Tax Oversights in the P2P Process

Let’s talk about the procure-to-pay process. Specifically, we’re going to focus this article on P2P taxes and the common headaches that can accompany them, as well as discuss other pain points and big risks organizations should take care to avoid when dealing with taxes throughout the P2P lifecycle 

This is a hot topic that is highly relevant today, as the top priority and goal of procurement transformation is to root out any inefficiencies in process. Often cropping up among these issues is indirect tax compliance — an absolute must-have requirement on every relevant purchasing transaction, and a real blind spot that plagues many procurement teams today. 

We will use this article to help you develop a basic understanding of indirect tax and how it applies to B2B purchasing transactions, which is the very best way to help you ultimately reduce tax risks from P2P processes and alleviate the pressure resulting from current pain points. Let’s kick things off by taking a closer look at P2P activities to determine the extent to which tax management oversights are present. 

3 Common Risk Points 

There are common risk points in nearly all organizations that can have unfortunate consequences with tax auditors. These common risks include: 

1. A lack of tax knowledge: Tax compliance determinations are often overlooked until late in the cycle and don’t come up until the invoicing stage. Accounts payable (AP) teams typically don’t have the experience to apply the correct tax codes.  

2. Overpayments and underpayments: Overpayments and underpayments are common due to recurring errors that result in a company underpaying and/or overpaying taxes. Overpayments of sales must be recouped through time-consuming, manually intensive guessing games and detective work. On the other hand, underpaying taxes generates more audit exposure and can trigger substantial fines. It can also damage supplier relationships.  

3. Technology gaps: New procurement platforms give procurement teams more advantages and automation opportunities. However, they don’t always take tax calculations into consideration. These tools should be integrated with advanced tax automation solutions or else critical compliance steps are missed.  

What P2P Tax Questions Should Your Organization Be Asking? 

Every organization should be asking questions to ensure crucial details and steps aren’t missed. Among the most pertinent queries your organization should be posing regarding P2P taxes include: 

• Are your suppliers charging you the correct sales tax? 
• Are you self-accruing when suppliers don’t charge tax? 
• Do you have invoice errors due to tax issues? 
• Do tax issues slow the payment process?  
• Is your tax department constantly responding to AP questions? 
• How much time does your AP Professional spend trying to solve tax issues? 

These questions aren’t failsafe but provide a framework to ensure tax compliance is being attained.  

How to Automate Tax Procedures 

Clearly, tax teams have a lot on their plate, and the reduction of manual work should be a priority inall organizations.  

Automating your tax procedures can exponentially improve your entire P2P tax experience. But where should you start? 

The following steps will help you stay on track when undergoing implementation of automation software: 

• Involve tax early on/from beginning of project 
• Identify key stakeholders 
• Do not underestimate the importance of good, clean data 
• Assess pain points to drive discussion 

Being cognizant of these steps is easier said than done. 

At Vertex, we know that tax compliance can get overwhelming, which is why we’re here to help. Visit us today online for more info, and reach out to see how we can help you specifically by providing end-to-end tax solutions to meet you where you do business, providing you a connected experience that spans front office or back office.   

For more information, join us at our Procurement Foundry Thought Leadership Event this February.  

Written by: Kristin Schwabenbauer, Global Partner Manager, Vertex