“Once in a while, a country comes up and throws you a curveball,” says Ronan Le Gall, Senior Manager at EY and expert in indirect tax technology at Thomson Reuters Synergy Conference.
partner and principal at EY who leads the indirect tax technology practice for the Americas, and Senior Manager at EY in indirect tax and global VAT end-to-end solution for indirect direct tax processes at the Thomson Reuters Synergy Conference.
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The importance of quality indirect tax data
Data is the lifeblood of any tax function, and its quality is paramount. The EY experts emphasized that tax professionals often find themselves as consumers of data rather than owners, which can lead to significant data quality issues including inconsistent data entry, outdated systems, and fragmented processes. The consequences of poor data quality can be costly, ranging from inaccurate tax filings to non-compliance penalties.
“What we are seeing now, especially with e-invoicing and digital reporting, is that you are making tax decisions and submitting your tax position to the tax authorities in real time or very close to real time,” said Vanessa, putting more pressure on companies to ensure their data is accurate and compliant. Vanessa also noted, that by the time tax professionals get to month-end processes, “the tax authorities [have already had] access to the data for a couple of weeks.”
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The role of e-invoicing in clean data
E-invoicing has emerged as a powerful tool in the fight against global indirect tax challenges. The EY team highlighted that e-invoicing enables real-time tax decisions and compliance, significantly reducing the need for manual processes.
Tim noted that companies are “moving away from bespoke, one-off country-specific” solutions and having global strategy conversations for their invoicing platforms. This global strategy for e-invoicing can lead to standardized processes across jurisdictions, making it easier to manage and comply with diverse regulatory requirements.
Indirect Tax Challenges Infographic
The rise of technology, and the need for upskilling
Managing data across multiple presents considerable challenges, including inconsistencies in customer and vendor data, which can lead to issues in tax determination and reporting.
The benefit of AI in indirect tax data accuracy and compliance
Tim highlighted the challenges in master data management. “Master data is not created with me in mind, meaning me, the tax professional,” he said. This issue is compounded by the reliance on users to correctly input and use the data, leading to inconsistencies and errors. “It’s not just about the creation of the data, it’s the usage of the data which causes a lot of our issues,” he added.
AI can predict and categorize data issues before they become problematic. By identifying potential issues early, AI ensures indirect tax data quality and compliance from the outset.
The EY team also discussed the role of AI in addressing these data challenges. “From an AI perspective, we think about these things in buckets, if you will, predicting a value, obviously looking at history and suggesting what might come out of the analysis,” Tim explained. He provided an example of using AI to analyze purchase orders before they are processed, ensuring that all master data is used correctly.
“Why don’t we analyze the purchase order to determine whether or not all the master data was used correctly before an invoice occurs, before posting, before tax determination, before we have a record in the system,” he suggested. This proactive approach can prevent issues before they become problematic.
The potential of real-time AI assistance
Tim’s online shopping analogy:
- Human action: You place an online order and put in your address.
- AI reaction: “Is this address correct?”
- Human reaction: Option to validate the address.
Apply similar real-time feedback to tax process:
- Human action: You select a tax code.
- AI reaction: “Something looks wrong. I think it should be this code. Please validate the correct code.”
- Human reaction: Option to validate the tax code.
This would significantly improve data accuracy and reduce the need for manual corrections, making the tax process more efficient and reliable.
Legislative changes and challenges
New tax rules and rate changes mean that data management must be dynamic and adaptable. EY experts discussed the tax reform in Brazil as a prime example of legislative changes that are starting to affect tax processes. Ronan addressed the need for e-invoicing and digital reporting, because as countries “introduce a new regime and progressively swap out the rates, it essentially means, from a data perspective, you’re going to have to make changes every year for the foreseeable future.”
To mitigate the risks of curve ball tax rules, indirect tax teams need to ensure that tax calculations are accurate, consistent, and compliant with current regulations across all financial transactions in real time or close to real time.
Embracing a proactive role in indirect tax data management
Ronan pointed out that the indirect tax department has primarily been seen as consumers of data. However, with the advent of e-invoicing and digital reporting, tax professionals are actively making tax decisions and submitting tax positions in real time. This new complexity means that tax departments must be deeply involved in the creation and management of data, particularly when new products are launched or during mergers and acquisitions.
The integration of the tax department with other departments, especially IT, is essential to ensuring indirect tax data quality and compliance right from the start.
Meeting the demands of today and tomorrow requires proactively adapting to changes before they occur. We witnessed how the pandemic forced businesses to rapidly adjust or face severe consequences. The challenges continue to evolve as we navigate economic and political uncertainties with tariffs, new tax reforms, and the increasing pace of business.
By adopting a unified, global approach to e-invoicing and integrating AI into data management strategies, companies can navigate the complexities of global tax compliance more effectively.
The insights provided by EY speakers at the Thomson Reuters Synergy conference offer a clear path forward for organizations looking to enhance their indirect tax processes and stay ahead in an ever-changing regulatory environment.
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