Governments around the world are increasingly mandating real-time digital tax reporting. This trend spans from the growing number of countries requiring e-invoicing and e-reporting to the momentum around a European Union-wide approach through the EU's VAT in the Digital Age proposals. In the United States, the establishment of the voluntary Digital Business Networks Alliance reflects recognition that the digitisation of transaction-related information is accelerating, even without a mandate.
This change should be seen as more than a mandatory requirement; it offers an opportunity for business leaders to streamline their operations, grow, and innovate. While businesses must comply in most countries, moving to automated data exchange with trading partners and real-time tax reporting provides a chance to adopt a data-driven, integrated approach to compliance. This is a strategic opportunity for forward-thinking business leaders, offering the potential to unlock business value with digital approaches, paving the way for more efficient operations and future innovation.
The Lag in Tax and Compliance Technology
Tax and compliance technology has lagged behind other business functions in terms of technological advancement. Marketing, operations, and finance are far ahead, with enterprise resource planning (ERP) and customer relationship management (CRM) already transformed by technology. Both CRM and ERP have become holistic system-of-record platforms offering end-to-end data visibility for business leaders, providing valuable insights. Likewise, tax compliance has the potential to catalyse real opportunities for growth, cost reduction, and gaining important insights. Research by KPMG found that 100% of tax professionals believe data holds the key to better insights.
All too often, tax and compliance remain linked to cumbersome manual processes, with siloed systems and spreadsheets still common, and tax reporting allowed to happen only 'after the fact'. Such approaches are not only expensive but risky, given the increasing regulatory pressure worldwide. Bloomberg's Corporate Tax Survey found that 82% of organisations feel more exposed to tax compliance risk than they were just five years ago. Business leaders also expect compliance costs to keep growing, with 90% anticipating increased costs, according to Accenture, due to evolving business, regulatory, and customer demands.
The Solution: A Single Source of Truth
To deal with these challenges effectively, organisations must move away from manual processes and legacy point solutions towards a cloud-based platform with a 'single source of truth' that provides visibility and insights across the entire business. This solution is more mission-critical than ever due to the regulatory landscape, with regulatory changes often sudden, relentless, and consequential, varying widely across the globe. Factors such as e-invoicing mandates and the growing use of continuous transaction controls (CTCs), as seen with the EU's VAT in the Digital Age (ViDA) package, allow tax authorities to view business activity data in real-time, demonstrating the need for tax technology and regulatory compliance to become 'always-on' functions, not handled after the fact.
The future of tax and compliance will be cloud-based global platforms that are 'always-on' and provide a single view of trusted data. This unified technology modernises compliance to reduce long-term costs and risks and sets the stage for growth. Companies need to spot transaction anomalies, errors, overpayments, and outliers in their data in real-time. Our Sovos Compliance Cloud integrates seamlessly into existing business systems, including ERP, Procure to Pay (P2P), and eCommerce, offering real-time visibility as well as a holistic data system of record. Unified solutions working with existing infrastructure enable business leaders to manage compliance, tax, and regulatory reporting in real-time, meeting the market's need for modernised compliance.
Steps to Modern Compliance
There are five steps to modern compliance, each playing a critical role in business operations to ensure compliance across every transaction, regardless of the market:
- Connect: A compliance solution must connect seamlessly with a rich ecosystem of partners, financial technologies, and government agencies. Compliance should integrate with existing IT infrastructure, not require businesses to redeploy decades of work.
- Identify: Legal certainty of who is engaging in a transaction is foundational for enabling compliance in a digital world. A framework around the use of digital identity ensures privacy and security, facilitating the cross-border transfer of data.
- Determine: Accuracy is critical in compliance. Ensuring every transaction is completed accurately, in real-time, must be central to any compliance strategy.
- Report: Summary reports are moving to more granular data, requiring reconciliation with transactions stored in government systems. Data consistency across the lifecycle of invoice data, from filing to monthly pre-filled filings by governments, to audit files and corporate tax filings, is essential.
- Analyse: Businesses need the same view of their data as the government to ensure audits do not impact operations. Systems must analyse and derive data from every transaction and all taxes to create a single source of truth, mitigating risk and highlighting important patterns.
Driving Growth Through Compliance
Meeting regulatory requirements can be a force for growth rather than just a mandatory function, with compliance happening in real-time 'inside the transaction'. Companies taking a strategic approach based on this insight will gain a significant competitive advantage. An always-on world requires always-on compliance, enabling business leaders to have the same view of their data as governments and regulators, ensuring audits do not disrupt operations.
Gaining this level of insight need not be a burden; the benefits can be vast. Modernising compliance can become a unique strategic asset, delivering rich, real-time data that unlocks business value and helps leaders optimise processes while paving the way for future innovations. In a world where organisations face real worries around tax compliance risk, cloud-based global solutions for tax and compliance can assuage fears and provide a foundation for future growth and innovation.
The shift towards real-time digital tax reporting, driven by global regulatory changes, presents a strategic opportunity for businesses to modernise compliance, reduce risks, and drive growth. By adopting cloud-based platforms and embracing a unified approach to data management, businesses can transform compliance into a strategic asset, fostering innovation and ensuring long-term success in an increasingly complex regulatory landscape.
