The rise of continuous transaction controls (CTCs)—and the increasing number of other digital real-time controls being implemented every year—makes managing indirect tax more complex and riskier than ever. In many jurisdictions, you must now ensure that your assessment is correct at the moment of the transaction, if not before. There’s no time to review it and reconcile it later.
To effectively address this complexity and ensure compliance across disparate jurisdictions and products, organizations must keep pace with evolving technology and compliance requirements. They must undergo a digital transformation of their tools, processes, skillsets, and the way their entire organization approaches indirect tax.
The tax, accounts receivable, and accounts payable teams must be aligned with other functions throughout the organization, from finance and procurement to operations, IT and beyond. Indirect tax management can no longer be left in a silo to the “tax people”; organizations need to align real-time tax and supply chain processes throughout the entire organization.
“You can’t afford to have silos within the company anymore. That will get you in trouble in the long run,” says Tracy Davis, Retail and Diversified Vertical Lead at Thomson Reuters at a recent webinar on Digital transformation for end-to-end indirect tax compliance.
That’s where digital transformation comes in. Aligning these departments and simplifying tax management requires an all-in-one indirect tax management system that automates calculation everywhere you do business, across all your products and services.
The growing impact of non-compliance
The real-time data you submit to meet these CTC mandates must be timely and accurate. “Every time you submit an invoice to the tax authorities, you’re making a final tax position,” says Vanessa Grazziotin Dexheimer, Indirect Tax Specialist at EY. “You’re saying in this sale, this is the applicable tax, and this is what you’re reporting to the government. So, the tax calculation that you’re doing at that point must be correct because you’ll not have time to do reconciliation later.”
Of course, incorrect calculations during invoicing or ordering can affect your bottom line through delayed payments, overpayment, or fines. It could even lead to jail time for company heads. In Brazil, incorrect invoicing can result in goods being impounded.
Non-compliance can also impact your company’s reputation with the public. People may perceive an accidental underpayment as a willful attempt to circumvent paying what the company owes to the communities where it does business.
Getting granular data before the taxing authorities have it
This new compliance model requires sending unprecedented amounts of data to tax authorities in real-time entities, which no longer just audit your company based on aggregated data submitted long after an event. It also audits what your vendor and customers submit. Modern tax authority entities have automation and analytics capabilities that allow them to compare all that data and issue assessments much faster than they did before.
You must be sure you know what they’ll assess before they do. “If the government knows about your business sooner and more granularly than you know it, that is a quite uncomfortable position to be in,” says Nazar Paradivskyy, e-invoicing and CTC Specialist Team Lead at Pagero.
Aligning around better solutions and best practices for CTC mandates
As we’ve seen, the implications for noncompliance go well beyond solely paying a monetary penalty. So, simplifying the complexity must also go beyond the tax department. The sooner a company realizes that, and builds a tech stack that helps unify tax management, business automation, and supply chain processes, the better.
This critical digital transformation effort begins by assessing your current indirect tax processes and identifying areas that can be improved through digitalization.
Is your transactional data, such as invoices, ready for electronic invoicing and real-time submittal to tax authorities?
Are your customers receiving invoices according to their preferences and requirements, so that you are being paid on time? Are the invoices you are receiving reflecting the underlying business transaction so that you don’t overpay?
Every time you issue or receive an invoice, can you do the tax determination right then, and will that determination consistently be correct?
If the answer to either is no to any of these points, it’s time for a transformation. The result of this transformation should be a single indirect tax management solution that handles all your jurisdictions, products, and requirements across the company, including the needs of various stakeholders such as tax and finance.
Addressing one part of this complex process, or one jurisdiction, at a time is costly and leaves seams in your processes that will create inefficiencies. Confronting it with a complete, end-to-end solution that aligns various departments can create the efficiencies you need and ensure compliance across the company.
Meeting the future with confidence, not complexity
Many companies are hesitant to invest in technology upgrades, instead working hard to apply outdated processes to current—and future—requirements. But these new real-time mandates provide you and organization leaders with the impetus to evolve to meet the future. These new requirements are also expanding the impact of indirect tax management. This business impact, including increased operational expenses, negative impact on working capital, and possible criminal charges, makes the need for digital transformation imperative.
This means transformation must be a when not an if. When it’s time for that change, Thomson Reuters ONESOURCE Indirect Compliance software can help. It automates sales and use tax, GST, and VAT compliance in one single, centralized solution to improve the accuracy of tax returns and filings—and aligns all departments for tax management.
The number of CTC mandates is only going to increase in the coming years—in 2025 alone, there will be at least 27 new, expanded, or otherwise significantly updated obligations mandates. So now is the best time to ensure all stakeholders are aligned through automation that ensures accurate, real-time reporting.
