Indirect tax compliance: Who are the Champions and who is struggling to keep up?

Research by Vertex shows that 43% of US firms see themselves as “champions” in tech-driven indirect tax approaches, while revealing stark regional disparities between countries globally.

According to research conducted by Vertex, Inc, a global provider of tax technology solutions, businesses in the US believe they are outperforming other regions with their current indirect tax capabilities. 

Vertex surveyed 580 indirect tax decision makers (representing global companies with annual revenue of at least $50 million) from Belgium, the Netherlands, DACH, The Nordics, Spain, France, the UK, Ireland and the US, and asked each to categorise themselves according to their indirect tax performance, ranging from 'champion’ (best) to ‘crawler’ (worst).

43% of U.S. respondents marked their organisations as ‘champions’, meaning they see their businesses as protected and future-proofed with an efficient technology-led approach. The U.S. took the lead in the ‘champion’ category, whilst in contrast, the UK and Ireland were deemed to be ‘crawlers’, with 72% describing their business as being risk-prone in terms of managing indirect tax compliance.

Peter Boerhof, Senior Director of VAT for Vertex’s Chief Tax Office, commented on the findings: "When looking at the regional differences, it’s clear that the ‘champion’ regions have adopted tax technology to help address current challenges in their compliance strategy. 77% of U.S. respondents believe that specialised engines and software simplify the compliance process, and 81% feel well equipped to make tax digital. It’s not surprising that numerous US organisations have adopted tax technology to address the complexity of their tax landscape as they must contend with more than 19,000 taxing jurisdictions and indirect tax rates and rules."

Peter Boerhof, Senior Director, VAT, Chief Tax Office, Vertex

"But compare that to one of the biggest ‘crawler’ regions, the UK, and we can see that 38% of respondents here believe the biggest gap in their compliance strategy is not having the correct technology in place," Boerhof shared. 

Across Europe, there are numerous drivers causing businesses to take a more cautious approach to managing indirect tax compliance. These include the arrival of the VAT in the Digital Age (ViDA) proposal, continued digitisation of the regulatory landscape, and ever-changing VAT rules and rates.

As a result, businesses across many parts of Europe feel well-equipped to handle upcoming or existing mandated e-invoicing rules (77% in DACH, 77% in Italy and 70% in France). 

Additionally, businesses in this region feel well-equipped to handle changing VAT registration rules with 93% of Spanish businesses stating this, closely followed by Italy (83%) and DACH (79%). 

Looking specifically at the DACH region, the largest proportion of respondents marked themselves as ‘calculators’, with 39% admitting they take a calculated and considered approach to indirect tax compliance.

Of the DACH-based organisations which had been found to be non-compliant in the past, over half (56%) stated that this was financially material for their business, whilst for Italian businesses 54% stated the same.

In the UK and Ireland, a quarter (25%) of respondents considered themselves to be ‘crawlers’; higher than the proportions for the US (14%), DACH (19%) and Spain (17%). This suggests that indirect tax compliance is slowing down operations for businesses in this region.

The survey indicated that a lack of skills and talent within tax departments is not only an issue for business globally, but particularly for those in the UK and Ireland, with over a third of respondents here (36%) saying this is the biggest gap in their capabilities for managing indirect tax compliance. 

The adoption of tax technology solutions has also played a role in separating ‘champion’ regions from ‘crawler’ regions.

Gunjan Tripathi, EMEA Director for Solutions Marketing, Vertex

Gunjan Tripathi, EMEA Director for Solutions Marketing at Vertex, added: "Adopting the right tax technology for your business is an important step, but there needs to also be a clear focus on further education and developing IT skills within tax teams so that they can implement and manage this technology." 

"There are signs that businesses are ready to make this commitment. Almost half of our global respondents (49%) believe they will be more compliant with indirect tax by 2030, and 56% of UK&I businesses echo this, which paints a more hopeful picture for the future," noted Tripathi. 

The full findings of the research can be found via this link.

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