Article
Are spreadsheets hindering your Indirect Tax processes?
Spreadsheets have their place, there’s no doubt about that. But the way they’re being used in the indirect tax world right now is a cause for concern.
I’ve encountered many Tax Managers who happily lean on spreadsheets to prepare GST returns, as their ‘Net’ GST amount is low. However, what I’d urge any Tax Manager to consider is the number of transactions behind this ‘Net’ GST amount.
Here’s a sobering scenario. As GST is a transaction tax, consider a company that might have five million transactions annually. If they’re reliant on spreadsheets, from a volume perspective their indirect tax process may well be riddled with errors.
With spreadsheet cell error rates potentially occurring in 90% of spreadsheets, and say around five people working on a return, the chances of formulas being overridden and data transformation errors are high.
The errors due to large volumes are compounded by the problem that spreadsheet-altered data can lose its audit trail back to the source, which is concerning as ERP data is generally considered the source of truth by Tax Authorities.
A spreadsheet was not designed to be a tool used to collate, prepare and review GST returns. Using spreadsheets in this way may open up companies to significant indirect tax exposures.
Keeping up with changes in indirect tax
When it comes to complying with the ATO’s reporting requirements or any other tax authority where the company operates, the right automation software will have the most up to date GST/VAT return formats so that the onus is not on the company to make changes in their spreadsheets.
Additionally, the company would not have to make changes to numerous calculation formulas in their spreadsheets to account for the change in reporting requirements.
Additionally, the company would not have to make changes to numerous calculation formulas in their spreadsheets to account for the change in reporting requirements.
By virtue of their design and simplicity, spreadsheets miss the critical content layer that automation software provides, which means they are not able to keep on top of changes in regulations, legislation, rules and standards.
Pressure on the tax team
The pressure is on the tax team to ensure that firstly the source data is being accurately captured in the spreadsheet, and that transaction data is not being omitted or changed in the process of transferring to the spreadsheet. This step may seem simple, but we have seen that a significant amount of errors actually happen at this initial step of the process.
The issue is, once the errors are initiated at this step, spreadsheets don’t offer a way to trace back to the source data which is troublesome when trying to explain discrepancies to the tax authorities.
The right automation tool not only takes away the manual process involved with the extraction and transfer of the source data at the start of the indirect tax process; but also right to the end of the process where Tax Managers would find themselves ‘copying and pasting’ figures into the ATO portal.
ATO’s increasing governance pressures software adoption
While indirect tax teams may be somewhat slow to move from spreadsheets to automation tools, tax authorities around the world appear to be increasingly embracing the value of technology as they look for more transaction information from companies as a way to assess indirect tax risks. Although the ATO is not specifically mandating the automation of tax processes, the tax authority is arguably implying the need for it by increasing their level of governance.
The fact is that the most common risk encountered by the ATO is incorrect reporting from inadvertent errors.
With the risk of hefty fines and penalties from manual errors in reporting or late submissions of returns, automation software provides enterprises a safe and reliable solution to reduce the risk and ensure compliance.
This is particularly the case when information requests are received from the ATO and the indirect tax team is able to access all their transactional data, GST returns, adjustments, etc. at the click of a button!
Improving the indirect tax process
Here is an example of how our software product has improved the tax process of one of our customers at Thomson Reuters:
Customer A came to us to look at ways of improving their GST process. The current spreadsheet file had multiple tabs and links to different work papers. One of the links had been changed and this minor change took hours of work to update and correct. They decided to move to Thomson Reuters’ indirect tax compliance software to remove this risk going forward. This has also allowed them to do better testing on their data and to find discrepancies before the ATO does!
The greater benefits for the customer were not having to manage a spreadsheet with different versions and also to have the ability to run reports in real time. For our customer, gaining access to a solution on the cloud has been easier when working remotely compared to accessing spreadsheets on a server, which can be cumbersome.
If manual spreadsheets are failing to keep up with your company’s growing demands, request a callback from a ONESOURCE specialist for a confidential consultation.
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About the author
Neha Mahindru is the Indirect Tax Proposition Lead for Thomson Reuters ONESOURCE solutions across Asia Pacific, India, Middle East and Africa, and has been with Thomson Reuters for almost seven years. Leveraging her extensive market experience and deep technical background, she supports strategic product initiatives spanning the entire Indirect Tax ONESOURCE solution suite. She has a deep understanding of the potential of the Indirect Tax ONESOURCE solutions and their applicability to solving a wide range of business problems.
Prior to her current role, Neha has spent over seven years working at Big 4 accounting firms providing Indirect Tax technical advice to large organisations, along with working at the Australian Taxation Office in Australia where she was involved in audit and data reviews for large organisations.
Neha’s fundamental understanding of organisations’ complex tax policies/processes coupled with her experience working in a mature tax jurisdiction, drives her passion for technology led innovation for simplifying the burden of tax compliance requirements.
