Mind The Gap – revealing the regional disparities in managing indirect tax compliance

Vertex maintains strong partnerships and alliances with businesses worldwide to ensure companies can save time, simplify tax, and stay compliant as they grow.

For businesses of all shapes and sizes across the globe, managing the complexities of indirect tax can be challenging. The boom in global eCommerce and cross-border trade has accelerated international growth and expansion, but for tax departments, they are now constantly having to grapple with numerous rules and regulations across countless jurisdictions to remain compliant.   

In our latest report – Compliance’s Complexity – we conducted an extensive global survey of 580 tax and finance professionals from business owners to managers, whose companies had an annual turnover of at least U.S. $50 million. The findings of the research show that the regional disparities are stark indeed. It investigates what those differences are across the globe and why certain territories are champions when handling their indirect tax management for compliance.  

From Crawlers to Champions   

The respondents self-identified into four categories when asked to describe their organisation’s indirect tax compliance capabilities:   

  • Crawlers: those who believe compliance is slowing their business down  
  • Chancers: those who can’t fear what they don’t understand  
  • Calculators: those who have a good strategy, so they are willing to take some risks  
  • Champions: those who are protected and future-proofed with an efficient tech-ed approach  

A quarter of UK-based respondents identified themselves as ‘crawlers’, which would suggest that they take a more cautious approach to managing their indirect tax management for compliance (or are perhaps slowed down by other factors, such as lack of appropriate support to aid compliance).   

But where does this leave the remaining UK businesses? Well, 72% of UK respondents describe their business as being risk prone, pointing to a widespread (and concerning) culture of risk taking when it comes to indirect tax in this region.  

That said, when asked about the future, the picture in the U.K. is slightly more optimistic. More than half of UK respondents believe their organisation will become more compliant with indirect tax by 2030, which will (hopefully) bring this risky business to an end, sooner rather than later.    

Across the European mainland, it appeared that most organisations identify themselves as ‘calculators’ and take a measured approach to managing indirect tax compliance. Respondents in this region who faced compliance issues in audits stated the impact was financially material for their organisation. As such, they are taking more considerations in their approach to avoid this risk. In the Benelux region for example, 46% of the respondents believe their organisation has a good indirect tax management strategy, including an acceptable level of risk. In comparison, 39% of those based in Germany, Austria, and Belgium felt the same.  

Interestingly, despite the U.S. having 90% of survey respondents admitting they are more likely to be risk-prone, 43% believe that their organisation is a Champion when it comes to their organisation’s capability for managing indirect tax compliance. With 57% of U.S.-based respondents having centralised controls in place to manage their indirect tax compliance operations, and 48% involving tax in all strategic finance and ERP projects, it’s not surprising that U.S.-based organisations have a strong strategy for managing tax compliance.   

Regional factors can play a vital role in an organisation’s ability to be compliant  

From what we have assessed, it’s clear that there are many regional disparities in organisation’s attitudes to managing compliance for indirect tax. Organisations transacting in the U.S. must comply with one of the world’s most complex indirect tax regimes. With states and local area tax jurisdictions setting its own sales and use tax rules, as a result, each has a different tax framework consisting of different sets of rules for their respective areas.   

Due to this, it’s not surprising that U.S organisations’ rate of adopting centralised controls and technological enhancements is high as a result. 46% of U.S.-based respondents have stated that the implementation of specialist indirect tax management technology has made it easier for them to be compliant and 81% believe that they are well equipped to handle changing tax regulations and digitalisation.   

Across Europe, frequent changes to EU VAT rates during the pandemic, new proposals such as ‘VAT in the Digital Age’, and increased mandates for real-time reporting and e-invoicing are forcing businesses to ensure their compliance strategy is strong. For those businesses based in the Benelux region, 70% of survey respondents believe they are well equipped to manage changes to EU VAT rates while 77% of Italian businesses are equipped to comply with their country’s mandatory e-invoicing rules.   

Although more than half of UK-based organisations believe that they will be more compliant with indirect tax by 2030, the fact that a large number of them perceive compliance is slowing down their business, signifies that investment to improve skill gaps (such as technical IT & tax automation skills), as well as continued adoption of tax technology to be better equipped, is drastically needed to support indirect tax compliance.  

Bolster your strategy to ensure compliance is achieved  

Although circumstances specific to various territories around the world are impacting businesses’ ability to be compliant with indirect tax, it is clear from our research that businesses across the board need to take a proactive approach to enhancing their compliance strategy. Continued investment in training tax teams to learn the necessary skills of indirect tax management for compliance both now and in the future is vital to avoid any unnecessary risks to their growth ambitions.  

To learn more, download ‘Compliance’s Complexity’ here.

Blog Author

Peter Boerhof, VAT Director at Vertex Inc. Vertex's Chief Tax Office (CTO) provides insight regarding the impact of tax regulations, policy, enforcement, and emerging technology trends on global tax department operations.

Peter Boerhof

Senior Director, VAT

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Peter Boerhof is the Senior VAT Director for Vertex. In his role, he provides insight and thought leadership regarding the impact of tax regulations, policy, enforcement, and emerging technology trends in global tax. Peter has extensive experience in international transactions, business restructuring, tax process optimisation, and tax automation. Prior to joining Vertex, Peter was responsible for leading the indirect tax function at AkzoNobel, where he designed and implemented a tax control framework, optimised VAT, and managed the transition to a centralised tax operating model for global tax processes.

He was also responsible for indirect tax planning and compliance for merger and acquisition, supply chain, and ERP projects, as well as the implementation of tax automation initiatives like tax engines and robotics. Boerhof also worked at KPN Royal Dutch Telecom managing VAT, as well as Big Four accounting firms Deloitte and Ernst & Young (EY) advising on VAT compliance and optimisation processes. Boerhof holds an MBA from the Rotterdam School of Management and a master’s in tax law from the University of Groningen.

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Compliance’s complexity: Attitudes and barriers to getting it right in indirect tax

In an increasingly interconnected world, understanding how businesses navigate the complex landscape of indirect tax compliance is paramount. Download the study and find out more on the regional discrepancies of tax compliance.

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