Vertex warns of growing indirect tax compliance gap

Vertex has published research on the growing difficulty large companies face in managing indirect tax compliance. The study surveyed more than 2,100 enterprise leaders across the US and Europe.

The findings suggest indirect tax is becoming harder to manage as governments impose more transaction-level rules and invoice-specific requirements across markets. Many businesses are struggling to show that tax decisions made at the point of sale or billing can withstand audit scrutiny.

Among the organisations surveyed, 58% said they face highly complex indirect tax audits. The study also found that 80% can only achieve audit readiness through significant manual effort, while 45% identified keeping up with changing tax regulations as a leading compliance challenge.

System integration emerged as another major problem. More than half of respondents (56%) said integrating tax with existing ERP, eCommerce, and reporting systems was their biggest challenge, while 59% said easier integration was their top priority.

Despite widespread expectations of closer cooperation between tax, finance and IT teams, end-to-end connection between those functions remains limited. While 94% of respondents expect tighter collaboration across those departments, only 12% reported full integration of those systems.

Vertex uses the term "Compliance Confidence Gap" to describe the difference between the revenue a business could recognise with confidence and the more cautious position it takes when it cannot fully support a tax decision. In practice, that can mean treating uncertain transactions as taxable, missing exemptions or failing to reclaim indirect tax to which a business is entitled.

One of the more striking figures relates to the US market. One in three US enterprises estimated they leave USD $1 million or more on the table each year through overpaid tax or missed exemptions.

Control problem

Vertex argues the issue is not simply about software tools, but a lack of a joined-up compliance process across the life of a transaction. It identifies two forces behind the problem: "Defensibility Drift", where a business's ability to justify a tax decision weakens over time, and "CompOps Drag", where fragmented systems create manual rework, delays and audit response difficulties.

The research found that 46% of audit issues stem from a mix of factors rather than a single cause, pointing to broader process weaknesses instead of isolated mistakes. That matters for multinational businesses that must apply tax rules across jurisdictions while adapting to frequent regulatory change.

Indirect tax has often been treated as an administrative function that follows a completed transaction. The study suggests that approach is becoming less workable as compliance requirements move closer to the transaction itself and tax determinations increasingly need to be documented and defended in real time.

Allison Cerra, Chief Marketing Officer at Vertex, said the pressure on companies reflects a wider shift in how compliance is enforced.

"For decades, indirect tax was treated as a back-office calculation - something you filed and forgot. That era is ending. Global compliance increasingly lives inside the transaction, and the enterprises that lead the next decade will be the ones that can prove, defend, and improve every outcome they decide - not just report it."

Cerra said the underlying challenge is as much organisational as technical. "The enterprises we studied are not describing a tooling problem - they are describing a control problem that disjointed systems and operating models were never built to solve."

Operational strain

The research was based on surveys carried out by Emerald Research Group and Censuswide among senior decision-makers responsible for tax, finance, IT and compliance. Respondents came from enterprises with revenues starting at USD $150 million or EUR €150 million, spanning the US, UK, France, Germany, the Nordics, Benelux and wider Europe.

Emerald Research Group also pointed to the operational pressure facing companies as compliance obligations grow more complex. "Our research shows that enterprises are struggling to keep pace with escalating regulatory requirements and are seeking a coordinating discipline to manage complexity," said Tammy Kaneshige, Partner and Chief Executive Officer at Emerald Research Group.

"The organisations that will pull ahead are those that stop treating compliance as a series of disconnected steps and start governing it as one continuous lifecycle," she added.

Vertex said that lifecycle should cover tax determination, proof of decision, audit defence and ongoing improvement under a single governance model. Its survey data suggests many large businesses are still some distance from that point, particularly where legacy systems and manual processes remain central to compliance work.