Believe it or not, risks associated with tax and tax compliance still keep CEOs in the US and around the world up at night, even in these COVID times when supply chain issues, the Great Resignation, and cybersecurity incidents grab all the headlines.
According to the KPMG 2021 CEO Outlook Pulse Survey, 14% of the 500 CEOs who were polled earlier this year said tax risk poses the greatest threat to their organization’s growth over the next three years—which was behind only cybersecurity risk at 18%.
In its report, KPMG said: “This focus on tax is markedly higher than recent years, with only 5% of CEOs identifying it as a top risk in 2018, less than 1% in 2019, and only 4% highlighting this as a risk area of primary concern in 2020. For years, KPMG tax leaders have posited that this is an issue that needs to be higher up on the executive team’s radar. Now, it’s decidedly there.”
Not only does a company’s management and tax executives have to worry about an already complex tax environment all over the world, including new tax policies and possible changes to country tax rates, but also a glut of tax liabilities arising from cross-border regulations and the rise in new unilateral rules. Laurie Hatten-Boyd, principal at KPMG, provides some insight on accounts payable tax compliance and the changing rules of cross-border payments to suppliers in this executive summary report.
Supplier tax compliance is also a biggie
One important area of corporate tax compliance that doesn’t get a lot of attention from the press revolves around payments to suppliers—especially foreign suppliers. But there’s an accounts payable automated solution on the market that can make chief executives sleep more soundly when it comes to supplier tax compliance. That solution is from Tipalti.
Founded in 2010, Tipalti provides a global mass payments platform to more than 1,500 customers—and you’re probably familiar with the names of some of the company’s clients: GoDaddy, Vimeo, Twitch, Roblox, ZipRecruiter, National Geographic, Roku, and Zumba.
Embedded into its A/P automated solution is a KPMG-certified tax compliance module that keeps the ghouls at the IRS off of Tipalti’s customers’ backs.
“Tipalti solves the highly complex and manual process of collecting supplier tax and banking information,” said Matthew Merrill, manager of partner and industry marketing for Tipalti. “We do this through digital capture from the very beginning during supplier onboarding. This accomplishes two things: it ensures that the correct tax information is collected upfront, which is easier said than done without a solution like this; and the information is validated before the first payment is even processed.”
While its competitors have targeted large conglomerates as customers, Tipalti works with companies of all sizes, and it works particularly well with fast-growing companies in the middle market.
“What we’re trying to do is attract those established or growing middle-market companies that maybe are still using paper checks and are on old legacy payment systems. We integrate really well with NetSuite, QuickBooks Online, and Sage Intacct, but we’ve made a lot of updates to our solution to make sure that we are able to integrate with any enterprise resource planning system,” Merrill said. “We’re also trying to get exposure within the CPA community. We have an alliance team that will work with accounting firms that serve that market. We have found that accounting firms that recommend Tipalti to their scaling clients end up making their own jobs easier when it comes to tax compliance and end-of-year reporting.”
Besides KPMG, another CPA firm that has partnered with Tipalti is Naperville, IL-based Sikich LLP. Colleen McCaughey, director of client services at Sikich, said Tipalti is an important companion to the firm’s outsourcing and technology consulting services.
“Our partnership helps us to scale our clients, while also helping them avoid the typical pain points of increased payables complexity that comes with scale. It’s a no-brainer to work with Tipalti,” she added.
Tipalti is also looking to work with CPA firms that have middle-market clients that are becoming more complex—maybe they added a subsidiary or they expanded globally and have to make more global payments. Tipalti is set up to scale with them, Merrill said.
Tax form wizardry
As companies grow and expand their reach, their need for suppliers and vendors also increases—and paying suppliers both home and abroad is no picnic. Another thing that’s no picnic? Keeping track of all of the suppliers’ tax status forms.
For US-based suppliers, you’ve got Form W-9, Request for Taxpayer Identification Number and Certification, that needs to be requested. And for foreign-based suppliers, there are two: Form W-8BEN, Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding and Reporting (Individuals) or, for non-individuals, Form W-8BEN-E, Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding and Reporting (Entities).
After the proper tax status form has been received, the company can then determine if the supplier should receive a Form 1099-MISC, Miscellaneous Income, or a Form 1042-S, Foreign Person’s U.S. Source Income Subject to Withholding, and whether any US tax withholdings should occur at the time of payment.
Without an automated payments platform like Tipalti that reduces the risks of financial fraud and keeps track of all of these supplier tax forms, things can get messy in a hurry.
“We make year-end filing a breeze by helping with W-8 and W-9 collection, as well as 1099 and 1042-S preparation reports. Our platform helps them prepare the end-of-the-year tax forms, and every payment already has a W-8 or W-9 attached to it,” Merrill said.
Tipalti users can’t make payments to suppliers until the supplier’s tax information—such as value-added tax (VAT) ID or US taxpayer identification number (TIN), business structure, and country/address—is registered in the Tipalti portal. Based on that information, the module’s embedded tax form wizard helps the supplier choose the correct tax form. And the forms are available on the platform 24/7.
“Once that tax form is selected, Tipalti will digitize the tax form and run it through our 1,000-plus rules engine to ensure the proper data has been provided. At year-end, Tipalti generates 1099 and 1042-S tax prep reports, and we’ll even calculate the necessary withholdings for our customers, as well, to protect them from IRS penalties,” Merrill said. “For non-US taxpayers, Tipalti collects local and VAT tax IDs in 49 other countries. Those go through over 3,000 validation rules to ensure accuracy.”
As a licensed money transmitter that operates in 196 countries with 120 currencies, Tipalti is able to offer suppliers a choice of payment method (country and currency), and suppliers are kept up to date on the status of their invoices and their payments.
“This really keeps suppliers happy,” he added.
Because the process of onboarding suppliers’ tax info is a piece of cake, it’ll free up your time to spend on other basic A/P tasks like invoicing. Tipalti can help with that, too.
“For invoice processing, we have invoice capture with Optical Character Recognition technology, as well as built-in machine learning and managed services, which cuts out any manual re-keying of invoice details from the process and ensures a touchless invoice processing experience,” Merrill said.
The numbers don’t lie
Companies seem to really like this Tipalti product quite a bit. A 98% customer satisfaction rating and a 99% client retention rate is pretty good, right? And Tipalti is one of only 24 companies in America that has made both the Deloitte Technology Fast 500 and the Inc. 5000 fastest-growing companies lists for the last three straight years.
So if your middle-market company is still in the Dark Ages of using manual accounts payable processes, it’s not too late to automate A/P like a 21st-century company would.