Sovos CEO Says Government Tax Compliance Mandates Push CFOs to Modernize

Governments around the world are using mandates to modernize and digitize all manner of activities, including how they collect taxes.

To get a sense of the task at hand and its complexity, there are 19,000 taxing jurisdictions making thousands of changes, which has a ripple effect across the entire supply chain.

“The governments are telling companies, in real time, what their responsibilities are,” Sovos CEO Kevin Akeroyd told Karen Webster, no matter if the company in question is a Fortune 500 conglomerate or a bakery in Portugal that ships cookies to five countries in the European Union.

But as Akeroyd noted, for the corporates embracing those changes, the impact is not solely about avoiding government actions.

“The stakes are just too high to get this wrong,” he told Webster, taking stock of the first half of 2024 as part of the “What’s Next in Payments” series. “And none of this can be done in silos.”

Ensuring Business Continuity

One might say that taxing authorities are using a bit of a carrot-and-stick approach, as being compliant means modernizing the office of the chief financial officer. Not being compliant means goods don’t ship. Part of the modernization mandate is collecting taxes before goods ship, not after they ship and money is collected from the buyer.

“It’s not about a penalty in the background anymore,” said Akeroyd. “It’s about ‘Do I get to do business tomorrow?’”

But compliance differs wildly from country to country. Romania is different from France, France is different from Portugal, and so on. As Akeroyd said, “there’s a massive amount of complexity on top of this huge demand for change, for digitization.”

There are some issues with which to grapple. Many enterprises don’t have the resources to meet the new, 21st-century tax compliance challenges. For the small baker, there’s a Byzantine labyrinth of systems, people, processes and data to deal with. Dozens of countries have implemented a value-added tax (VAT) or goods and services tax on cross-border online sales.

“The corporation out there is not where it needs to be in terms of a state of readiness, and they’re relying on a lot of service and technology people who do this for a living 24/7,” said Akeroyd. “The end user needs a lot of help.”

Automation and Orchestration

Firms such as Sovos create an orchestration layer that lets ERPs talk to order-to-cash systems and develop a system of record that avoids a veritable Frankenstein’s monster of processes and data flows and dozens of vendors, Akeroyd said.

Generative artificial intelligence has a role here, too, as rules become clearer about how advanced technologies are governed, how data privacy dictates ethical use, and how AI can be used for productivity.

“The content and data rules can be quickly translated into either self-help or automated support or faster product evolution that we can push forward right into actual end-user products,” he said.

Although it’s slow going, we’ll see more commonality of tax reporting across the EU, and through the next several months, “there will be more clarity headed into the second half of 2024,” Akeroyd said.

As he told Webster, “no matter where we sit in the ecosystem, humans have got to embrace change and get ahead of it.” With the shifting sands of tax compliance, “there’s a lot of rationality out there, and people are trying to get themselves ahead on the maturity curve” as they harness technology to pay the tax man.