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How To Mitigate The Risks Of Accounts Payable Compliance

While the aim of Accounts payable (AP) automation was initially to save users money, tax authorities now see AP automation as a way to make money from companies. Penalties can change from one quarter to the other, and AP systems, (especially automated ones) have to keep up to adapt to the changing demands of tax offices. Most companies are content to let their suppliers deal with invoicing and delivering correct amounts, but in places where indirect taxation is the standard, issues arise almost immediately. As a buyer, a company must verify the particular of incoming invoices to enter those into their ERP system for it to calculate taxes accurately. In such a case, the buyer, not the seller carries the most onerous burden when it comes to tax compliance.

AP Proliferation With Regards to Errors from Suppliers

There is an innate trust between buyers and suppliers for delivering the goods or services as ordered, but there are situations where suppliers inadvertently submit inaccurate invoice information. Non-compliant reporting of Value-Added tax (VAT) can lead to a company being hit with fines that may negatively affect cash flow. What adds to the complication of this system is how widely spread AP systems are. There is no international standard for AP systems and some SAP customers combined multiple systems, each dealing with a different type of supplier or industry. Tax compliance is unique for each of these different pieces of software. The underlying AP automation system needs to be understood for those systems to save the company money instead of costing the company as taxes or fines for non-compliance.

Electronic Invoicing Across the World

Most recently in Latin America and Europe, electronic invoicing has been introduced to reduce corruption and increase revenue to the government from taxes and fines for tax non-compliance. Central control of the system sometimes sees government directly stepping in to verify particulars regarding a particular invoice before it can be used to close a transaction. A buyer tends to be the higher risk participant in this process, as a non-compliant invoice can lead to a plethora of problems ranging from an inability to reclaim the VAT from the government to a series of complex creation processes that may be needed to rectify the situation. These false invoices can profoundly impact both a company’s cash flow as well as their supply chain efficiency as good can’t be moved until the invoice clears muster with the real-time clearance system. In each situation where these real-time systems are incorporated, the complexity of the system renders it challenging to navigate. Nothing that applies to one system fully applies to any other method.

Indirect taxation and its Potential impacts on Supply Chain Efficiency

As we’ve already established, the efficiency of a supply chain is indirectly linked to the accuracy of the invoices used. With the implementation of more real-time methods of clearance, and legislation being changed to put less of a burden on the supplier to provide a correct invoice amount, the onus now falls to the buyer to ensure the figures (and therefore the tax amounts) are right on those invoices. Around the world, if a company seems to be paying too little in indirect taxes, it can trigger an audit, which could potentially shut down the entire supply chain until it’s completed. The other side of this is to ensure that the company isn’t paying too much in taxes. While extra fees coming from a company won’t trigger an audit, it will impact the profitability of the company and should be avoided.

Reporting VAT to Governments

VAT reporting used to be a complex paper system, but now that the system has moved online, like Calgary disability insurance, it hasn’t lessened the complexity for companies trying to file VAT records, but it has increased the availability of data for governments to prosecute erroneous VAT information. Countries in the EU have adopted a standard for their VAT filing (called the Standard Audit File for Tax [SAF-T]) but countries in Latin America, for example, have a wholly different filing system. This added complexity makes it challenging to find one’s way around an international system but makes it much easier for local authorities to detect inaccuracies, trigger audits, and levy fines for lousy reporting. In such a case, putting the responsibility for reporting correct figures on a supplier is just asking for trouble.

Tax-Compliant Archiving

The proof of a transaction (i.e., the records of those transactions or receipts generated) should be archived in a searchable system that allows a company to produce that proof in the event of an audit. In places where the taxpayer has the burden of proof for a transaction, having a tax-compliant archiving system is priceless. Countries that are moving away from older tax systems have come to adopt policies by which the authorities generate tax information to be sent to the payer. To contest these reports, a robust archiving system is needed to search up relevant information to support the company’s case. E-invoicing usually goes hand in hand with e-archiving, which suggests that a combined system would work best for the client.

Accounts Receivable (AR) and Accounts Payable (AP) Support

Because of the widespread use of SAP in many places across the world, the system must be designed to be flexible but also compliant. The ever-shifting standard for invoicing, tax reporting and other compliance issues change rapidly and regularly, forcing clients to adapt or be on the receiving end of fines or a halt in their supply chain movement. As regulatory bodies change their requirements, SAP shops must stay ahead of the curve, or else they risk audits or fines for non-compliance.

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