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VAT challenges multinationals face

  • Sep 17, 2015 | Jason Moore

VAT challenges multinationals face

When examining the indirect tax management environment facing multinational organisations, it becomes clear that there is significant challenge in maintaining compliance while attempting to handle the workload that comes with VAT (Figure 1).

Figure I: Compliance and Efficiency are Top of Mind for Multinational Organisations

Respondents to Aberdeen's 2014 Excellence in Financial Management Survey were asked to select the top two pressures facing them in indirect tax management. The overwhelming winner was “the amount of labour involved to complete VAT management workflows.” Not only is VAT compliance a difficult process to handle on its own, but also when dealing across geographic boundaries, and multiple jurisdictions, the level of complexity increases dramatically. In fact, jurisdictions often have separate requirements that can be difficult to track.

These requirements also frequently change, often requiring employees to research changes and sometimes re-work their calculation to ensure accuracy. When accountants miss these rate changes, the organisation has an increased audit risk, which in turn could lead to a damaged reputation. For these reasons, organisations often look to their technology environment to help facilitate the process. Unfortunately, many organisations are struggling with the technology they use to manage VAT, particularly when they rely on their ERP.

Since multinational organisations are under significant pressure related to VAT compliance, but have substantial difficulty performing these tasks or working with the available solutions, it would be wise for them to seek out help. In fact, top performers identified in Aberdeen’s "The New Era in VAT Automation: Using Dedicated Software to Reduce Costs and Ensure Compliance" are more likely to do just that (Figure 2).

While Followers primarily rely on an ERP to handle returns, Leaders are more likely to outsource or use dedicated returns software. When processes are outsourced, an organisation can rely on external resources to handle these tasks. This comes with the risk of exposing internal data and the potential of overpaying for processes that could be completed internally. But, using dedicated software helps increase the effectiveness of existing employees and ensures accurate calculations and returns. Of course, the software would come at a price as well. The strategy that you choose can have a significant impact on achieving VAT compliance. Fortunately, a new generation of VAT automation software could make the decision significantly easier for your organisation.

Figure 2: Leaders Rely on Dedicated Software for VAT Returns

Dedicated tax management solutions provide expertise, automate processes, and facilitate filing and reporting. ERP vendors do not specialise in these tasks. Pasting together internal solutions will likely create additional problems. This is why Leaders are almost twice as likely to have a VAT automation solution (Figure 3).

Older solutions dedicated to managing VAT may not be as effective as they need to be in keeping an organisation compliant. Today’s solutions take changes in the regulatory environment into account. These new solutions are not only more user-friendly, they are constantly updated, and easily connect to existing ERP solutions. Many of these capabilities are achieved by storing the software in the cloud. With a cloud-based solution, the software vendor can easily make updates based on changing government mandates, fix bugs and enhance the user interface. It is likely that Leading organisations, those who use these automated solutions, will continue to increase the performance gap between themselves and Followers.

Figure 3: Tax Solutions Lead to Results

These solutions can provide important capabilities that enable significant performance improvements in VAT management.

Written by Nick Castellina of The Aberdeen Group

Avalara Author
Jason Moore
Avalara Author Jason Moore
Avalara helps businesses of all sizes get tax compliance right. In partnership with leading ERP, accounting, ecommerce, and other financial management system providers, Avalara delivers cloud-based compliance solutions for various transaction taxes, including sales and use, VAT, excise, communications, and other indirect tax types. Headquartered in Seattle, Avalara has offices across the U.S. and around the world in the U.K., Belgium, Brazil, and India.