Today’s CFOs are faced with navigating a dizzying array of tax compliance requirements put forth by thousands of tax authorities across the globe, many of which are asking for the information they need in real-time. Part of the challenge for CFOs is understanding not only what data authorities want, but in which formats they want it presented, said Tim Roden, solution principal for tax information reporting solutions provider Sovos Inc.
During a talk at the two-day leadership conference held last week in Boston, Massachusetts by the CFO Leadership Council, Roden — a 10-year alum of the Wilmington, Massachusetts-based company — discussed why finance chiefs need to take a holistic approach to navigate compliance for indirect tax, such as sales or value-added taxes, and cut down on risk.
“It is understanding, how do we make sure that we're able to pull out all this information, parse it correctly, put on the right forum for the specific jurisdiction that needs to see it, in the way they need to see it?” he said in an interview following his talk. “And to do that in real-time? I think that’s the challenge.”
Developing a holistic strategy
Complying with a steadily expanding set of indirect tax requirements means CFOs are juggling a widening volume of data that they need to present to authorities more quickly.While some jurisdictions still rely on paper invoicing or manual formats for indirect tax, many more are turning to digital tools, Roden said during his Wednesday talk — eyeing solutions like continuous transaction controls (CTCs) that require e-invoicing and real-time data.
Though CTCs have not yet made their way to the U.S. — and Roden doesn’t think they are likely to any time soon — more than 15 jurisdictions in Latin America have adopted them, for example, while more than 80 countries have passed e-invoicing rules, according to a write-up by Thomson Reuters last year.
While the complexity of the tax space isn’t necessarily new, what is “new or newer, is the tenacity in which these jurisdictions are making sure that they're actually receiving the tax funds that they're owed,” Roden said.
The increased enforcement effort by global tax authorities is putting pressure on finance and tax professionals, who are tasked not only with compliance but with mitigating the risks of a steadily more complex global tax environment. In a survey last year conducted by tax technology provider Vertex, 84% of tax decision makers reported feeling “personally exposed” by the current level of indirect compliance within their businesses.
In a 2023 survey by Big Four accounting firm Ernst & Young, 69% of tax and finance professionals said they expected their companies’ overall focus on tax governance to expand over the next two years. Meanwhile, 84% said either improving or implementing a global framework approach to tax risk and controversy management would add either “some or significant” value to their businesses over that same period.
For finance leaders, mitigating that risk requires the creation of a holistic indirect tax strategy, utilizing a platform-based approach — and emerging technologies like AI — that can help add much-needed clarity for organizations.
“I think by adopting a platform approach, you don't necessarily need to take in everything,” Roden said. “You can build the structure for, ‘if I do want to take on these transactions, here's the pipe in which they'd go through.’”
Taking a platform approach
For finance leaders, creating such a strategy means examining and whittling down the solutions they’re currently using.
Many organizations were faced with the need to comply with new requirements quickly and therefore found point solutions which worked in the moment — companies “were hit with these challenges, and they didn't necessarily have time to think about it holistically and develop a strategy,” Roden said.
“What we're seeing now is organizations who've adopted those approaches, now they're managing four or five, six different processes for what's really the same thing,” Roden said. “It's just a little different flavor, depending on the country that they're in, or the type of invoice.”
Having that clarity of data that a platform-based approach provides can also help CFOs better prepare for the future. While Roden doesn’t see the U.S. adopting the same CTC model seen in Latin America in the near future, “there definitely is something to be said about the need for additional data,” Roden said.
“I do believe that that jurisdictions will be looking for more transactional information here in the U.S., so organizations can almost look at what's happening in rest of the world as a precursor,” he said.
