Globalization has spurred tremendous opportunities and challenges for businesses and society alike. For consumers, integrated led to affordable access to goods and products and a higher standard of living overall. As for enterprises, the world has opened for expanded operations, bringing into play new markets and customers, and has fostered an environment of continued innovation. Today, one-third of the world’s multinational companies are headquartered in the US.
While globalization enabled business profits to increase, non-US governments stepped-up efforts to ensure they were collecting their rightful share of sales under local tax laws, especially in the face of mounting value added tax (VAT) gaps. For example, in 2019, EU member states had a combined €134 billion VAT gap. As a result, jurisdictions across the world have been more aggressive in digitizing their tax collection processes and introducing structural changes to the way they regulate and enforce VAT, specifically the introduction of real-time e-invoicing regulations.
These new continuous transaction controls (CTCs) have placed governments in every multinational’s data stack, put corporate compliance under a spotlight, and worse, threaten business continuity for US-based organizations operating abroad.
Providing Real-Time Data to Multiple Governments at Once
While these mandates have given global governments the transparency they need to apply tax regulation, there is no standard enforcement. Therefore, multinational organizations are often left trying to customize reporting for multiple countries’ mandates to comply with varying requirements. As a result, the consequences of US-based companies face with non-compliance can include fines, trading partner audits, loss of licensure and in rare cases, even sanctions under criminal law.
The implementation of CTCs carries the expectation that an individual business’ data system must continuously communicate with multiple governments’ their tax systems, presenting a significant data challenge to companies and IT departments. Traditionally, businesses have been able to report to tax authorities via periodic reports created from rough data. However, companies do not have clear policies and approval workflows to draw the line between formal and semantic changes to data. Therefore, this rough data can be used for periodic reporting but not CTCs.
The IT Piece of the CTC Puzzle
Faced with the increasing adoption of CTCs, American IT departments must take the lead on planning a global strategy for e-invoicing compliance for three reasons:
- First, creating a strategy is a protective measure against penalties and threats to operations. Up until now, governments have tolerated a degree of error with reporting. Organizations had time to review transactional data to identify and correct errors before disclosure and reporting via their periodic tax returns. But those days will soon be over. In the CTC era, there’s simply no time between recording a transaction and reporting to overseas tax authorities. Errors and inaccuracies are visible to governments immediately, which can lead to penalties and adversely affect a business’s reputation.
- Second, CTCs are changing market behaviour. Many businesses faced with compulsory integration to CTCs for their transactions abroad, have started taking measures to prepare for the global CTC trend. As a result, the ability of business networks and similar vendors to ensure compliance with current and future CTC mandates is now an upfront selection factor. As companies worldwide seek to prepare themselves for the challenges of CTCs, they will look for vendors with a proven track record in combining robust, ongoing compliance assurances with B2B transaction automation benefits.
- Lastly, a global strategy for e-invoicing compliance is a pre-emptive move towards future mandates. Considering that most governments with VAT strategy in place will likely implement CTCs by around 2030, IT leaders can get ahead of the curve and anticipate the adoption of CTC systems by preparing a global for e-invoicing compliance in advance of those implementations. In addition, data mandates are also constantly changing, and if IT leaders need to revise their approach based on a country’s new mandates, they can do so without reinventing the wheel.
CTCs are the future of revenue collection, and the future has already arrived in over 40 countries worldwide. From Brazil to Italy and across parts of Asia and Africa, governments have become IT departments’ new data partners, and it’s within businesses’ best interests to meet the requirements of this partnership. By creating a global strategy for data mandates, IT leaders can ensure their company complies with current laws while insuring themselves against future requirements.