Digitization of taxation has been a hot topic for at least two decades, and the COVID-19 pandemic has dramatically increased the need for it, catalyzing its development.

Indeed, the pandemic has highlighted the difficulties of some companies in fulfilling their remote reporting obligations, due to data access problems or a lack of available technology to follow the entire reporting process.

But these are not the only challenges facing the business world. In a study conducted during the pandemic and published in May 2021, Deloitte asked various stakeholders about the main reasons for their business to consider the digital transformation of indirect taxation.

The main motivations were:

• A significant increase in the volume and complexity of transactions;
• Rapidly evolving tax and VAT landscapes, including tax authorities which are also going digital; and
• Internal tax professionals are expected to provide more value and strategic vision to the business, while the size of internal tax departments tend to be contained or reduced.

These factors are putting increasing pressure on data management and human resources. Internal tax professionals can no longer afford to spend hours processing data to ensure compliance; instead, they need to quickly digest the data and deliver high quality information to address any risk or opportunity along the value chain of VAT management.

The challenge becomes even more critical when tax authorities require granular or near real-time reporting, or require taxpayers to provide “SAF-T” files to help automate and facilitate their VAT checks.

These obligations imply that taxpayers must move from a post-report review position to a pre-report review position.

Data creation, ongoing management and control have become absolutely essential elements for the success of not only the entire VAT but also the business data cycle. VAT is a transactional tax – the data used for the indirect tax declaration is the same data that the business uses, so it must go together.

Given the large amounts of data that must be analyzed and validated, stakeholders need a high level of automation in their data management. It requires powerful and reliable technology.

An ideal starting point for this automation is to align accounting and enterprise resource planning (ERP) software with VAT requirements through enhanced use of specific tax codes or VAT accounts. This enables the production of VAT aligned reports and invoices.

Since selecting the right tax code is essential, further automation is recommended. This can be achieved, for example, by leveraging an additional tax engine or an intermediate process that uses tax determination logic to automate tax code determination.

But even the most efficient ERP systems do not always allow accounting data to be linked quickly and easily with tax and VAT returns. To address this automation gap, a growing number of companies are integrating optical character recognition (OCR), extract, transform and load (ETL), and robotic process automation (RPA) into their workflows. VAT management. However, this forces companies to put indirect taxation on the radar of project teams as early as possible, ideally at the blueprint stage.

Finally, to achieve the goal of providing strategic and value-added contribution to sales teams, companies must not only get the right data, but also be able to collect and analyze it.

For in-house tax professionals to achieve this goal, given the massive amount of data generated even by small and medium-sized businesses, investing in data analytics or business intelligence technology becomes almost essential. As a result, the use of machine learning and cognitive technology, even for tax purposes, is currently on the rise.

Overall, the technology can be used at virtually all stages of managing VAT cases, helping to:

• Minimize possible human errors, especially when periodically processing large amounts of important data;
• Ensure appropriate audit trails and reconciliations before reporting;
• Facilitate the recovery of data and information on past periods, even when some employees are no longer in the company, which can cause difficulties during tax audits in particular;
• Facilitate possible outsourcing, in particular VAT compliance, to provide a clear and standardized data set that can be easily interfaced with the systems of third-party providers; and
• Provide valuable insights to sales teams, where tax teams can use structured VAT transactional data to add value across the business.

However, there is no magic wand – the result will only live up to the quality of its initial development.

Technology will not replace real tax professionals; instead, it takes on the sole burden of data processing, allowing tax professionals to focus on the real tax and business work. That’s the “power of with”: getting the best results from humans working with machines.

Cedric Tussiot

Partner, Deloitte

Antoine Farioli

Director, Deloitte

Stephanie Porzio

Senior Director, Deloitte

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