Accounts Payable: The New Tax Department

Spend Matters welcomes this guest post from Steve Sprague, vice president of product strategy at Invoiceware International.

As governments worldwide continue the fight against tax fraud, they are requiring more data from enterprises, even down to the individual invoice level. In fact, a recent EY survey on “VAT/GST electronic filing and data extraction” reported that 16 countries currently require taxpayers to submit individual tax invoices to the tax authority — and that number is only showing signs of growing. The survey notes that “VAT/GST payers often find these requirements onerous, as they can delay operations and increase processing costs for individual transactions,” and goes on to note that the “impact can be significant, especially for companies with large trade volumes,” resulting in high compliance costs and slowing “the speed of trading.”

This growing e-invoicing trend means that tax can no longer function as a standalone department in enterprises. Accounts payable teams, in particular, are now at the helm of tax liability determinations; they are the first line of defense against errors, audits and fraud. Ultimately, in countries mandating e-invoicing, vendor invoices are a form of currency in that they are the definitive source of tax deductions, giving accounts payable an unprecedented role in the accounting department.

Let’s examine the top three ways accounts payable is impacted by these e-invoicing requirements.

  1. Increased role in tax determination: Unlike income tax-based societies, VAT is a primary revenue source for the governments that mandate e-invoicing. Each business-to-business (B2B) and business-to-consumer (B2C) transaction incurs tax liabilities that must be calculated and reported in real time. When AP teams approve vendor invoices, they are not only approving the purchase but also verifying that the tax liability is accurate. Any errors now fall on the buyer instead of the supplier to correct, so AP has a critical role in eliminating errors and ensuring the accuracy of tax determinations.
  2. Drive toward automation: Because of AP’s critical role in complying with mandated e-invoicing and reporting, automating the process is the best way to ensure accuracy. The three-step process of automatically bringing vendor invoices into the ERP, linking those records with government approved documents and automatically feeding them into tax reporting records eliminates error-prone data entry and provides a secure document trail in the event of an audit.
  3. The front line for risk reduction: Eliminating errors is the best way to protect against audits, fines and penalties. Errors and discrepancies are the first audit triggers, so AP is key to reducing audit risk. Automation helps AP teams focus on exceptions and inaccuracies, furthering freeing their time to ensure compliance.

EY Global Director of Indirect Tax Philip Robinson sums up both the challenges and opportunities that e-invoicing presents accounts payable, accounting and enterprises as a whole.

“The mounting demands for accurate information about transactions can challenge even the most effective accounting systems and can make it difficult to centralize and standardize processes. At the same time, businesses are increasingly able to adopt electronic solutions that allow them to issue their tax invoices and to store large amounts of data efficiently, cost-effectively and securely.”

The one certainty in today’s complex compliance environment? A growing number of departments are accountable for tax liability, accuracy and reporting, and enterprises need to be nimble to adapt to this new era of tax compliance.

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