State of Tax 2025: Global Compliance and Reporting Trends
The world of tax compliance has taken on a new level of complexity for businesses. This report combines the observations of Sovos’ team of regulatory experts and data mined from the more than 16 billion annual transactions we conduct globally each year.
Why Global Tax Compliance is Evolving
Evolution of Tax Compliance
Source data has replaced declarative reporting.
Insight
The shift towards source data revolutionizes how tax administrations understand business activities. By requiring businesses to share standardized source data directly from operational systems, tax authorities can monitor compliance more effectively and at a lower cost.
Growing global complexity
A global shift towards real-time data collection and pre-filled returns.
The Government’s Expanding Use of Technology
Government tax authorities are reshaping the way in which they collect and interact with businesses.
Insight
The government has inserted themselves into your business process. There is no longer such a thing as after the fact reporting. The government is inserting itself firmly into your accounts receivable (AR) and accounts payable (AP) systems as well as your logistics processes and general ledger for more granular, real-time information.
The Global Regulatory Landscape
Global tax jurisdictions
Average changes per month
Insight
The global tax landscape shifts on a daily, weekly and monthly basis, forcing businesses to adjust in real-time to ensure compliance with all local tax laws for the regions where they conduct operations.
Global Hot Spots
U.S. Tax Compliance and Sales Tax Environment
The Size and Scope of U.S. Sales Tax
Jurisdictions supported
Bills analyzed during the height of season
Sales tax forms tracked
Total goods & service codes
Sales tax rate changes in 2024
Tax form changes in 2024
The United States has the highest number of independent tax jurisdictions of any country in the world and frequently introduces new tax laws while changing forms, rates and tax codes. It is the responsibility of the business to stay current.
Importance of Verification in U.S. Tax Reporting
of all Tax Identification Numbers (TINs) submitted for verification were incorrect.
Insight
In 2024, Sovos conducted over 55 million tax identification number checks for customers, with one in five found to be incorrect. Verifying this information before filing reduces IRS notices and eliminates red flags.
Insight
In 2024, Sovos conducted over 55 million tax identification number checks for customers, with one in five found to be incorrect. Verifying this information before filing reduces IRS notices and eliminates red flags.
| TIN | Name | Death | Birth |
|---|---|---|---|
|
001010001 |
Muzzy, Grace |
12/00/1975 |
04/16/1902 |
| TIN | Name | TIN/Na.. | DMF | EIN |
|---|---|---|---|---|
|
XXXXX0001 |
Grace Owens |
✓ |
X |
✓ |
|
XXXXX9693 |
GlobalTech, Inc |
X |
✓ |
✓ |
|
XXXXX4150 |
Dariel Ortega |
✓ |
✓ |
✓ |
|
XXXXX6023 |
Emmalynn Hale |
X |
✓ |
✓ |
|
XXXXX2271 |
TradeStar |
✓ |
✓ |
✓ |
|
XXXXX9018 |
Brennan Landry |
✓ |
✓ |
✓ |
← 1 / 5 →
Select lists to verify against
TIN/Name Matching
Death Master File
Global Watchlists
| TIN | Name | TIN/Na.. | DMF | EIN |
|---|---|---|---|---|
|
XXXXX0001 |
Grace Owens |
✓ |
X |
✓ |
|
XXXXX9693 |
GlobalTech, Inc |
X |
✓ |
✓ |
|
XXXXX4150 |
Dariel Ortega |
✓ |
✓ |
✓ |
|
XXXXX6023 |
Emmalynn Hale |
X |
✓ |
✓ |
|
XXXXX2271 |
TradeStar |
✓ |
✓ |
✓ |
|
XXXXX9018 |
Brennan Landry |
✓ |
✓ |
✓ |
Predictive Modeling and Data Analytics
Industry Targeting
Incongruous Periodic Returns
Inconsistent Filing History
Inconsistent Filing Approach
Flow Down/Flow Up Audits
Conspicuous Presence
Random Selection
Whistleblowing
Prior Audit History
States use data mapping, target high-fraud industries, or sometimes it’s just bad luck. If an audit is “productive,” expect repeated audits until full compliance is demonstrated.
Failure to recognize a nexus obligation
Failure to request or maintain exemption certificates
Tax rate errors and product taxability rule errors
Failure to assess the use tax on purchases
Failure to remit taxes collected from customers
Once identified as the target of an audit and the audit has commenced, these are the top five areas in which most businesses are flagged for noncompliance.
States with the Highest Audit Likelihood
Although these four states are the most aggressive in their audit approach, increased audit activity is occurring across all 50 states due to advancements in technology
States with the Highest Audit Likelihood
Click on the states to see if you can identify the 4 most likely to launch an audit.
Although these four states are the most aggressive in their audit approach, increased audit activity is occurring across all 50 states due to advancements in technology
VAT Compliance in EMEA
Countries with Upcoming VAT Rate Changes
Temporary 13% reduced rate on transportation services, restaurant and catering services, non-alcoholic drinks, movie tickets, tourism; 6% reduced rate on face masks and gloves.
Zero-rate on food and reduced rates on energy and fuel.
Transactions previously subject to 9% (certain sugary foods and drinks) increasing to 19%; increases from 5% to 9% for high quality food, housing, photovoltaic supplies, use of sporting facilities, transportation (other than taxis).
VAT rates can change unexpectedly in any country or jurisdiction. Businesses must ensure they always apply the current rates.
Digital Services
Energy & Utilities
Hospitality & Tourism
Pharmaceuticals
Transportation and Logistics
VAT is a complex tax system that places responsibility on the seller at each stage of the supply chain. Businesses in these industries are likely to face increased scrutiny from tax authorities.
Many transactions are exempt from VAT. Businesses must track which products are exempt and in which tax authorities. These countries have the most exempt products.
Germany
France
Ireland
United Kingdom
Sweden
Common Reasons for E-Invoice Rejection
Missing information
Invoice Timing
Format Errors
Failure to Report in Real-Time
Insight
Correct information, such as VAT numbers, invoice dates, and currency, is essential for e-invoice acceptance. E-invoices filed too early, too late, or not meeting real-time standards will be rejected.
Common VAT Penalties Issued by EU Tax Agencies
Late VAT registration
Late filing of the VAT Return
Late payment of the VAT due to the Tax Office
Incorrect VAT treatment
Insight
Most penalties and fines stem from procedural issues. Meeting deadlines and maintaining accurate data keeps you off the tax authority’s radar.
VAT and E-Invoicing Compliance in LATAM
Sovos processed more than three and a half billion transactions for customers all across Latin America in calendar year 2024.
All transactions require real-time reporting to tax authorities to ensure adherence to applicable tax rules.
Leading LATAM Countries in E-Invoicing Adoption
Leading LATAM Countries in E-Invoicing Adoption
Latin America leads globally in e-invoicing, with Chile, Colombia, Mexico, and Peru having the most robust compliance initiatives in the region.
E-invoicing initially implemented
1995
Compliance complexity
Energy & Utilities
Visibility and information transparency
Strategic scalability
VAT is a complex tax system that places responsibility on the seller at each stage of the supply chain. Businesses in these industries are likely to face increased scrutiny from tax authorities.
Inconsistent
Reporting
High Refund Claims
Non-compliance with E-invoicing Regulations
Unusual Transaction Patterns
Industry-specific Risks
Discrepancies in sales and purchases, large VAT refund claims, non-compliance with e-invoicing, irregular transaction patterns, and high-risk industries like construction or pharmaceuticals can trigger audits to verify legitimacy and prevent fraud.
Brazil’s Role in Global Tax Compliance
The standard penalty for unpaid taxes in Brazil is 75%, increasing to 115%, 150%, or 225% if fraud or lack of cooperation is found.
Brazil’s tax environment is the most complex in the world, requiring businesses to use automated systems for compliance.
Reasons for NF-e and NFS-e Rejections in Brazil
Digital Services
Energy & Utilities
Hospitality & Tourism
Pharmaceuticals
Transportation and Logistics
Brazil has some of the tightest compliance controls globally. Any inconsistent, erroneous, or potentially fraudulent data will be flagged, resulting in transaction rejection and increased audit potential.
Although only 4% of companies are closely audited, they account for 34% of the total tax burden and 98% assertiveness in tax assessments.
Finance Leader Perspectives on Compliance
Key Initiatives Identified by CFOs and Tax Leaders
Key Initiatives Identified by CFOs and Tax Leaders
Of finance leaders prioritize lowering or maintaining compliance costs
Say investing in additional technology to automate tax and compliance processes
Are focused on better preparing for future e-invoicing mandates
Of leaders say ensuring accurate real-time data reporting within and outside of their company is critical.
Of finance executives have seen a positive return on investment (ROI) on centralized indirect tax platforms
Sovos by the Numbers
Line Items Processed on Cyber Monday