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From paper to XML: The shifting paradigm of VAT compliance

Technology has fundamentally changed the way global VAT is enforced. But here’s the good news: digital technology also makes it much simpler to meet your VAT compliance obligations.  

By contrast, failing to adopt the latest technology-driven VAT compliance solutions could put your business at risk. As global VAT enforcement goes digital, businesses can no longer risk the errors and inefficiencies of outdated manual VAT compliance processes. 

It’s not just about enforcement. Many tax offices now require digital VAT reporting.  Failure to meet the new digital VAT reporting standards will, in many cases, lead to severe penalties.

Let’s briefly consider how technology has made VAT enforcement much more effective. And why businesses need to take active steps to catch up – or risk penalties and reputational damage. 

Understanding the paradigm shift in VAT compliance

VAT has become one of the most important sources of revenue for governments. It is therefore no surprise that global tax offices have turned to advanced technology to improve enforcement.

For example, many authorities have developed bots that scrape the internet and other relevant sources (including payment platforms and credit card data) to identify transactions being executed in their country by foreign businesses. 

In addition, tax authorities use automated systems to analyse invoices and automatically identify non-compliant transactions. 

These rigorous technologies make tax evasion harder. More importantly from the perspective of most businesses, the technologies make noncompliance, due to oversight or error, easier to identify and punish.

In other words, relying on error-prone manual VAT filing is more likely than ever to result in penalties. 

Digital reporting requirements

Many tax offices are introducing technology-driven reporting. In those cases, VAT registered businesses must use the appropriate software to ensure their reporting can be submitted electronically. Failure to meet with the digital requirements will be seen as non-compliance, resulting in potentially severe penalties.

Electronic filing requirements are expected to become the new norm.  Businesses therefore need to ensure they have systems in place to submit electronically, in accordance with regulations.

Meeting the key elements of VAT compliance

Given the considerable efforts by global tax authorities to improve VAT oversight, companies need to ensure they have effective digital VAT compliance technologies in place to ensure VAT compliance is performed effectively and in line with the latest regulations. The alternative is to open yourself to the risk of severe penalties.

In a fast-changing digital world, businesses need the following resources to ensure compliance is always met:

  • Access  to the latest regulatory requirements, with clear guidance on maintaining compliance. 
  • A process to review all transactions in a new jurisdiction, or when using a new supply chain.
  • A secure platform to share documentation and information with your VAT partners. 
  • Software that integrates with your existing accounting system, to import relevant taxable transactions for analysis, compliance checks and VAT reporting – ensuring all documentation is correct, and nothing is missing. 
  • Software that complies with the most stringent local standards for submitting statutory reports.

If your VAT compliance process is missing any one of these elements, your business is at ongoing risk of noncompliance. 

That risk is in itself therefore reason enough to apply due diligence to prevent serious penalties and even reputational harm.

However, technology-driven VAT solutions are about much more than risk mitigation. Effective VAT compliance technology actually makes VAT compliance much simpler and more efficient. 

Vatglobal designed specialist VAT technology to ensure every business can effectively meet even the most stringent VAT compliance obligations. Our proprietary digital solution automates VAT compliance to eliminate human error and meet all the technical requirements of global VAT authorities. Get in touch with Vatglobal to find out what a team of world class VAT experts supported by technology can do for your business.  

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