As we all know, money exchanging hands is what makes the business world go round.
Enter transaction tax
Within almost all of these transactions is an amount of tax—whether it’s called sales tax, per unit tax, value added tax (VAT), or goods and services tax (GST)—that must be calculated, reported and paid in various ways depending on the jurisdiction or area of the world the transaction occurs in. Within just a single transaction, a multinational organization must navigate layers of complexities when it comes to complying with various tax laws in states and countries around the world.
For companies with a massive amount of transactions occurring each day, it’s an overwhelming task to track and manage tax rates, exemption certificates and credit mechanisms. However, by using comprehensive technology to automate indirect tax processes, multinational companies can truly unlock the strategic power of their transaction tax data.
From manual work to strategic insight
To keep up-to-speed with ever-evolving tax legislation in countries around the world, comprehensive tax technology provides today’s tax departments with real-time automated global tax determination for both sales and purchase transactions by integrating with the company’s financial applications in real time. This eliminates manual processes without impacting high-volume e-commerce traffic, which is critical to many multinational companies. With the latest in tax technology, global tax data is updated continually to ensure compliance with the plethora of taxing jurisdictions around the world.
Not only that, but these real-time updates can specifically define geographical information systems. Through address validation and cleansing, tax technology provides significantly increased accuracy when it comes to calculating indirect tax. It also provides complete jurisdictional coverage, so it’s not only data on state, county, and city authority taxes but also district tax data, including police, transportation, mall, cultural, and scientific taxing authorities.
And through integration with existing ERP systems, transaction tax data is further unlocked. Attributes flow through automatically—and that data can be used to make consistent, repeatable, and scalable tax determinations, calculations, and even post tax collections and accruals automatically to the general ledger.
So, how does this play out inside a tax department? Well, instead of spending months testing and preparing for something like New Zealand extending the goods and services tax on business-to-consumer sales of software, tax departments are already prepared for the change and can instead spend time analyzing the data. This shifts the focus of the tax department from tedious, time-consuming work to strategic analysis and decision support—a radical (and welcome) change for multinational tax professionals.
By implementing comprehensive tax technology, tax departments also realize added benefits, like increased collaboration with other departments, such as Finance, by providing real-time access to tax information for approved users. Additionally, automatic software updates remove the reliance on internal IT teams for maintenance, thus saving time, money, and an often strained relationship.
With transaction tax data opened up and usable in a whole new way, tax departments are increasingly solidifying their importance in areas outside of traditional compliance work and becoming highly valued, strategic partners within their overall organizations. It’s an exciting shift and one that wouldn’t be possible without comprehensive tax technology.