VAT Mechanics: How is Upgrading Tax Technology like Changing a Tyre?

International Tax Review reporter Patrick Wiseman probes that question in a new article, “Popularity of Centralised Data Systems Grow for Digital VAT Compliance,” that cites Vertex Senior Product Manager Aleksandra Bal.

The Digital Shift

“As manual methods of VAT compliance are being replaced with digital formats” throughout the European Union (EU), Wiseman notes that more global companies are upgrading their tax data management and analytics tools to manage compliance and audits. “However,” he adds, “with enterprise resource planning (ERP) systems not being equipped to assist effectively with tax compliance, tax departments are using innovative methods to combat this challenge.”

That’s why tax leaders from a few global companies tell Wiseman that they’re evaluating and implementing new VAT compliance tools. As they should, confirms Aleksandra, who emphasises that VAT is a ‘data-intensive tax’ and that the accuracy VAT returns hinges on the quality of data used in those returns. Given the growing number of countries now requiring electronic compliance for VAT and/or implementing real-time reporting requirements, Aleksandra notes that the right form of tax software enables organisations to centralise tax data, which in turn helps streamline VAT compliance and reduce risks.

Beware of "Over-tooling"

Aleksandra shares more insights on VAT compliance changes and trends in this World Finance video. Given that the days of filing a VAT return once per quarter are long gone in most jurisdictions, companies and tax functions need to upgrade their tax technology—taking care to avoid “over-tooling,” Aleksandra suggests. “Over-tooling means that you have too many tools within one organisation,” she explains. Without sufficient foresight and planning, tax functions can wind up relying on different technology applications that are incompatible with each other.

“And having your tax system built from various local pieces is like driving a car that has been assembled with parts coming from different manufacturers,” Aleksandra adds. “So, if you want to change the tire you go to Toyota, if you change the oil you go to BMW. And this is not very efficient.” Instead, she says that tax decision-makers should be proactive, rather than reactive, in their ongoing effort to keep pace with changing, and increasingly digital, compliance requirements.