Managing Global Indirect Tax Compliance: The Challenges Facing VAT Compliance Managers

Fast paced changes to business models, navigating increased complexities in VAT regulations and the shift from traditional end of period VAT return processes towards digitisation are leaving VAT managers and their teams under increasing pressure to ensure its VAT obligations across multiple VAT regimes are met.

With each jurisdiction imposing its own VAT rules, filing frequencies/deadlines, data structures, and reporting mechanisms, the complexity of multi-jurisdictional VAT reporting has never been greater.

In the following sections, we will explore some of the key issues contributing to this growing compliance burden.

Regulatory changes

Each country operates under its own VAT legislation, and while the EU provides a degree of harmonisation, significant differences remain in local interpretations, thresholds, and derogations. This creates a complex landscape for businesses attempting to monitor and comply with evolving regulatory requirements. Changes to filing formats and deadlines are often introduced with minimal notice, making it challenging for businesses to adapt quickly to jurisdiction-specific reporting obligations.

Deadline management

Timely filing of VAT declarations is a critical benchmark for the effectiveness of any indirect tax function as missed deadlines can lead to penalties, interest and reputational damage. Ensuring that all VAT declarations are submitted and payments are made within the prescribed deadlines presents an ongoing challenge. Unlike other tax areas that typically follow annual reporting cycles, VAT compliance involves recurring monthly or quarterly obligations, each with jurisdiction-specific deadlines. Additionally, many countries impose supplementary reporting requirements such as EC Sales Listings, Intrastat declarations, annual summaries, communications of data etc…, further increasing the complexity of compliance.

Control & Transparency

When VAT declarations are managed internally across multiple departments or regions without centralised oversight and transparency, the risk of non-compliance increases significantly. Variations in VAT interpretation, the absence of standardised processes and over reliance on manual processes and adjustments can all contribute to errors. Furthermore, the lack of visibility into these decentralised processes makes early detection of issues difficult, with discrepancies often only uncovered during audits—potentially resulting in substantial penalties and interest charges.

Data quality & validation checks

Managing transactional data across multiple jurisdictions requires clean, consistent, and well-structured data sets. However, ERP systems often lack standardised reporting capabilities or business can even operate across multiple ERP systems, making it necessary to extract and consolidate data from various sources to ensure VAT compliance.

This can lead to significant challenges for businesses when carrying our necessary validation checks on data such as mandatory fields required to meet specific filing formats, correct VAT treatment and VAT rates applied, validation of VAT numbers and reconciliations between VAT returns and other declarations.

These challenges are deepened by the fact that VAT teams typically conduct these checks only at the end of the reporting period. This timing leaves little to no opportunity to correct errors within the core systems, resulting in recurring manual interventions prior to each VAT return submission. Such inefficiencies not only increase administrative burden but also increase the risk of non-compliance.

Poor data quality or fragmented data sources hinder the validation process, increasing reliance on manual interventions and elevating the risk of non-compliance.

Methods of filing

Where jurisdictions impose differing filing methods such as XML uploads, web-based forms, or real-time and near-real-time reporting requirements like Spain’s SII or Hungary’s RTIR, VAT teams must be well-versed in the specific demands of each system. This often necessitates targeted training or involvement of local specialists (where not outsourced) to ensure accurate submissions. In some cases, integration with tax authority platforms may require system upgrades, additional software, or APIs to transmit data in the prescribed format. These challenges are further compounded when official guidance is only available in the local language, increasing the risk of misinterpretation and potential filing errors.

Audit documentation

Businesses undergoing a VAT audit often face both operational and technical challenges. Establishing a clear audit trail, from source data through to the final VAT return submission can be particularly difficult in environments where systems are disconnected, processes are manual, and adjustments are performed outside of ERP systems to file VAT returns. Additionally, certain transactions, such as cross-border trade within the EU, present an increased complexity from a VAT perspective. These require not only specialist local knowledge to determine the correct VAT treatment but also comprehensive supporting documentation to evidence the correct VAT treatment. Together, these factors highlight the importance of robust systems, proactive data controls, and access to local expertise in effectively managing VAT risks during an audit.

Conclusion

Given the critical role a VAT manager plays in managing the company’s indirect tax obligations, the skill set required demands more than just a strong understanding of VAT laws, it also requires the VAT Manager to be proficient in technology, data accuracy, analytics, process & risk management together with the ability to liaise and influence internal stakeholders for systems and process alignment.

Whilst technology alone does not solve all the challenges, when the right solution is strategically implemented, it can reduce significant risks associated with incorrect reporting/filing together with increased process efficiencies. This gives the VAT manager space to move from the day-to-day operations and time to focus on to providing more strategic input into risk management and growth.

With all the increasing demands and limited resources available, investing in a smart task driven and scalable VAT compliance solution is no longer optional—it’s critical.

ARCO Compliance is the comprehensive VAT technology solution built specifically for SAP environments. Developed on the Business Technology Platform (BTP), our solution creates a seamless bridge between your SAP systems and tax authorities worldwide, transforming compliance from a periodic burden into a controlled, continuous process. Get more details here