This informal CPD article on Why a Tax Engine? was provided by Vertex Inc, a leading provider of corporate tax software and services for companies of all sizes.
Why a Tax Engine Should Be Part of Your Business Transformation
The world is constantly changing, and the drive for business transformation across an organisation keeps growing. The tax department is no different and should also look to take advantage of this opportunity. By implementing a tax engine, tax functions can finally regain control, transform and automate its indirect tax operations.
Within a multinational organisation, the VAT manager no longer only has an advisory role. More and more, the VAT manager is becoming responsible for VAT, including ensuring correct VAT processing in the ERP system. As VAT processes and systems are added to the existing portfolio of legal changes and VAT controls, the VAT manager, together with IT, must also search for solutions to ensure compliance while optimising processes.
As businesses have expanded and business models changed, financial platforms have been developed to support these changes. There are now platforms dedicated for e-commerce transactions, procurement, billing or expense management. These systems process VAT relevant transactions and all have individual VAT settings that need to be implemented and maintained. All relevant systems must connect (directly or indirectly) to the VAT reporting platform of the tax authorities. VAT management has become a multi-platform game.
Tax Engines for VAT
There are two quite persistent prejudices when it comes to tax engines for VAT. The first is that native VAT reporting options will be lost in the ERP system. In the past this was true, but now, tax engines feed all VAT relevant data back into the ERP system. Secondly, many believe tax engines are only valuable in the United States and not needed for Europe. This idea originates from when an origin-based VAT system was operated in Europe. However, the VAT system in the EU is gradually changing to a destination-based system where VAT of the customers’ countries needs to be charged. This destination principle is embedded in the 2021 VAT e-commerce rules as well as in the proposal for the definitive VAT system in the EU. And as there is little harmonisation of VAT rules and rates in the EU, there is less difference with the U.S. complexities.
As internal and external changes continue to disrupt business and alter VAT/GST compliance requirements, tax teams should shift their focus beyond process automation to technology optimization and digital transformation. As they do so, tax engines will figure prominently in their plans.
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