Why Validating Tax Numbers Is So Difficult, And How to Make It Easier

October 5, 2022
“Can’t wait to validate these tax numbers!” 

As far as we know, that’s not a phrase anyone working on a tax team has ever uttered. And that’s because it’s a real pain for global businesses that sell digital goods or operate a marketplace to complete that completely essential task. 

After all, without validating your suppliers or buyers tax IDs, how do you know you’re charging them the correct tax rate? Or whether or not you should be charging them at all? That’s why Fonoa’s Lookup product exists, as it can instantly validate tax numbers via a simple integration or easy-to-use dashboard.

Why validate tax numbers at all?

There are several reasons to validate a tax ID, but the three most common are: 

  1. Sales: for multinational enterprises to charge customers the right amount of VAT/GST on their cross-border sales. 
  2. Purchases: for businesses to check that their suppliers are properly registered to charge VAT/GST; and
  3. Data Sharing: for platforms and marketplaces to accurately share data about the persons trading via their sites and applications (aka ‘platform sellers’).

Why is tax number validation so difficult, anyways?

It’s worth taking a second to understand why Fonoa built a tax number verification product in the first place. Here are a few of the major pain points for tax teams trying to validate tax IDs.

It’s a time-consuming, buggy process (that will make you and your computer cry)

If you’re coming close to a filing deadline and your team has 10,000 tax IDs that need verifying, it can be truly terrifying -- especially when you’re using outdated, unreliable tools that have a tendency to crash. You can spend 16 hours validating thousands of IDs using VIES, but one bug can cause it to fail and start over, which isn’t ideal if your business has a large volume of customers across the EU. If you have 50,000 tax IDs to validate, you’ll just have to wait and hope nothing glitches. Good luck making that EC Sales List deadline! 

Bad actors

Picture this: someone is on your checkout page, and they’re entering a false tax ID (or a real tax ID of another, legitimate business) to get a “discount.” Without real-time verification of those IDs, it’s impossible to be sure you’re charging the correct amount of tax to all your customers. 

Difficult integrations 

Government databases are wildly different from one another, making it difficult for companies to integrate with every country they want to do business in. Let’s take a look at Canada. For federal GST/HST ID validations, the government requires both the name and the tax number in order to return a validation. But if you accidentally misspell a name, or add a space or a period where it doesn’t belong – if it doesn’t match 100% – the database will say the tax ID is invalid. 

Those types of errors may seem minuscule, but it often results in companies wrongly charging GST (or VAT) to companies. Conversely, you may end up not charging GST to people or companies that provide false tax IDs. And when your company isn’t charging the right amount, it affects your bottom line. Canada is a single example -- many databases that verify tax IDs, from Mexico to EU countries, have their own quirks. 

How Fonoa’s Lookup  tool makes your life easier

Now let’s look at how Fonoa’s tool turns this tedious process into a simple one, using a real-world example.

Don’t worry, Lookup still has you covered, even if the tax ID looks like it belongs in a physics classroom. Our system automatically changes the tax ID’s formatting to ensure that it can be properly validated.

Verify Tax Numbers efficiently and accurately 

Fonoa Lookup allows you to validate tax IDs directly with governments throughout the EU and in 95+ countries total, including Canada, Mexico, Italy, Uganda and the UAE. Our global coverage is unmatched -- there isn’t a more complete or accurate validation tool available anywhere else.

We add new countries quickly, get in touch!

We can also help you validate tax IDs in your checkout to make sure you’re applying the correct amount of tax to each purchase. And if you’re worried about DAC7, we’ve got you covered

Plus, Lookup offers you the ability to automatically check a large volume (as in, tens of thousands) of tax numbers. Forget spending 16 hours to validate batches of IDs; now you may only need less than ten minutes.

Setting it up couldn’t be easier

If you’re looking for a single integration to perform real-time validation upon onboarding or checkout, our API is worth a look. Most companies that use our API are up and running in a few days, not months. 

Moreover, if you simply need access to use the Lookup dashboard and validate numbers the traditional way (manually or by uploading a batch .csv file), we can have you up and running in minutes.

Our friendly onboarding team and helpful docs will make sure you’re taken care of every step of the way. See why Zoom, Squarespace, and Uber have already come on board. Get in touch with us to sign up for a free trial, check out our easy-to-use dashboard, and give the Lookup tool a test run today!

Alexander Kobakhidze
Head of Tax Tech

Alexander (AKo) is a Tax Technology specialist at Fonoa with in-depth knowledge of indirect taxes impacting the platform and online economy. Prior to joining Fonoa, Alexander was the Global Head of Tax Technology at Uber. At Uber, he and his team worked with internal and external stakeholders to design and build tools that automated tax compliance processes, for both internal use and external platform users. Alexander’s extensive expertise in the effect of indirect taxes on platforms has led him to work with the OECD Working Parties 9 (Consumption Taxes) and 10 (Exchange of Information and Tax Compliance).