When we asked our team of tax experts from around the world to give us their top TaxTech trends of 2023, we got a lot of answers. Even the fun-looking “word cloud” we created out of their responses felt like information overload.
But as TaxTech is a fast-moving industry that’s dedicated to improving the lives of tax teams everywhere, it’s important to stay up-to-date on all the innovations and trends that will define it for years to come. That’s why we’ve highlighted the top five TaxTech trends of 2023 according to our tax experts, complete with all the info you need to get up to speed.
This term can have different meanings depending on the context. For example, the EU Commission uses it in the context of “digital reporting requirements,” which is “any obligation for VAT taxable persons to periodically or continuously submit data in a digital way … including by means of mandatory e-invoicing, to the tax authority.”
Now let’s talk about what we mean by digital reporting. It’s an umbrella term for obligations which, at their core, require you to digitally transmit information about a transaction to a government as it happens (or shortly thereafter). Some refer to this space as “einvoicing” – but in reality, digital reporting is much broader.
Digital reporting requirements vary greatly across countries – and they’re changing frequently. This puts undue pressure on tax teams. As EY wrote: “Two key concerns for tax functions in this new environment are increased tax risk and a likely increase in workload.” In fact, their survey data reported that “...51% of the respondents expected an increase to their organization’s tax risk profile from complying with emerging digital tax filing requirements, while 84% expected it to increase the workload of the tax and finance function.”
Here’s the good news: your team’s workload doesn’t have to increase if you use a TaxTech solution that automates digital reporting. When you’re looking for a solution, make sure that it keeps up with new reporting laws and has a single integration. After all, the right TaxTech can quickly and efficiently allow your digital business to tackle new markets – without the additional work.
As already mentioned above, there’s often confusion regarding the difference between Digital Reporting and e-invoicing, and it’s quite understandable. Depending on the context, e-invoicing can mean many different things.
For our purposes, it refers to locally-formatted invoices from either B2B or B2C transactions. And as time marches on, it’s becoming more common for countries around the world to make the creation of e-invoices mandatory. We’ve reported on multiple countries that have mandated e-invoicing recently, including Serbia, Vietnam, El Salvador and more, while other countries like Saudi Arabia, Portugal, and Mexico have all announced major changes to their e-invoicing systems in the last 12 months.
As many countries have their own e-invoicing requirements with regards to local currency, formatting and the submission process, using the help of automation to produce them at scale appears to be the only solution for growing international companies to manage compliance.
Tax automation has clear benefits for both companies and tax authorities. Every minute you don’t have to do a menial task means you can spend more time thinking and acting strategically, and working on improving your company’s bottom line.
Automation may also become a legal requirement in the near future. The CPA Journal’s Tax Analytics and Automation (TAA) Technologies Survey hinted at those changes:
“Tax authorities worldwide are harnessing technologies to improve tax administration, counter fraud, and facilitate taxpayer compliance. For example, tax authorities deploy tax technologies to engage early and move compliance upstream through products such as benchmarking, cooperative compliance, sharing of risk profiles, and pre-lodgement compliance reviews (see Veit, “Swimming upstream: leveraging data and analytics for taxpayer engagement—an Australian and international perspective,” eJournal of Tax Research, 2019).
Most survey respondents anticipate tax authorities will continue using TAA technologies to promote taxpayer engagement and compliance (46%). More than one-third expect that tax authorities will require companies to adopt technology for tax compliance.”
As automation enables companies to submit timely, properly formatted, error-free returns with little manual work and increases a company’s transparency to local tax authorities, it seems likely that a wider adoption of tax automation is in the cards.
DAC7 and Tax Data Sharing
Tax Data Sharing is a key compliance issue for 2023 and beyond. One of the most important pieces of legislation addressing Tax Data Sharing is DAC7, which is set to harmonize reporting requirements for all Digital Platforms operating in the EU. (Keep in mind, this directive is being rapidly mirrored by tax authorities in non-EU countries, who are in the process of introducing comparable obligations.) DAC7 is designed to help EU tax authorities gain a better grip on the taxable funds flowing through the gig/sharing economy.
The first DAC7 data submissions must be shared with EU tax authorities by Digital Platforms and Marketplaces until January 31, 2024, so those companies should begin preparing now in order to be DAC7-compliant by then. There has been a steady stream of news about DAC7 throughout 2022, and we’ve tracked it all through our blog. You can read the latest update here.
👉 Download our Essential Guide to DAC7!
VAT in the Digital Age (ViDA)
In December 2022, the European Commission released the long-awaited VAT in the Digital Age (ViDA) proposal. (You can read a detailed breakdown of the proposal here, or a shorter version here.) As the title suggests, the proposal will have a significant impact on Platforms and businesses providing services facilitated by the use of a Platform, whether or not they have a registered presence in the EU. It affects all businesses performing intra-Community transactions, without any size, industry or threshold limitations.
What does ViDA aim to do? For one, it modernizes VAT reporting obligations and facilitates e-invoicing. It also updates the VAT rules for the platform economy, and moves towards a single VAT registration in the EU. The implementation of ViDA will not happen overnight (changes on the Member State level are expected between this year through 2028), so stay tuned to our blog for updates as soon as new information is released.
How Fonoa can help your company navigate these trends
Fonoa is a global tax automation and compliance solution that helps companies streamline the entire transactional chain so they can scale in a digital, borderless economy. Automate tax determination, minimize risk, and easily handle local tax compliance from one platform, which includes these key products:
Lookup: Instantly validate tax ID numbers from 95+ countries. We make batch processing easy, too. Lookup also ensures you’re applying the correct tax rate for every transaction.
Tax: Instantly determine the tax treatment of your transactions globally using Fonoa’s flexible and customizable tax engine. Our easy-to-integrate solution automatically keeps track of changing rates and rules to help your business stay compliant.
Invoicing: Issue tax invoices in locally compliant languages and formats, with support for third-party or self-billing. They’re customizable, as well.
Reporting: Report transactions in real-time and keep up with evolving cross border and local reporting requirements, all with a single API. Our Dashboard also offers unprecedented visibility of reported transactions globally.
Returns: Automatically prepare, review and submit VAT/GST returns everywhere your business has to. Assess the accuracy of your returns, eliminate errors, and get notified of potential issues automatically.
Data Sharing: Meet quickly evolving transparency laws aimed at digital platforms and securely share tax data across multiple countries. Fonoa automates the complexities around compliance across the globe, helping digital businesses affected by data sharing obligations like the EU’s DAC7 or Austria’s reporting obligation for digital platforms.
Get in touch with us!