Next-generation indirect tax compliance and reporting: What are the opportunities?

Complying with indirect taxes — with many tax types, thousands of jurisdictions, frequent rate and rule changes, and varying filing requirements — is often challenging due to the possibility of errors, missing deadlines, and incurring penalties and interest. Additionally, manual processes and legacy systems often result in inefficiencies, inaccuracies, and lack of visibility into the compliance process and the underlying data.

For example, for some time sales and use tax, filings and notices were often tracked via a simple desktop spreadsheet, with tabs for each jurisdiction. Since there was no central method to store calendars/jurisdiction responses and no way to get real-time information about a particular filing, it was difficult to meet response deadlines and truly gain an holistic picture of the filing footprint.

Along with sales and use tax, the complexity of other indirect taxes such as property tax, excise tax, and value-added tax (VAT) can add more hurdles to a company’s compliance obligations.

How do additional tax types increase compliance concerns?

Property tax accounts for a sizable portion of taxes paid by businesses. However, property tax is also one of the more manual taxes, requiring tax departments to track, value, and report on potentially thousands of assets across multiple jurisdictions and tax periods. Direct and indirect compliance costs can be significant, and the risks of overpayments, underpayments, and audits can be high.

Excise taxes can create additional challenges since they are often levied by multiple levels of government, are subject to frequent changes and updates, and have complex reporting and filing requirements. As a result, complying with excise tax requires tax departments to manage large volumes of data, transactions, and documents from various sources and systems.

VAT can also create complexity for businesses that operate in multiple countries, as it affects almost every transaction and activity. VAT is also one of the more burdensome indirect taxes, as it involves different rates, rules, and requirements depending on the country, the type of goods or services, and the nature of the transaction or activity. Moreover, VAT systems are subject to frequent changes and updates, as well as stringent reporting and filing obligations, which can vary significantly across jurisdictions.

The C-suite often inquires whether there are opportunities to not only effectively manage these challenges but also help increase a company’s bottom line.

Technology and data reveal compliance gaps and potential

Tax is considered one of the biggest data consumers. Many leading tax departments are updating their outdated and complex ERP systems and implementing the next generation of indirect tax compliance software solutions and automated processes with a tailored approach to help improve cash flow, reduce costs, and enhance tax planning and reporting so they can respond to market challenges quicker. A connected compliance solution can cover the various phases of compliance to help address company issues and provide support so they can also meet their needs through a simplified and coordinated process.

For example, to help transform the property tax function, businesses adopting automated asset monitoring and reporting systems may benefit by reducing compliance costs, decreasing the risk of overpayments and underpayments, and improving audit readiness and defense. For excise tax, implementing integrated workflow solutions that combine data inputs, assessments and reconciliation may address compliance challenges while also gaining transparency in the process.

Roadblocks to putting new systems in practice

Creating and maintaining a connected technology solution for indirect tax compliance can be costly, time-consuming, and risky, as it requires significant investments in infrastructure, software, and personnel, as well as constant updates and upgrades to keep up with changing tax rules and rates but the benefits can bring value beyond compliance.

So how do companies implement next-generation technology and data solutions? Businesses should consider emerging indirect tax solutions including generative AI (GenAI) for everyday tax compliance tasks and a managed service option for global tax reporting.

GenAI can help do knowledge work — now

GenAI is answering complex questions and generating output that can easily complement that of an entry-level tax professional. GenAI can free knowledge workers to perform higher value tasks including assessments, trend analysis, issue and opportunity spotting.

Potential GenAI uses for indirect tax include:

• Tax knowledge management
• Document standardization
• Tax research assistant
• Advanced tax documents search
• Tax process training support
• Tax technology FAQ and support
• Controversy trend analysis
• Due diligence issue spotting
• Tax notices extraction and trend analysis
• Tax documents classification
• Tax data assessments
• Tax return preliminary review and analytics

Managed services for a global tax environment

Many evolving tax departments are outsourcing their indirect tax compliance and reporting tasks to a service provider, which can offer a managed service solution with external resources, knowledge, and technology. Targeted managed services with access to stronger tools and processes can enable companies so they can meet their worldwide reporting responsibilities while also helping to reduce costs. Businesses can gain needed capabilities and operational readiness to help free-up their time so they can address strategic growth goals, perform analysis, planning, and advisory activities.

Getting started with next-generation compliance solutions

Wherever you are in your adoption of compliance solutions, don’t go it alone. Leveraging the collective resources of successful innovators and technology specialists can help take your compliance to the next level. This can also help your tax function stay ahead of an ever-increasing and ever-evolving list of reporting obligations while adding value to the business.