The digitisation of tax is a major development worldwide – benefiting not just tax authorities but the companies which meet their demands.
E-filing, e-reporting, e-audits – it is easy to see why digitisation is popular with the authorities. It gives access to both more detailed and summarised information, which their systems collate in near real-time. This allows them to drill deeper, identify mismatches and identify the inconsistencies between companies' tax declarations. It should also reduce the cost of revenue collection.
For companies having to comply with new regulations in multiple jurisdictions, it can be daunting. However, our experience helping multinationals demonstrates that digital tax and accounting systems can deliver cost benefits for the authorities and the companies assessed. By ensuring that global platforms respond to local requirements, companies can make tax digitisation integral to their wider automation strategy. Streamlining tax and accounting processes before a technology implementation reaps the greatest reward.
Brazil was one of the first countries to move to a digital tax system some 20 years ago and remains the most advanced. Corporate taxpayers must communicate every transaction in an electronic format.
Today, the authorities are using the enormous amount of data collected since 2000 to search for errors - deliberate or otherwise. In future, it is likely that e-audits will be triggered when things don't add up.
Companies' software must meet all Brazilian requirements. Multinationals will want to utilise their existing global accounting platforms as far as possible in dealing with tax. In practice, they will need to add a raft of locally-specific tools. It is extremely important to obtain a detailed understanding of local compliance regulations and check that existing software providers can meet requirements.
Local expertise can help avoid other pitfalls. Tax registration is a lengthy process in terms of process steps and creating the interface with the tax authority platform. Also, even if no transactions have taken place, companies must file a tax return once they have set themselves up. In our experience, companies and multinationals often presume the opposite – and can find themselves falling foul of the law.
In mainland China, many clients face significant challenges when starting out. All businesses must use government-certified tax software – known as Golden Tax - to generate VAT invoices. Reconciling companies' own accounting data with what has been reported through the government system demands significant resources and robust change processes.
Similarly, Europe's journey towards digital tax reporting has led some companies to change their internal systems. Spain now requires VAT information to be reported digitally, while Hungary and Italy have adopted electronic invoicing.
The availability and sourcing of data has created problems. Some companies are not using a single source or format for collection, which often leads to discrepancies in the bigger picture. Other firms are not collecting enough data to meet the new electronic requirements. They must face the challenge of how they collect new data while scrambling to backfill missing information from old transactions.
A process review is critical before any new software is rolled out – six months before a major change in reporting is extremely challenging. Our most successful clients are those who plan up to two years ahead.
Once the initial hurdles are overcome, digitisation streamlines tax systems and ultimately should make things easier for the payer.
In India, Goods and Services Tax returns are 'auto-populated.' The information just needs to be checked before clicking an approval box. Spain and Australia are using artificial intelligence to respond to queries about subjects such as international VAT regulations. In Poland, electronic reporting is intended to replace filling in VAT returns altogether.
Change is set to continue as more countries join the digital revolution and launch e-matching and e-audit services. Some, like China, plan to go even further by harnessing blockchain technology for tax reporting.
With adequate preparation and access to local expertise, successful companies will embrace the opportunity rapid technological change presents to streamline their processes and systems.
Ultimately, this should lead to smoother dealings with tax authorities worldwide and efficiency savings, making the initial pain worth it in the end.
- Do you have the resources to cover all your jurisdictional reporting requirements safely, efficiently and quickly?
- Is your global accounting platform equipped to address critical local regulation?
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.