Customer tax withholding and reporting obligations are steadily growing wider, deeper and more complex as jurisdictions globally look to bridge the tax gap.
The growing challenge of compliance is being further exacerbated by a customer tax data deficit, triggered by businesses’ internal silos and legacy systems. These obstacles prevent organizations from achieving efficient and error-free flows of customer data throughout all processes impacting documentation, withholding and reporting obligations. The customer data needed for this “end-to-end process” starts with the customer onboarding process, and includes all data needed to fulfill the organization’s withholding and reporting obligations and to provide a seamless customer experience.
This situation isn’t helped by a corporate mindset that sometimes fails to appreciate the complexity of customer tax reporting. With any other kind of reporting compliance, an organization needs to get one thing right – the report itself. Customer tax reporting, however, has three discrete components: tax documentation compliance, withholding compliance and reporting compliance.
Each aspect requires a trustworthy, end-to-end data flow in order to be achieved. Yet rather than being joined up, customer withholding and reporting is often decentralized and sits within other operations, introducing yet more complexity.
It is possible, however, to overcome these challenges by reimagining the three data-driven tax operations processes – tax document and reference data processing, withholding and remittance processing, and aggregating data in order to report to clients and tax authorities – into a single customer tax data reference model.
By focusing on these processes, and creating a centralized, business-wide single view of the truth, organizations can obtain the data bedrock required to remain compliant in an increasingly transparent and digitalized world.
Step 1: Adopt an end-to-end approach to tax documentation and reference data processing
At the core of any efficient withholding and reporting operation lies the capture of accurate customer tax documentation and reference data.
The key here is to take a step back and carefully consider all the regulatory requirements an organization may be subject to before creating a single, centralized system of record. This system of record should be used to store all the customer data needed to achieve compliance across the jurisdictions in scope. The more an organization is committed to a single view of the truth, the stronger the organization will be in determining compliance with applicable withholding and reporting regulations.
This customer data includes the relevant data points from each tax form that impact and support withholding and reporting decisions in downstream processes, payment systems and tax reporting applications. Regulatory requirements typically fall into two categories: US and non-US withholding and reporting obligations; and customer tax information reporting under Foreign Account Tax Compliance Act, Intergovernmental Agreements and Common Reporting Standard regulations.
But collecting relevant client reference data is not a one-off task. Regulation dictates that this information should be systematically monitored for changes in customer circumstances which could impact the validity of tax documentation in the weeks and months following the initial withholding. There may also be a need to update underlying beneficial owner information and ownership percentages.
Tax documentation and reference data processing should, therefore, be flexible and agile enough to cope with all these changes without adding unnecessary complexity. The reference data system of record should provide all reporting classifications needed, including the presumption of classification for undocumented accounts.
Customer onboarding is effectively ground zero for both data capture and customer experience, so it makes sense to ensure this process is as streamlined and efficient as possible, integrating anti-money laundering (AML) and Know Your Customer (KYC) requirements with tax document and reference data processes.
With the vast majority of onboarding still a paper-based activity, optical character recognition (OCR) technology and digital tax onboarding tools can be leveraged to speed up data capture, minimize or eliminate manual data entry and increase data accuracy.