A sustainable (tax) business model (V) - tax

Now that we've covered HR and finance in our business models series, it is now time to move on to taxation. When it comes to taxes, what steps should a startup or a scale-up take? If you wish to avoid lengthy talks with tax authorities or perhaps an audit, you must be compliant.

VAT

Setting up VAT reporting is the first order of business. Depending on the frequency, this could be monthly, quarterly, or annually. Companies are required to file Intrastat reports whenever they move goods across EU borders. These reports must be in perfect harmony with the VAT returns that they are based on. For tax authorities, ensuring VAT compliance is easy pickings. The process is intricate, and it's easy to make mistakes. Give this your full focus.

Corporate income tax

Corporations are required to prepare and submit income tax returns after the first fiscal year. For this, you'll need accurate financial statements. A recommendation: Big Four accounting firms aren't necessary for preparing corporate income tax returns. Affordable, high-quality tax returns are offered by small boutique firms. One thing to keep in mind, as said earlier: in order to file effective tax returns, you need good financial statements. Be quite confident in your abilities if you plan to prepare your financial statements yourself when you start your business. You may be sure that the fees will skyrocket if you submit low-quality financial statements to a tax firm.

Transfer pricing

As you can see from the diagram below, there are a number of critical components to transfer price compliance.

The first step in launching a successful business is to lay the groundwork for future expansion by creating a sound business plan and a compliant tax business model. However, it is not all. First impressions are crucial, so keep that in mind. The tax authorities are going to be knocking on your door shortly after you launch your company. If you can demonstrate that your business strategy is robust and compliant, along with your thorough preparation, they will likely let you go soon after. Show that you're in charge of your transfer pricing by giving them reliable data based on appropriate benchmark studies and agreements for all intercompany transactions. This is precisely the information that tax authorities are attempting to gather from these reports. Ultimately, they will determine whether further investigation of your business is warranted. If you can prove that taxes are under control, I have no doubt that they will come to the conclusion that they can better spend their time looking into other companies.

Tax consultants

Technical knowledge, experience, honesty, and excellent communication skills are all necessary qualities in a tax consultant for a global corporation. They need to be proactive, flexible, and able to handle complicated tax matters in many countries while still providing value and being completely transparent and compliant. Expertise in worldwide taxation, transfer pricing, and local rules in each country your business does business is essential for any tax expert. Due to the every increasing tax complexity, it is important to look for expert advice. There weren't many transfer pricing specialists when I first started, but as the number of MNEs seeking out such consultants increased, I noticed that corporate tax consultants were suddenly advertising themselves as transfer pricing experts. You can't claim to be an expert in transfer pricing only by reading literature (OECD reports for example) on the subject. To offer operational transfer pricing advice grounded in practical expertise, one must have extensive in-house experience spanning several years.

Tax automation

The only way for multinational enterprises (MNEs) to cope with the increasing administrative cost of tax compliance is to automate their tax processes. I find it intriguing that MNEs are willing to spend millions on enterprise resource planning (ERP) systems like SAP, Microsoft Dynamics, or Oracle, yet are unwilling to invest in tax automation.

Companies began automating VAT processes a long time ago, as the first component of automation. The rationale behind this is the high error rate and complexity of VAT reporting. Since tax authorities could always find a way to mess up a VAT audit, they relished doing them. A major cost is the imposition of penalties. Many years later, the authorities also focused on VAT automation. Initiatives such as the EU's "VAT in the Digital Age" (ViDA) package are contributing to the larger digital transformation of tax compliance, which is quickly changing the status of automated VAT return filing in Europe. Mandatory electronic invoicing and real-time digital reporting for VAT purposes will be implemented this year in an increasing number of EU countries. Businesses can now report VAT for numerous EU nations using a single return thanks to the expansion of the One-Stop-Shop (OSS) mechanism. By consolidating VAT reporting and registration, this will relieve businesses of a great deal of administrative work.

Automated preparation of master and local files is the main focus of transfer pricing automation. Even though the Big 4 firms have automated some of their processes, they still require their employees to generate revenue. Consequently, they deny their clients the opportunity to reap the benefits of this automation. Companies can now handle their transfer pricing compliance requirements in-house, thanks to solutions developed by specialised tax automation firms. This allows them to save a tons of money, keep knowledge in-house, and educate their employees on transfer pricing.

To sum up, taxes are important, and businesses should pay close attention to them. Prioritise automation as it will offer significant relief. Thanks to the rapid advancements in AI, tax compliance should soon be a breeze, eliminating the need for human intervention.