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Mitigating tax compliance risks during and post-COVID-19 era

Mitigating tax compliance risks during and post-COVID-19 era

Mitigating tax compliance risks during and post-COVID-19 eraIn Europe and the United States, moving to a complex post-pandemic tax audit era is likely to happen soon.  As a result of the current pandemic, we’re seeing a massive increase in employee-initiated spend that is not going through the regular accounting complaint and control process. This will impact the compliance, digitalisation, and costs aspects of your business.

A year ago, procurement bought 1,000 screens in a single transaction that ran through a financial professional using an accounting system. Today, running decentralised consuming, the same 1,000 screens have turned into 1,000 different transactions that are run by 1,000 different employees, loading massive data entry, classification, and validation efforts on the finance and tax department and compliance team. Gig economy and consumer-style purchasing is here to stay and is on the rise. In the complex post-pandemic era, this trend will likely speed up and increase the exposure of companies and financial teams.

 

The growth of complexity due to the expansion of global operations and digitalisation causes even more strain on our financial infrastructure to maintain compliance with constantly changing regulations. Missing or incorrect data on marketplace transactions and employee-driven spend, including work-from-home reimbursements, employee expenses, and P-card transactions, impacts your ability to optimise compliance and team productivity.

Do you think you dodged 2020 tax audits? Think again…

In 2020, government budget deficits will exceed a potential loss of €164 billion due to the coronavirus pandemic’s effects on the economy.  In most European countries, VATrepresents up to 30% of country revenue sources. Employee taxable benefits also hold a significant volume and in the post-pandemic era will get close attention from the government.  Governments worldwide will have no choice but to raise tax, VAT, and increase the number of audits to find hidden revenue sources.

The rise in transactional volumes will inevitably result in an increased overhead on the tax teams that companies will not be able to ignore due to the rise of upcoming tax audits.

While smarter technology has given birth to a new era in the fight against the VAT gap, it’s only the beginning of a longer shift change. Businesses cannot rest on their laurels – they must become proactive, changing their processes to adapt with the tax authorities when it comes to running the required tax controls on your consumer-style transactions. Failure to do this risks a future headache.

The world is waking up to the data and tax control gaps, and organisations need to ensure they utilise the best technology, process, and measures to mitigate the compliance risk.

According to a short LinkedIn survey we conducted with our audience of VAT and Tax professionals 39% of participants precited that Taxable Employee Benefits will hold the majority of 2021 audits

It is becoming harder to comply with taxable benefits regulations. The sheer number of transactions means that in some countries, like the UK, many companies are sample checking invoices which often results in an overpayment of tax.

Even in companies that have robust internal processes, oftentimes these processes are still not up to par. For example, in the US, the Department of Labor indicated that 39% of yearly audits contained “Unacceptable-major” deficiencies. And in Canada, 70% of the most common adjustments required following an audit are related to errors in the reporting of taxable benefits.

Tax digitalisation is on the rise (due to the fear of infections)

More and more tax administrations are preparing for the potentially prolonged, uncertain, and complex recovery period from the COVID-19 crisis by shifting into digital self-service channels and deploying digital solutions to avoid manual processes. Policy changes and greater availability of digital solutions include the use of an electronic invoice mechanism, signatures, a greater move to electronic forms, and greater access to information.

 

For example, the HMRC recently piloted a new electronic refund system with a selected group of users, to be launched after Brexit. This new system should replace the requirement to submit paper-based refund claims, although the original hard copy archiving requirement will, for now, remain. VATBox, as one of the leading VAT VAT/GST compliance technology platforms, has been selected to pilot this alternative submission process in close cooperation with HMRC.

As we can see, compliance challenges, digitalisation, and employee-initiated spending will significantly affect financial leaders’ role. Every two years, data is doubling. By the end of 2020, we’ll have 44 trillion gigabytes of data.  Tax authorities are demanding more transaction-level data, adding to the complexity organisations face in maintaining compliance. Transparency, transformation, and technology are critical to enabling companies to easily generate this data and ensure that they are compliance and audit-ready every step of the journey.

All these challenges can be solved using powerful technology designed to address tax compliance and data validation. Leveraging a machine learning library that runs seamlessly behind the scenes, providing the ultimate data clarity, integrity, and compliance across all multiple tax regulations is the key to navigating the upcoming era.

If you wish to optimise some of your existing processes in preparation for the post-COVID-19 era, I invite you to jump on a call with our solution expert. Click here to schedule a 30-minute call to learn how you, too, can secure your audit readiness. I’m confident this session will help you pivot to meet your organisation’s goals.

Isaac Saft
CEO, VATBox

Isaac Saft is the Founder and CEO of VATBox. Prior to VATBox, Isaac was the Founder and Chief Executive Officer of KCS, a company providing an innovative solution for internal audit and SOX risk management and FDA compliance. Isaac is a strategic visionary who is skilled at establishing operational excellence and translating conceptual models into growth strategies. Isaac holds a Bachelor’s Degree in Applied Science (B.A.Sc.) in Mathematics and Computer Science from Bar-Ilan University, Tel Aviv.

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