As time goes by, with many governments needing to reduce their budget deficits and rising national debts, collecting all tax revenue due is critical for authorities. So logically, they’re becoming increasingly strict on the accuracy and timeliness of tax payments and enforcement of tax compliance is on the rise in many countries.

How Serious Is the Problem for Governments?

There are good reasons for increased scrutiny from authorities. For example, in a recent study for the whole of the European Union, the European Commission estimated the loss of revenue from value-added tax to reach a staggering €160 billion. The increased scrutiny has been visible primarily in Germany, EU’s economic powerhouse, but other countries are fast following the examples, like Spain, UK, Poland, Croatia, just to name a few.

In the US, even though the new administration promises to reduce the burden of regulations, tax authorities are well known for their rigour and severity against businesses who failed to comply. And the levels of debt maintain high pressure for all administrations—federal, state, local— to collect all the tax revenue they can claim and enforce compliance.

What Are the Implications for Businesses?

For companies, this increased scrutiny from authorities requires more attention to their tax processes, and tighter controls and surveillance to ensure they pay the right amounts due, and in the correct period. Indeed, they’d rather not be found non-compliant, as they could be submitted to hefty fines and increased scrutiny going forward.

The problem isn’t a small one, and looking at companies’ sales revenue, tax spending is on average found to be the second element of the cost after the direct cost of sales. Almost 2/3 of western companies declare in recent studies that tax expenses is a significant burden on their business and they show concern that it will continue to increase.

It’s not a simple problem, either. Tax regulations are not simple and as masses of transactions are recorded, errors in applying the correct tax rule, rates, deductions, and posting are not insignificant and can generate compliance issues.

How Can Technology Help? ERP? GRC?

Setting up rules rigorously in business systems where transactions are processed (typically an ERP or specific billing or payment processing systems) limits the risks of failing tax compliance, but this does not fully guarantee protection against human errors, be they in setting up tax rules or while entering transactions, or against unforeseen technical incidents.

Avoiding such problems can require an amount of effort from personnel in charge of controlling tax transactions compliance, using the more common means, such as reviewing voluminous reports and calling for manual processes to gather all related information and make the necessary corrections to tax rules and transactions. In addition, they need to ensure their actions are documented for further audits and any needed justification to tax authorities.

So increasingly companies look to use more automated dedicated applications that can regularly and automatically screen high volumes of transactions, to identify potential compliance issues based on tax checking rules. They have capabilities to automatically alert the persons in charge of controlling tax, and supervisory personnel in finance and compliance departments.

These are Big Data solutions, as is our recently launched SAP Tax Compliance solution based on SAP HANA.

Not only must these solutions be capable of processing high volumes of data, but they also need to deliver flexibility and extendability since companies are submitted to a variety of tax regulations (VAT and other sales tax are the most obvious). And as the business grows internationally, becomes digital and accelerates in a context of increasing regulatory pressure, companies need the ability to set up all tax checking scenarios meeting expanding and fast evolving needs.

Key Characteristics of a Tax Compliance Solution

Last but not least, it’s important to check a number of key characteristics as you look into a tax compliance solution, to ensure that:

  • It can easily integrate to business systems to seamlessly screen transactions subject to tax
  • It can be optimized to avoid raising excessive numbers of false alert,
  • It is easy to use for the personnel in charge, so that they can easily investigate potential tax compliance issues, and implement corrections with the required traceability
  • It adapts to individual technical choices and roadmaps, and can be used either on premise or, more and more, in the cloud

In Summary….

Tax compliance can be challenging as companies expand their business and international footprint, especially as authorities increase their scrutiny, tax regulations become more complex, and fines are significant.

When choosing technology to help mitigate this risk, companies should ensure they’ll be able to process high volumes of data with accuracy and velocity, so that corrections can be implemented in a timely manner and tax compliance fines avoided.

With the right solution, they should also be able to streamline their tax compliance process using automation and a flexible tax control framework to adapt to various tax requirements, to have real-time insight into their tax compliance status and any on-going corrections, and protect their business and personal liability of their management.

Learn More

  • Stay tuned here for more information on the recently launched tax compliance offering from SAP based on SAP HANA in-memory computing technology.
  • Learn about all our GRC solutions
  • Read our other GRC Tuesday blogs for more on this and related topics.

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