As tax authorities mandate live VAT transaction reporting can tax engines tackle the new determination risks?
Calculating the right VAT on complex and international transactions has always been a challenge – often left to manual checking in the few weeks when a VAT return becomes due. But that ‘luxury’ is coming to an end with live reporting regimes flooding in – VAT e-invoicing, digital reporting, mandatory SAF-T etc. Businesses that don’t get VAT right in real-time can expect:
- Their invoices to be immediately rejected by governments in pre-clearance or even basic validation checks by customers;
- Tax authority interrogations when differences on VAT returns then appear.
What are the challenges of real-time VAT determination? Can tax engines help? Spoiler, ‘Yes’. Our VAT Calculator – the only engine built on local laws – performs it right live. And, it gets better: since it’s on the same app as our VAT Filer and VAT e-invoicing products, all invoice calculations, returns or e-invoices are full reconciled.
What is VAT determination?
Put simply, determination, or calculation, is deciding where, if, and by how much is a transaction is subject to VAT, GST or sales taxes. Oh, and of course, which of the parties must charge and remit the tax. Typical data needed for full VAT determination includes:
- Which countries are the counter parties resident?
- Do they have local VAT numbers (B2C or B2B)? If a foreign number, do they have a fixed establishment
- What are the goods or services?
- If cross-border goods, how and who is providing the transport?
- Any customs or import VAT issues – e.g. deferment of import VAT?
- To get the date of the transaction right – the tax point – and so in which return to report the transaction, information on the dates of: the invoice; supply of goods or service; and any advance payments.
What are the challenges of handling all of the above?
For more complex transaction, native accounting or ERP’s cannot handle the VAT determination. They typically use basic tax codes which attempt to label the determination (country, transaction type, rate, exemptions, shipping etc). But most are inadequate, not capturing many of the above data facts, and highly unreliable.
Hence the development of tax engines – software applications which work to support accounting, ERP, e-commerce, invoicing and point-of-sale systems to ensure complex indirect tax calculations are done properly and efficiently. They can be fully integrated into these systems, typically via an API (Application Programming Interface).
But the traditional major providers of tax engines bring major barriers to adoption:
- They are mostly adapted from US sales tax software, which fails to capture the differing information needed for VAT determination. So needs heavy implementation projects, including manual use cases and custom rules. These are lengthy to create and maintain, and often miss key cases from the legislation. This leaves gaps in accurate VAT calculations.
- This means huge costs, often over €1million, for the largest enterprises. So they are typically unaffordable for medium or small sized companies. These still rely on manual processes – which aren’t sufficient for the new live invoice reporting regimes.
- These established tax engines are built a decade or more ago. Originally for on-premise deployment that have been ported later to the cloud. This reduces their functionality, scalability and flexibility. Again, more costs to overcome the shortcomings
- Once an engine has determined the invoice amount, a whole separate application is required for VAT returns or e-invoicing. There is no single, integrated vendor for all of these. Which means multiple, complex integrations and more expenditure.
How can VATCalc can help
Facing the wave of new live reporting obligations, everyone is agreed that getting VAT determination right in the first instance is vital.
Here is how our range of products can help. They are all uniquely built on tax laws – so ready out of the box at a fraction of the costs of the legacy solutions:
- VAT Advisor – an onscreen single transaction product that lets you model the most complex domestic or cross-border transactions. You can get to the right VAT calculations, who pays, in which country and VAT registration obligations you need to help you set the rules for your own ERP or tax engine determination. Or help check customer/supplier invoices to get the VAT return before approving an invoice and including in your next return.
- VAT Auditor – is a powerful SaaS tool that allows companies to easily upload transaction sets – purchase and sales invoices – and have them automatically reviewed for data availability and data accuracy. It works on-screen or via API by running a full legislation-based tax determination against each transaction and comparing the results it calculates with the results in the original data. Auditor is particular useful where there is no budget or IT support for a major tax engine implementation.
- VAT Calculator – is a global tax engine that can be fully integration into your EPR, billing, ecommerce platform to perform live calculations. VAT Calculator is the only dedicated SaaS service that is powered by logic that exactly codifies international VAT legislation. Using modern RESTful APIs, businesses can connect VAT Calculator to any system, such as an ERP or e-commerce system, and in real-time get the correct VAT treatment applied to their business transactions.
And if you need VAT returns, based on the same tax calculations, then VAT Filer is fed automativally the same transaction flows from Advisor, Auditor or Calculator to produce perfectly reconciled filings.
Contact us to for a free demo of any of our software to see how it is truly the disruptor technology in terms of accuracy, time savings and huge spend reductions.