Complying with “indirect” taxes such as sales and use taxes and excise taxes has become a bigger problem for many companies around the world, according to a new report from Thomson Reuters, which is also releasing new tax technology Monday at its Synergy user conference.
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Thomson Reuters polled more than 800 international corporate tax departments in over 200 jurisdictions and interviewed more than 30 global tax directors from large corporate tax departments for the report. One-quarter (25%) of the tax directors interviewed pointed to the impact of e-commerce and digital products, particularly in states where businesses don’t have a physical presence, as areas of concern. Companies that are experiencing significant growth through acquisitions in new jurisdictions or expansions into new markets are challenged with staying abreast of unique regulations or guidance to avoid tough penalties for late or inaccurate filing.
Tax departments confronted with multiple legacy systems cited “cleaning up the data before it enters the tax process” as the main pain point. One of the interviewees said their team “spends too much time checking spreadsheets and handling data, not interpreting it,” while another said, “The tax engine is only as good as the data that comes into it.”
In addition to releasing the report Monday, Thomson Reuters also launched its Indirect Tax Determination Anywhere platform at Synergy, which is being held in Nashville. IDT Determination Anywhere is a cloud-based tax technology platform that sits on top of a company’s existing infrastructure in the cloud or on-premises. Determination Anywhere uses “edge computing” technology to give it better proximity to transaction systems. Tax professionals can leverage the tax determination engine at any point of a transaction, within any channel, increasing the tax calculation response times, while maintaining control of centralized data, which can be especially important for online retailers. In testing and development, the platform removed network latency to deliver 50% better calculation speed over a cloud-based system, according to the company.
“What we’re doing is we’re taking the full complexity capabilities of an enterprise tax engine and we’re enabling simplified deployment closer to the systems that are processing transactions and managing calculations so that businesses can operate better,” said Ray Grove, vice president of product for Thomson Reuters Indirect Tax. “If you look at businesses right now, they’re faced with a lot of challenges. ... Managing complex tax processes and their day-to-day operations is very difficult. They’re doing that in an environment where they have not only a changing regulatory landscape, with more changes from the state and local government perspective in the first six months [of 2021] as the entire prior year of 2020, but they also have a changing business model. If you look at these businesses, especially out of COVID, businesses have been dealing with their suppliers, they’re dealing with their customers, and they may have a couple of channels that they’re working with, and now we’re going from a single channel to multichannel and now omnichannel. With omnichannel, a big part of handling an ecosystem to support that is making sure that you have those capabilities if you’re in the retail sector or manufacturing sector or pharmaceutical sector, to have those capabilities to manage all that complex tax policy in real time in one place and that you can continue to transact as seamlessly as possible. This is one of those things where there really isn’t room for error.”
The system can handle sales and use taxes, excise taxes, and international taxes like valued-added taxes, and goods and services taxes. Most of those relate to sales in one form or another.
“If there’s one operation inside an organization that is critical for the health and success of the organization, that is making sure that they can sell effectively,” said Satnam Singh, head of product of corporate tax and trade at Thomson Reuters. “A key part of sales is you can’t avoid taxes. What we’re making available is making sure that they can sell effectively while being in compliance across their entire network, across all of their channels, making it simpler, cost effective and scalable.”
Determination Anywhere integrates with Thomson Reuters’
The edge computing architecture not only helps with speeding up processing, but makes the system more flexible. “The way we have developed Anywhere’s capabilities is not only in how it gets distributed on the customer’s side wherever they want it to be deployed alongside their enterprise systems, but the way it can scale as well,” said Anu Dodda, head of engineering for corporate tax and trade at Thomson Reuters. “It can scale from the mothership. There will be the enterprise tax engine that will be sitting on our side, but there’s also the Anywhere data that’s deployed anywhere the customer wants it to be deployed globally on their side depending on their operations. But at the same time, they can also choose to scale it, depending on how they grow as a company or business.”
Indirect taxes are growing more complex not only internationally, but also across the states in the U.S. and abroad. Within the U.S., respondents to the Thomson Reuters report repeatedly mentioned specific key states, particularly Colorado and Alaska, as sources of anxiety due to the complexity of their rules. Several other countries were regularly cited by respondents as being particularly challenging, including Brazil, due to its multiple layers of indirect tax regulations at the federal, state and municipal levels, with each of the 26 Brazilian states having unique legislation. Penalties in Brazil were also very high: up to 150% for non-compliance.
China was also frequently referenced as “being quite troublesome,” as were India and Russia.
The majority of respondents reported the use of some form of indirect tax software, with varied use cases and the extent to which the software was employed. Survey respondents overall pointed to the need for systems that are user friendly, require a limited number of steps to gather key data, and make sense of complexities and peculiarities of their businesses without needing a great deal of extra customization.
