Adapting to e-invoicing is one of the biggest challenges facing the indirect tax function within many corporate tax departments. Indeed, that challenge was frequently mentioned  by indirect tax (IDT) professionals who were surveyed by the Thomson Reuters Institute for its recent report — The Contribution Gap: Increasing the visibility and influence of indirect tax and compliance — on the state of in-house IDT teams in the United States, Canada, Mexico, and Brazil.

The report also revealed that organizations’ current states of readiness for the growing number of e-invoicing mandates vary widely.

Compliance readiness is rising quickly

E-invoicing is already an operational reality, not a future planning item, for many organizations, especially as more countries implement e-invoicing mandates. And organizations are moving quickly to adapt to the shifting marketplace.

One-in-eight IDT professionals (16%) who responded to the survey say their organization is already fully live and compliant in at least one jurisdiction. Another 42% say their teams are actively implementing e-invoicing solutions for mandate compliance within the next 12 months.

Figure 1 – More than half of indirect functions expect to achieve compliance within the next 12 months.

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Mexico, in particular, is firmly in implementation mode, with nearly three-quarters (70%) of respondents saying they have either already achieved live compliance or are implementing solutions to do so over the next year, compared with about half of respondents in the US, Canada, and Brazil.

Indeed, Canada is at risk of falling behind. Canadian IDT professionals report the lowest level of planning for mandates, even though more mandates will continue to take effect over the next one-to-three years. While between 80% and 90% of tax professionals in the US, Mexico, and Brazil say they expect to reach or maintain full compliance within three years, only 67% of Canadian respondents say they expect do so.

In fact, Canadian tax professionals are far more likely to report that while they are monitoring new e-invoicing requirements, they have not yet begun formal planning. However, as these e-invoicing requirements continue to grow, Canada is the most exposed among the markets surveyed to lagging in compliance.

A springboard for building capabilities

As the number of countries with e-invoicing mandates rises, so too does the complexity of compliance for IDT teams. For example, the vast majority of teams are prudently leveraging the compliance requirements for individual mandates in order to build reusable capabilities that compound in value.

More than three-quarters of respondents say they are using the individual mandates to build regional or global capabilities or have a central governance model which sets standards that their local teams can then implement. In Brazil, fully 89% of respondents are doing so, shaped by years of complex requirements for the nation’s NF-e and SPED compliance frameworks that made local-only responses unscalable.

Figure 2 - Most organizations are building global capability from individual mandates – not reacting locally

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Overall, only about a quarter of respondents (22%) say they’re either treating mandates as local requirements to be met on a country-by-country basis or have adopted different approaches across different parts of the organization.

Canadian respondents were the least likely to say they have or are moving towards central governance or global and regional compliance, which may be a result of many of their organizations being less impacted by mandates compared with their counterparts in the US, Mexico, and Brazil.

Regardless of their home country or mandate intensity, IDT functions need to carefully evaluate their compliance needs — both current and anticipated — and ensure they are using an approach that will efficiently meet both. Otherwise, they may find themselves caught off guard, duplicating efforts, or otherwise struggling with compliance readiness.

Benefits from e-invoicing readiness

Survey respondents also report a wide variety of benefits from implementing e-invoicing or digital reporting, with many of them stretching well beyond compliance. In fact, every IDT tax professional surveyed said they are already seeing some benefits, with improvements in data quality, audit readiness, and visibility into transaction level risk topping the list.

Figure 3 – Improved data quality is the most frequently-mentioned benefits

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Better data quality, in particular, can reap benefits across the entire corporate tax function, enabling better reporting, faster reconciliation, and a stronger platform for strategic advisory work. More than 40% of respondents say their indirect tax function uses four or more separate technology systems for compliance processes — a combination of enterprise resource planning (ERP) systems, tax engines, e-invoicing platforms, reporting tools, and other systems for processing data — making data quality an operational imperative.

The most common setup cited by respondents combines ERP with a third-party tax engine, making the data handoff between the two the most frequent source of reconciliation burdens. Indeed, 16% of respondents say their teams have fully automated data reconciliation; and 58% have at least partial automation, while 26% rely on manual reconciliation. Automation levels are highest in Brazil and lowest in Canada.  

It’s no surprise, then, that data reconciliation is by far the most frequently mentioned priority to automate, the report notes, adding that “every hour spent on [manual reconciliation] represents a portion of professionals’ time that then cannot be used for strategic work.”

Data integration needs to be viewed as not merely another IT project for compliance purposes, but as a strategic priority, the report also stresses. E-invoicing done well is more than compliance; rather, it’s an upgrade of the function’s entire data infrastructure. Little wonder that improved data quality is the most frequently mentioned benefit of e-invoicing.

At the same time, most organizations are not yet seeing e-invoicing compliance translating into gains in process automation. Only one-third of respondents say their department has so far captured the compounding returns available from automating accounts payable (AP), accounts receivable (AR), and reconciliation workflows. Indeed, this remains the largest unrealized opportunity for organizations on their e-invoicing journey.

Yet, with continued strong progress on compliance, organizations will also continue to reap more benefits beyond merely fulfilling e-invoicing mandates.

You can download a copy of TRI’s IDT report, The Contribution Gap: Increasing the visibility and influence of indirect tax and compliance here‍