status of each customer or supplier.
3) VAT numbers
VAT numbers are an essential inclusion in any invoice. They provide details of the registration status of a customer or supplier and can be verified with the relevant tax authority to ensure their validity. Not only does this ensure your business is compliant and protects it at audit, but it is also often impossible to recover VAT without a valid VAT number.
4) Payment information
Details such as bank account numbers and payment terms should be held within your master data, easing the process of reporting and making payments.
5) Tax rates and special requirements
Master data must include details of the applicable tax rates, rules and regulations for various jurisdictions. Ensure standard rates, reduced rates and exemptions are recorded.
6) Goods and services classifications
All goods and services belong to a particular tax category in each jurisdiction. This category determines the tax rate and other rules for each sale, making it crucial that you have an accurate classification of every good and service your business purchases or sells so that you can apply the correct VAT or GSTGoods and Services Tax treatment.
7) Records and receipts
A host of tax-related documents – including invoices, receipts and tax returns – must be kept on your source systems.
Causes of poor master data
Inconsistent inputs lead to inaccurate or incomplete outputs.
One major challenge with master data is that every department within a business has different needs, processes and objectives. This results in master data that features gaps, errors and outdated information.
Even within your tax team, you’re likely to have a VAT team, direct tax specialists and a transfer pricing setup. Each will view tax through a different lens and the resulting data quality is impacted.
It’s also true that master data has never before been as important to tax teams and wider businesses than it is today. As such, the required emphasis has often not been placed on accurate and reliable data capture and entry.
That’s why many large organisations are now embarking upon transformation projects, often with master data at their core, to drive new levels of visibility, speed and accuracy.
Why is tax master data so important?
The digital revolution has arrived in the tax industry and several trends are pushing data to the forefront, including:
1) Modern tax solutions underpinned by automation
Best practice for all large companies is to use an automated solution for tax determination, application and reporting. But without the right data that shows who you are doing business with, their tax status and details of the transactions in question, it’s impossible to accurately determine applicable taxes. Your business may have liabilities around the world, but without the data you need you’ll be powerless to comply or to maximise the potential of your solution.
2) Data-led advances by tax authorities
In their quest to close the VAT gapThe difference between the amount of VAT revenue due to a tax authority and the amount actually collected, tax authorities are increasingly using data to search for errors and anomalies in tax data. Using technology-enabled systems allows authorities to automate the analysis of data to quickly and easily identify issues that require further investigation – and potentially penalties. Data drives visibility and simplifies the pathway towards resolution. And, most importantly for authorities, significantly increases their ability to recover losses and increase revenue. The answer for businesses? Ensure your data is always complete and correct.
3) An expectation of 360 visualisation
Modern tax professionals no longer rely on Excel spreadsheets and manual processes. Instead, the mandating of e-invoicingElectronic invoicing - widely referred to as e-invoicing - is the exchange of a digital document between a supplier and a buyer. E-invoices are issued, transmitted and received in a structured data format that enabled automatic and electronic processing. They contain data in a machine-readable format so that an AP system can read an invoice without manual data entry, leading to faster and more efficient invoicing. and real-time reporting has laid the foundations for the rise of state-of-the-art visualisation platforms. Tax teams now expect to an instant and intuitive overview of their tax data via an online solution or app. But investment in such a piece of technology will be wasted if your master data is poor. Every single detail is crucial from transactional data to tax determination. As we often say to clients, garbage in equals garbage out.
Next steps
It goes without saying that clarifying and formalising internal processes can go some way towards improving your master data position.
But for the greatest gains and to achieve optimum performance, you’ll need to invest in suitable technology and systems to cleanse, complete and check your master data.
Our flagship LimeLyte® Entity Manager tool is designed to do all this and more; it’s capable of processing and validating up to 100,000 VAT numbers in a single session and works around the clock to refine and complete your wider master data.
There are other solutions on the market and within our suite, so if you’re looking to turbocharge your master data in 2024, get in touch.
