A leading global SaaS provider, one of the world’s top 50 software companies, recently discovered that roughly 10 per cent of its customer tax IDs were either missing or invalid. The exposure: more than $9 million in potential annual VAT shortfalls, plus mounting audit liability across multiple jurisdictions.
They’re not alone. Organisations that fail to get this right face serious financial and operational consequences. When e-invoices are rejected by tax authorities or recipients because of invalid tax data, customers don’t pay until it’s corrected and cashflow takes the hit. Add faulty tax calculations on transactions and failed VAT recovery claims, and finance teams soon find themselves buried in corrections that could have been prevented. And with digital transaction reporting and e-invoicing becoming the norm globally, it is a growing problem.
If you haven’t reviewed your internal tax ID capture and validation processes recently, now is the time. But the challenge is that although validation sounds simple (check that a number exists and matches the relevant tax authority’s records), in practice, it’s anything but.
The problem no one talks about
Five years ago, tax ID validation wasn’t a priority for most businesses. Most transactions were domestic, with VAT applied regardless, and cross-border trade was primarily the domain of large enterprises with established processes. Format checks to ensure numbers matched expected patterns were often considered sufficient.
That landscape has changed. The e-commerce boom and globalisation that began in 2020 have significantly reshaped international trade. Cross-border transactions are now routine for companies of all sizes, making the distinction between B2B and B2C sales a much higher-stakes question. Today, invalid tax data doesn’t just create back-office headaches, it blocks transactions entirely.
Tax authorities are shifting from periodic audits to continuous transaction controls and e-invoicing. They can see your data as it flows, not months later during a review. Invalid tax IDs get flagged immediately, often before you even know there’s a problem.
Validation isn’t just about whether VAT applies; it’s about properly identifying the counterparty on every transaction to ensure compliant reporting.
Why validation is harder than it looks
The obvious solution is to check tax IDs against official databases. For companies operating within the EU, the VIES system provides this function for VAT numbers. But VIES has limitations that become apparent at scale.
It covers EU VAT numbers only, leaving businesses to find separate solutions for every other jurisdiction. It experiences downtime and delays, especially during peak traffic periods. And it provides binary responses (valid or invalid) without the additional context businesses often need.
Perhaps most importantly, VIES isn’t a complete reflection of local EU country databases. There are significant gaps in business IDs, such as:
- France: 12 per cent
- Italy: 17 per cent
- Portugal: 61 per cent
- Poland: 13 per cent
Logically, large enterprises operating across dozens of countries quickly outgrow what VIES can offer. They need validation across multiple tax types, jurisdictions and registration systems. They need it integrated into their workflows, not as a separate manual check. And they need it fast enough to not slow down customer onboarding or transaction processing.
This creates a gap. Businesses know validation matters, but the infrastructure to do it well across global operations hasn’t been readily available.
The revalidation question
Even companies with robust initial tax ID validation face a second challenge: how often should you revalidate?
A customer’s tax ID was valid when they signed up three years ago. Is it still valid today? According to Fonoa’s data, anywhere from 10 to 20 per cent of business IDs change in just one year. That’s because companies change registration status. Businesses merge, restructure or cease operations. Tax authorities update their records.
