Managing indirect tax data in the digital age
Dealing with indirect tax data is the key to effective indirect tax management. But the variety of indirect tax data required by different jurisdictions and the sheer quantity of relevant data generated by large organizations can present a range of logistical issues.
With the increased reliance on indirect taxes and the “fair tax” debate putting companies’ affairs firmly in the spotlight, we consider some key challenges faced by multinational tax, trade and finance departments.
“Big data”: more and more information to gather, store and report
- In the last few years, the term “big data” has become a hot topic with companies and tax administrations around the world. Big data is the enormous amount of electronic information being produced every minute through a variety of channels. Sources include bank transactions, financial and market reports, orders and invoicing, surveys, customer data, online activities and even weather or traffic reports
- Three important attributes define big data:
1. Volume: It consists of very large data sets
2. Velocity: It is being produced at a tremendous speed by the growing digitization of society
3. Variety: It contains data from many possible sources, including structured and unstructured
- The sheer volume, variety and velocity at which data becomes available present technological challenges in securing, storing and tracking it. But companies that can effectively do so stand to uncover valuable relationships between seemingly unrelated, large and complex data sources
The drive for better indirect tax data
Having accurate global indirect tax data — and examining it critically — has never been more important. What is driving this trend? How can companies use technology to gain more visibility of their indirect tax position? How can they manage indirect taxes and associated costs more effectively? And why is this issue “front of mind” for today’s global companies?
- Governments are increasingly relying on indirect taxes to meet their budgetary needs
- VAT rates have increased worldwide in recent years, and new indirect taxes are being introduced in many countries for sectors such as banking and energy
- The “fair tax” debate has put companies’ tax affairs firmly in the media spotlight – drawing intense scrutiny not only from tax administrations, but also from regulators, investors and even the public
- Tax and customs administrations are focusing more than ever on full compliance and using risk analytical tools to target their resources to tackle tax leakage and tax avoidance. They are collecting more taxpayer data and doing more with it
Tax functions are facing external and internal pressures.
- Businesses around the world are under pressure to improve financial performance. They are increasingly aware of the intense scrutiny they face from a range of internal and external stakeholders
- They are asking more of their tax and finance functions. This includes:
- Challenging them to reduce risks and meet the company’s obligations more effectively, using limited resources. These functions are being asked to go beyond tax compliance
- Asking them to actively contribute to companies’ financial performance by reducing costs, facilitating processes and improving cash flow
- Asking them to play an active role in the strategic decision processes providing financial and non-financial impact analyses
- At the same time, corporate models are changing as multinationals standardize processes across entities and jurisdictions, and also as they rationalize structures and consolidate technology platforms and reporting systems. There is, however, little harmonization in the indirect tax compliance and trade information requested or the format for submission, which can make it difficult for centralized compliance and trade functions to meet these demands
- Gaining visibility over the financial impact of VAT/GST related obligations, risks and opportunities is an important step to establishing an effective indirect tax strategy. It is often a precursor to building a business case for allocating resources, and for making decisions about outsourcing and investments in technology
Advances in technology are creating new possibilities to reduce costs and increase profits. Enterprise intelligence tools are increasing visibility and control.
- As corporations centralize their tax, legal and finance functions to reduce costs and increase efficiency, they are increasingly turning to technology to help them manage and measure tax performance
- In recent years, advanced technologies, such as the Internet and mobile phone applications, have allowed indirect tax obligations to be completed, filed and managed using technology tools. Improvements in managing data can be achieved quickly through simple enterprise intelligence (EI) tools
High performing global traders focus on data
- Trade compliance is critical to companies whose business is dependent on the international flow of materials and goods. The “trade function” within such companies, wherever it sits, is responsible for maintaining key trade master data (tariff classification, country of origin etc.) and for managing any third parties, such as customs brokers, that make customs declarations for the company. It is also responsible for ensuring that all exports and imports are correctly declared to the customs authorities
- Trade data accuracy and improved trade processes further operational agility, improving supply chain speed and reliability, thus enabling accelerated response times
- Trade functions add significant value through improved efficiency and operating cost reduction, actively looking for new ways to use big data to improve international trade processes, uncover cost reduction opportunities and manage relationships
- Through timely collection and meaningful analysis, data can be used to quickly move away from traditional reactive support roles to more proactive and strategic positions