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Why you should review the current state of your indirect tax determination

A common source of anxiety for tax professionals the world over arise from those nightmare-inducing questions: ‘am I ready for the next indirect tax audit?’ and ‘can we comply with new regulations for indirect tax across the globe?’

In the midst of a worldwide pandemic, such questions may be temporarily set aside. But as the financial crisis caused by Covid-19 comes to the fore and governments are tasked with servicing mounting debts and rebuilding broken economies, the mechanism of levying tax may represent an attractive means to wade through the mire. For example, I’d expect many countries to lower tax rates in the months ahead to trigger an increase in consumer spending.

With rates and regulations likely to be changed frequently across dozens of countries over the coming months, tax professionals should be asking these important questions instead:

  1. Are your processes and procedures for tax still up to date and valid?
  2. Is your tax technology future proof when it comes to determining indirect tax?
  3. Can your system handle the growing demand of data and does it offer the speed required to report indirect tax?

To answer these questions, you’ll need to carry out a review of your current indirect tax model or framework.

Processes for indirect tax are driven by many factors, including legislation, business processes and system capabilities. These are documented at the start of a new system implementation – which in many cases could be up to 10 years ago now – and stored in a repository, which no one will maintain let alone read once complete.

However global indirect tax legislation, business processes and systems all change over time. At some point it’ll be time to dig out these dusty documents and review them. But to do so, you’ll require tax compliance expertise, business process knowledge, an understanding of the functionality of your system and much more.

You can’t take this challenge lightly. Make sure you bring the right group of experts together – either colleagues or external partners – and set aside enough time to thoroughly review what you’re working with.

Once your processes review is complete, you will need to dig into your technology to:

  1. Check what’s recorded in the process’ documentation is actually happening in the system.
  2. Identify how tax decisions in the system are stored, maintained and used.
  3. Review the tax determination trigger points for your business transactions.
  4. Review your tax data within your master data, tax code, accounting, tax registrations, party addresses, product and services tax classifications.
  5. Review your reporting system’s capabilities related to reconciliation and tax returns. Many companies report tax against their GL, whereas indirect tax is a transactional tax so should be reported against the transaction itself.

All this will result in a deeper understanding of your ‘as-is’ situation and help to identify and prioritise your key requirements. But be warned; such a review is time consuming and requires specific skillsets to input accurate and relevant information.

At Innovate Tax, we have recently completed reviews for multinational organisations from the oil, entertainment, telecommunications and banking industries – even while the world has been in lockdown. Our team has the ability to work remotely, communicate digitally, follow a dedicated delivery schedule, stay motivated and keep your team engaged at every stage of your review.

With many years of experience in indirect tax compliance, functional systems transactions, technical systems behaviour and best-in-class project management, our review of the indirect tax determination within your current setup and the level of compliance it gives you will help you ensure your business is prepared for the future.

About the author

Eddie Reijners is internationally recognised as an indirect tax automation expert, having worked with all the industry’s largest technology providers and overseen dozens of successful implementations.

He has worked on global tax engine integrations including Thomson Reuters OneSource, Vertex O-Series and Taxware in EMEA, APAC and LATAM on multiple ERP platforms.

At Innovate Tax, Eddie has led the business’ transformation from established Oracle specialists to working across all ERP solutions and third-party tax engine applications.

He takes an active role in all major projects, helping to design and deliver bespoke features within the
Innovate Tax solution that enable clients to meet their specific goals. He leads on our deep tax system and process assessment as well as coordinating solution implementations.