Governments around the world are digitally transforming their indirect tax collection procedures thrusting invoicing and intercompany accounting practices into the spotlight.
Governments have good reason to do this. E-invoicing and other digital document types help ensure better tax collection in each government’s jurisdiction. Moving away from the old-fashioned paper-based way of doing things drives visibility in a way that benefits each country’s economy. The collection and analysis of digitally acquired data improves forecasting and, in the future, can help governments deliver better services to their constituents (such as automatic VAT calculations and billing).
At the same time, digital transformation, accelerated by the global pandemic, is radically changing the manner in which multinational companies conduct business. New technologies are improving efficiencies, reducing costs, and more.
In speaking daily with intercompany accounting teams, it seems many are not giving these new measures and facilities the attention they deserve. The increased complexity around mandates and the inevitable growth of creative tax strategies (such as BEAT in the U.S. where the government charges 10% on any outsourcing contract) suggests that it’s time they do.
Many countries, including Italy, India, and Egypt, are also actively using innovative technology to try to stop tax evasion and reduce the tax gap. Many others have plans to follow suit. However, as good-intentioned as this may sound, it is also creating an unprecedented set of invoicing hurdles that are impacting intercompany processes for conglomerates. This is because, as they digitize, different countries are implementing their continuous transaction controls (CTCs) in very different ways.
Some, like Russia and the European PEPPOL users, employ the interoperability model, which requires a fully digital exchange of transaction documents. Italy and Turkey use a centralized model, wherein transactions are exchanged via a predefined structure. The clearance model used by Chile and Mexico requires approval of transactions pre-issuance as well as post-receipt validation. Then you have countries such as Hungary and South Korea using real-time reporting models which require reporting of transactional date in near-time post issuance.
There is no global standard for e-invoices
In addition to keeping up with a growing number of tax generation rules in different countries, multinational companies are now forced to make sense of each country’s technical, data and field structure requirements. For each country they operate in, they must:
- Ensure connectivity with different governmental platforms
- Provide support for multiple country- and industry-specific document types and formats
- Deliver content that is accurate from an indirect tax, procurement, commercial and technical perspective
- Manage multiple solution and vendor providers
- Stay up-to-date with ever-changing regulations
If this weren’t enough, multinationals are also struggling to find the right technology or solution providers to help them overcome these challenges while adding value to their internal processes. While many e-invoice providers are able to map to some government APIs, their clients still need to pull down the invoice for Accounts Payable (AP) so that it can be reconciled and settled. The clients are also still left with the burden of checking transfer pricing, foreign exchange numbers, and tax. There is no straight-through processing (STP) - only a data file travels between one ERP and another, possibly accompanied by a PDF.
This becomes a huge intercompany challenge for many conglomerates, especially when you consider the number of intercompany invoices each company processes. The average full-time employee (FTE) of a multinational handles only 8,000 intercompany invoices annually as they are generally so manual. Only a few companies are able to STP significant amounts of intercompany, totaling more than 500,000 per year of complex service invoices. What these companies have in common is they all rely on FourQ.
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In an ideal world, multinationals would be able to STP all of their invoices to streamline intercompany processes. This would offer scalable processes and total auditability of every action – including calculations, aggregations, transfer pricing rules, tax and treasury treatments, balances and more.
In our new world of global commerce, multinationals are looking into automation as intercompany gets more complex, riskier, and expensive to manage.