Wading through huge swathes of data is nothing new for businesses looking for valuable insights and intelligence
But, as entire economies become more data-driven, with government-enforced tax controls demanding increasingly granular levels of transactional information, there is a growing need for analytics solutions capable of handling this data, securely and at scale.
Fortunately, innovations such as artificial intelligence (AI) and machine learning mean that businesses are able to scale up their analysis like never before to ensure the right data is presented in the right format for the right audience. Tax reporting is becoming more complicated as different countries have different requirements. With increasingly strict penalties for non-compliance, businesses everywhere need to consider their analytics capabilities if they hope to keep up.
In an effort to close their respective country’s VAT gap, tax authorities across the world are using every tool at their disposal to collect all revenue owed to them. Real-time VAT reporting, for example, is growing in popularity, with many tax authorities employing continuous transaction controls – such as electronic invoicing and audit reporting – to insert themselves ever closer to companies’ transactions.
Originating in Latin America over a decade ago, such controls are now being adopted throughout Europe. Italy, for example, was able to successfully recoup as much as €1.4 billion in VAT revenue in the first six months since introducing mandatory e-invoicing, while Poland’s Ministry of Finance has also indicated its intention to implement a CTC system, based to some extent on the Italian model, at some point in 2021. France is following suit, too. E-invoicing is already mandatory for B2G transactions, and the French government has announced its intention to extend this mandate to cover all B2B transactions by 2025.
From something as simple as submitting a VAT report, to electronic invoicing, and having to record every single transaction in real time, this presents international businesses that operate across different jurisdictions with the challenge of keeping up with rapidly changing rules and regulations. In order to comply, a company’s transaction data needs to be clean, correctly stored, and available to be retrieved and submitted to the tax authority at a moment’s notice.
Technology plays a critical role in enabling taxpayers to meet these challenges. For its transactional data to comply with these various legislative requirements, an organisation’s technology investments need to give an accurate picture of its entire finances at any point in time, linking together each of its disparate systems to synchronise and communicate accurate financial information.
The digital transformation of tax reporting that began in Latin America over a decade ago is rapidly spreading across the globe, as the ability of governments to use technology to close the VAT gaps continues to increase. Indeed, tax reporting, and the requirements for ledger and inventory data are only set to become more complicated.
The UK has introduced its Making Tax Digital (MTD) initiative, for example, while Poland and Norway are expanding their requirements for SAF-T, the electronic XML-based tax reporting standard. And, while measures such as MTD and SAF-T might not appear as intrusive as some CTC requirements, there is a level of complexity about the types of data they require from a company’s ledgers and ERP systems, and the format they require this data in – particularly for audit purposes.
Addressing all of this will put additional pressure on an organisation’s IT team, of course. Multinational companies in particular have a growing number of regional regulations to contend with, each of which needs data to be submitted in a specific format. Accommodating these requires companies to constantly make changes to their reporting processes. It’s essential, therefore, that companies are able to fulfil the requirements of each individual country, without disrupting their own internal processes. It’s here then, whether reporting, invoicing, or archiving, that sophisticated analytics is needed to ensure the right data is pulled from the right systems and converted into the prescribed format – all in real time.
A need for understanding
AI and machine learning are already used by some tax authorities, allowing them to consume and analyse huge amounts of transactional data to let individual taxpayers know exactly how much they have to pay.
These technologies also have an important role in automating the data analysis that underpins an organisation’s reporting and invoicing processes. However, the variations and nuances of regional tax regulations mean AI and machine learning alone will never be enough. Analytics solutions should, therefore, be built upon an understanding of the regulations, and of how they’re changing and what this means in terms of data requirements. By translating legal jargon into technical specifications, they will enable IT teams to adapt their company’s reporting processes as necessary and avoid the risk of non-compliance.
Tax authorities are inserting themselves ever closer to business transactions. Over time, as governments become more digital and data-driven, businesses everywhere will need more sophisticated technology solutions in order to stay on top of new and changing tax-reporting regulations. At the same time though, it must be remembered that, however advanced it becomes, machine learning will never be a replacement for in-depth market knowledge.
About the Author
Oscar Caicedo is VP Product Management of VAT at Sovos. The Sovos Intelligent Compliance Cloud is the first complete solution for modern tax, combining tax determination, e-invoicing compliance and tax reporting on Sovos’ reliable, scalable and secure S1 Platform. Sovos customers are more adaptable to regulatory change, more connected to the data they need to comply and more global in their approach to tax. As a result, Sovos is trusted by more than half the Fortune 500, including many of the world largest manufacturers, retailers and banks and insurance companies.
Featured image: ©Prokopenko