Navigating the landscape of indirect tax compliance is an ongoing challenge for businesses worldwide.
While advancements in global commerce and social media have unlocked the potential for businesses to achieve international growth, dealing with complex rules from over 80 tax authorities who apply destination-based consumption tax principals can be challenging. From charging the indirect tax rate of each consumer’s country when making a sale, to accounting for that tax with the relevant authority of that country, the requirements can be burdensome. Considering these ever-evolving tax regulations and the threat of financial claims and reputational damage, remaining compliant is no small feat.
For our latest report – Compliance’s Complexity – we conducted a comprehensive global survey of 580 individuals with an influence on indirect tax decisions within their organisation.
Here, we investigate how businesses around the globe, all with an annual turnover of at least US$50 million, manage their indirect tax obligations, their attitudes towards risk, and the transformative power of technology and data quality in ensuring tax compliance.
Openness to Indirect Tax Compliance Risk
The survey offered an interesting glimpse into how businesses perceive the risks associated with indirect tax compliance. It revealed that 74% of respondents acknowledge that their business showed a willingness to tolerate risks in this area. This predisposition towards risk is striking, given that non-compliance ultimately tends to result in potentially severe damage to a company’s reputation, financial claims, government investigations, or even criminal proceedings.
In particular, the survey also uncovered the widespread issue of non-compliance, with a staggering 75% of businesses admitting they had identified and rectified errors within their organisation. Additionally, when errors were unearthed following government investigation or audit, 62% of businesses were found to be publicly non-compliant. These findings shine a light on the pressing issue of non- indirect tax compliance across various industries and regions.
Skills and Talent
Our survey also underscores the pivotal role of skills and talent in the realm of indirect tax compliance, with 39% of respondents identifying skills gaps amongst their employees as a significant barrier to achieving compliance. A substantial 78% of respondents also recognised the importance of internal skills. Still, at the same time, 49% of the sample believed that addressing skill gaps, particularly in using technology and technical IT systems for tax automation, was crucial for improving compliance. Despite these gaps, the survey revealed that 77% of respondents could effectively manage changing VAT regulations and real-time reporting, leaving a significant 23% facing challenges in these areas.
Technology and Data Quality
In pursuit of successful indirect tax compliance, the role of technology and data quality was found to be paramount. Respondents emphasised the critical importance of data processes, with 72% considering them vital for achieving effective compliance. Equally crucial was the deployment of technology, with 74% of respondents believing that an end-to-end tax engine was important for tax compliance management.
However, the survey also revealed that data quality represents a barrier to compliance, with 41% of those surveyed citing it as the area with the most gaps. In today’s digital age, this emphasises the challenge for businesses to successfully maintain accurate and up-to-date data for indirect tax compliance purposes.
The survey paints a complex and nuanced picture of indirect tax compliance within the business world. Despite understanding the potentially severe consequences of non-compliance, many businesses tolerate a certain level of tax compliance risk in their approach. This tolerance can stem from many factors, from prioritising expansion over compliance, to a lack of in-house skills, to balancing the additional efforts and costs, realizing full compliance is hard to accomplish due to human and data errors.
Skills and talent gaps, particularly in technology-related areas, present significant challenges for businesses striving to achieve compliance. Bridging these gaps and training employees to gain the right skills is critical to success in this area.
The world of global business is extremely complex regarding tax, with challenges stemming from the sheer number of indirect tax jurisdictions and the differing rules between these jurisdictions. Looking ahead, businesses must balance risk-tolerant and risk-averse strategies, while addressing skills gaps, and implementing technology solutions.
For example, a global end-to-end tax compliance management solution can handle all types of indirect tax compliance requirements across numerous jurisdictions, helping businesses stay on top of their indirect tax obligations amidst this ever-changing landscape.
To learn more, download the full report, ‘Compliance’s Complexity’ here.
Please remember that Tax Matters provides information for educational purposes, not specific tax or legal advice. Always consult a qualified tax or legal advisor before taking any action based on this information. The views and opinions expressed in Tax Matters are those of the authors and do not necessarily reflect the official policy, position, or opinion of Vertex Inc.