A patchwork of varying and constantly changing rates, regulations and exceptions across jurisdictions creates an enormous tax compliance burden. From sales tax to consumer use tax to VAT, the list of tax challenges along the supply chain is long:
- Overpaying/underpaying taxes;
- Claiming refunds from tax agencies–which in the case of VAT can be challenging; or
- Attempting to collect additional tax after a transaction–a difficult task that can damage vendor and customer relationships.
Discrepancies or flawed processes increase the likelihood of an audit and can tie up cash reserves, potentially preventing a business from capitalizing on growth opportunities and putting it at a greater risk in times of crisis.
The indirect tax legislative landscape will further intensify when governments calculate post-pandemic budget shortfalls and increasingly turn to transaction taxes to close revenue gaps. Because supply chain professionals are not necessarily responsible for ensuring their purchases have been rated properly for transaction tax and not every business is mature enough to have a tax department, businesses need to ensure that an automated tax solution is tightly integrated into their procurement systems.
Advanced tax software can provide real-time tax calculation during the requisition and invoice reconciliation processes, distinguishing between vendor charged, buyer payable, self-assessed and value-added reverse charge taxes, as well as multiple levels of jurisdictions. It can determine if a vendor has charged an appropriate amount of tax on the invoice which is used to determine any self-assessed taxes such as consumer use tax and VAT reverse charges.
Tax software automates the important procurement control task of validating transactions and determining if the invoice matches the purchase order and the materials/services received. An integrated tax solution allows buyers and suppliers to manage everything from exemption certificates to payments in one place. More importantly, it can empower purchasing managers with an accurate view of tax implications, in terms of total cost, when approving or rejecting a request for purchase. Additionally a robust tax automation solution can centralize the indirect tax requirements across the business, applying consistent tax treatment of every transaction and offering tax visibility across the enterprise and ultimately reducing compliance risk.
Dealing with tax decision inaccuracies after the fact can result in overpaying taxes to vendors while escalating the company’s audit risk. In an age of increased regulatory complexity, supply chain functions are increasingly adopting automation to accelerate their payables processes and applying strong business validations to transactional elements, such as vendor data, product description and financial invoice details.
Tax compliance might not be at the forefront of the supply chain conversation, but ignoring it can affect cash flow and create reputational risk.
Please remember that this article provides information for educational purposes, not specific tax or legal advice. Always consult a qualified tax or legal advisor before taking any action based on this information. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy, position, or opinion of Vertex Inc.