Companies that sell physical or digital items or provide services to European clients must collect value-added tax (VAT), even if they are not registered in Europe. Businesses must examine the many variances in rules inside each of the nations in which they operate, depending on the facts of each transaction. Despite the European Commission's efforts to simplify VAT collection and payment, businesses operating in the EU frequently face complexities when it comes to complying with VAT regulations, which remain highly localised and specific from country to country. With the shifting tax environment and tightening government requirements, staying compliant during the VAT returns process is becoming increasingly challenging.
Businesses, for example, must declare the amount charged to consumers (output VAT) and the amount of VAT paid to suppliers (input VAT), subtract the VAT paid from the VAT charged, and pay only the difference. The EU's country-specific VAT rates range from 2.1% in France to 27% in Hungary, with the EU average standard VAT rate in 2022 being 21.5%. Some EU nations additionally impose unique VAT rates or exemptions on some supplies that existed before to the country's accession to the EU. Furthermore, the return forms and filing frequency vary by country, depending on annual sales.
How organizations facing challenges in VAT data management
The intricacy has been increased by often changing country-by-country reporting standards. Some EU tax authorities, for example, now mandate invoice clearing, or real-time reporting of transactions even before the invoice is submitted to the consumer. A need for invoice clearing puts additional pressure on firms to ensure that data collected at the source is correct before it is forwarded to tax authorities.
Dealing with these complexity without technical assistance is no longer viable for firms with broad operations. Prior to the implementation of real-time reporting requirements, tax teams had the ability to review and rectify data, but they no longer have that time. Inaccuracies in providing data to tax authorities might result in heightened scrutiny and fines.
Companies that use industry standard ERP systems are often surprised to see that they are not always able to address complications out of the box and frequently delegate the responsibility of supplying up-to-date changes in tax regulations to either customers or third-party solution providers.
Read more here: https://www.cygnettaxtech.com/blog/impact-of-ai-ml-technologies-on-data-complexities-in-vat-returns/