CIOs faced with new tax regulations on CTCs.

Constraint, risk or opportunity, the consequences for companies of mandatory electronic invoicing and reporting – and therefore of the new CTC regulations – depend above all on the degree of anticipation of IT departments.

By Jean-Cyril Schütterlé, CTC Product Management Director at Sovos

IT spending is on the rise again. After a lull during the first part of the pandemic, many organizations have restarted the rollout of leading initiatives. According to Gartner research, IT budgets rebounded in 2021 and continue to gain momentum in 2022 with the $4.5 trillion milestone being reached globally, a 3% year-over-year increase other.

However, global economic uncertainty is now hovering over multinational corporations and forcing IT decision makers to make tough choices about which technologies to prioritize. As they develop their strategic plans, many are considering for the first time the potential impact of new tax regulations on Continuous Transaction Monitoring (CTC).

In fact, more and more tax authorities are requiring companies to send them their invoicing data in electronic form, or even forcing them to exchange only invoices in electronic format among themselves.

We are witnessing this Copernican revolution in relations between companies and tax authorities in terms of the collection of transactional data and the controls they make possible in almost all regions of the world. They have been common in Latin America for decades, and are now becoming prominent in Asia, the Middle East and Europe – Poland, France and potentially Germany all have new mandates on the horizon.

The scopes of application and methods of implementation of these requirements vary according to the jurisdictions. However, the benefits expected from their adoption (reduced tax evasion, improved business efficiency and provision of up-to-date economic data to inform government decisions) are the same everywhere.

Once implemented, these CTC regimes most often continue to evolve. Their scope is expanding to apply to a greater number of smaller enterprises and the granular data required may need to be transmitted for other streams, putting additional strain on the IT ecosystem .

What could pass for a project to be entrusted to the finance function is, de facto, an issue whose resolution will depend on the IT team. While finance and accounting teams will no doubt ensure data matches e-invoicing requirements, but IT will play a key role in acquiring and implementing digital solutions to enable compliance. .

No escape from continuous transaction monitoring!

Far from being a passing trend, it’s a new reality for IT and finance managers, as tracking and ensuring compliance goes far beyond periodic manual processes.

With the implementation of CTC regimes and mandatory e-invoicing, regulators are getting right to the heart of business data, dictating how it should be collected and presented, and ultimately scrutinizing financial transactions and chains. associated supply chain, in real time.

With the tax authorities entering its supply chain, the challenge for the company becomes to adapt its technological environment to these new requirements. In countries where CTC regimes and real-time data transmission are already a reality, the government is now seen as a partner in all transactions.

Unlike other IT projects, companies don’t have the luxury of deciding when to implement or upgrade protocols. Additionally, as authorities refine their approach, the business should expect frequent and substantial changes to data requirements and enforcement procedures.

The consequences of non-compliance with CTC regimes can be far-reaching, ranging from steep fines to forced cessation of operations. Given the potential economic and reputational ramifications, all functions, including IT, will need to work hand in hand.

“The readiness is all”

As more countries implement CTC regimes and mandate e-invoicing, IT teams need to ensure that the business has the right resources and tools.

This means working closely with management, compliance, and legal teams to address the following issues:

* What are the current and planned CTC regimes in the countries in which the company operates today or plans to expand tomorrow?

* What is the readiness level of existing systems (ERP, invoicing, ‘Order-to-Cash’ and ‘Purchase-to-Pay’ tools, etc.) to extract, integrate, and guarantee the quality and confidentiality of considerable volumes of data, in near real time? A preliminary audit is certainly essential which will make it possible to dimension and plan the projects.

* Once the financial application environment has been upgraded and secured, how to connect with tax platforms in each country and exchange electronic invoices with its business partners? Resorting to local solutions is rarely sustainable for international organizations due to the multitude of projects and the management costs they entail. Especially since there is currently no standardized framework for CTC regimes, even within trading blocs like the EU. They therefore generally prefer a global technology that will free them from all compliance obligations in the countries where they operate, while offering them legitimate economies of scale.

Addressing this question as early as possible before the entry into force of the CTC regulations is essential if the IT teams want to carry out these projects which do not suffer from delays or approximations. Getting caught out by CTC changes can cost them dearly, whether it’s tax fines, loss of reputation, or broken processes.


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CIOs faced with new tax regulations on CTCs.


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