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Despite the Covid restrictions understandably meaning this year’s VAT Management Summit was a virtual event and we missed out on the chance to meet up with friends and colleagues from across the tax industry, we were nonetheless delighted to take part and contribute to an insightful debate.
Our founder and global solutions architect Andrew Bohnet took part in an excellent panel discussion – Achieving Operational Excellent in VAT Management – on Day 2 alongside acclaimed tax experts from TMF Group, Thomson Reuters and eClear.
Here are five things we learnt from the discussion:
1) Tech is here to empower – not replace – tax professionals
Technology has been available for many years, but unfortunately many tax professionals still don’t know how to use it. Indeed, some feel threatened that it is here to replace them.
But this is simply not the case. In fact, technology empowers members of tax teams; freeing them from repetitive, manual processes and enabling them to add more value than ever before to their organisations.
What’s more, experienced tax professionals will always be required to manage technology and ensure its immense processing power and accuracy can be harnessed to deliver exceptional results.
Andrew explained:
“One problem we often see is a client with a tax problem goes out and buys a tax reporting solution. But if you put a bandage over an infected wound, it’s still an infected wound. There may be fantastic products on the market, but you still need people who know how to implement them.”
2) Tax processes will come under closer scrutiny
While tax authorities have historically placed their greatest focus on compliance, emphasis will start to turn towards processes.
As digital reporting becomes more widespread, authorities will be able to capture more data, more reliably than ever before. In fact, tax authorities are moving towards the ability to check every record for every client for every tax return. But they will want to know if that data is accurate with evidence of a digital link from source to return. In turn, they will increasingly investigate the processes driving tax data to ensure their precision and reliability. Regulators in the financial services industry already prioritise the accuracy of data and it was suggested by the panel that tax is heading in the same direction. If you are unable to provide evidence that your data is accurate, can you really claim it is?
3) Solution reviews the ‘quick win’ for multinationals
Andrew was asked what the quickest win would be for a multinational looking to improve the way it deals with tax. He was certain that instructing a tax expert to complete a solution review of the current configuration will have the greatest impact on an organisation and its future performance.
“A solution review takes a holistic approach to get a feel of how a company is working. It looks at all aspects of the tax journey including the tax determination, the master data, all the processes that touch transactions where tax can be influenced, the interfaces that move data between systems and of course how data is extracted for invoicing or reports.
“We have to ask who and how are these processes or systems maintained, what influence does tax have on these decisions and if that digital link is maintained or, as we often see, is broken or data replaced based on flimsy and often hard coded logic.
“Once the review is done, it gives better visibility and either shows you where your risks are or confirms that what you’re doing is the right thing. There could be a lot of opportunities within the existing solution that aren’t being utilised. Our reviews typically follow three key steps:
- Observe: We get a feel for the solution or process, identify risks and ask further questions.
- Recommend: We identify any quick wins and make a further recommendation based on our experience that also factors in the client’s circumstances. There is no point suggesting an expensive tax engine if they are only using a small accounting product.
- RAG (Red Amber Green): We score everything red, amber or green to highlight the important areas for change. Obviously green means nothing needs to be done; even if we have found a risk it could still be green as the client may have an effective process for managing that risk already in place. But if we flag something as red we feel the particular observation is either currently causing or there is a high chance that it will cause a compliance risk or use unnecessary resources
“I estimate four out of five businesses are teetering on the wrong edge of compliance when it comes to VAT – and in many cases they have already fallen over the edge! They need some help in finding the areas in which their tax processes are currently failing them. Look at processes and question how they are being carried out. Some well-known companies are still using people to create invoices manually in Excel! The sooner we are able to work with a business, the sooner we can expose risks and issues and act upon them.”
4) No time for mistakes – businesses must get tax right first time
The increasing dependence on live reporting or SAF-TSAF-T (Standard Audit File for Tax) is a file type based on the XML standard. It is created in a standard readable format from data exports taken from accounting records. SAF-T is used internationally to ensure the fast and secure digital transfer of tax information. It is known for its high level of security, ability to simplify the collection of tax data and simple readability due to its standardised format. type reports in many countries means the traditional cycle of transactional data appearing on ledgers at the month end close, being manually manipulated and compiled into tax returns to be sent to tax authorities is becoming less common.
Instead, with live reporting, there is very little data that can still go from ledgers to returns submitted to the tax authorities. This effectively means that access to data for tax authorities starts much sooner than it normally would. Where once there was time to correct invoices and tax codes, this no longer exists.
As a result, tax teams need to be more focused on the accuracy of their data and determination. Data needs to be correct at source so at the point it hits ledgers it gives an accurate representation of a company’s transactions.
Andrew added:
“It means you can’t wait until the end of the month. One of the underlying problems with compliance is reporting is based on General Ledger data and it should be based on VAT Ledger data.
“If you’ve got someone making mistakes, by the end of the month you’ve got a lot of mistakes and no time to go back and correct them. In the future, tax reporting will become a real-time requirement with tax authorities regularly addressing issues. The end of the month should be just about tying up any loose ends.”
5) Tax will go from the basement to the penthouse suite
Tax teams often struggle to secure additional budget for technology from the C-level, but the panel agreed this is slowly starting to change.
It was said that, in many cases, only three issues are sure to grab the attention of business leaders: tax legislation, anti-corruption and human rights breaches.
But herein lies the opportunity for tax professionals to educate the boardroom of the seismic impact tax can have on an organisation, including the potential for technology to eliminate operational pain points, inefficiencies and the risk of business-critical non-compliance.
The sooner tax professionals can get themselves to the negotiating table the better, especially during major projects such as ERPEnterprise resource planning (ERP) is a type of software that organisations use to manage main business processes. implementations. The direction of travel from tax authorities means tax input is becoming increasingly important to core business operations and, over time, will become embedded within them.
In the future, tax teams will have more opportunities than ever before to lobby decision makers for a larger share of an organisation’s spend on technology.
Jacek Szufan of TMF Group illustrated the point better than we could have hoped to by saying:
“Hindsight, insight, foresight. Tax can use that to go from the basement to the top-floor penthouse suite,” adding: “The golden age of information from a tax department is coming – probably in the next two years.”
We look forward to taking part in the summit again next year (in person of course) and discussing how that journey to the penthouse suite is shaping up!
