Today we are at a turning point in tax. There are enormous
issues affecting and disrupting our industry – issues
that layer new complexities, pressures and opportunities onto
businesses. The new digital tax function is now evolving at
great pace to become a strategic component of enterprise
transformation, with tax executives simultaneously having to
act as a business adviser, savvy technologist and tax diplomat
– bridging the gap to the C-suite and representing
tax's unique value proposition in the digital age.
Legislation driving change
For the past 12 months, the political, social and economic
fabric of many countries has been characterised by disruption,
increased nationalism and seismic shifts that many thought were
unimaginable. As these changes play out, they will be key
drivers for the trend toward digital taxation, and the
technology required to support that movement.
In the US, significant tax reform for individuals,
entrepreneurs and corporations is taking shape. The last five
presidents have all moved major economic legislation containing
tax changes in the first year of their presidencies, and the
Trump administration is likely to be no different. The House
Republican Blueprint for Tax Reform outlines a provision for
border adjustment taxation that is riveting the business
community in the US and abroad. The border adjustments would
exclude US exports from the tax base while including imports,
representing a major departure from the current corporate
income tax. On April 26, the Trump administration outlined a
tax reform plan calling for a 15% business tax rate and a
one-time tax on the repatriation of foreign earnings of US
companies at an unspecified rate. Specifically for individuals,
income tax rates would be set at 10%, 25% and 35%; these differ
from Trump's campaign proposal rates of 12%, 25% and 33%, which
were aligned to those in the House Blueprint on Tax Reform. The
administration has stated that throughout the month of May,
listening sessions will be held with stakeholders to gather
their input, and work will continue with the House and Senate
to develop the details of a plan that provides massive tax
relief, creates jobs and makes America more competitive.
Outside the US, we have seen much legislative change.
Countries like the UK have modified their tax systems
dramatically, adding a patent box legislation and numerous
other provisions to broaden the base of taxation. Similar
action has been taken in many other European countries
including Belgium, Hungary, Luxembourg, the Netherlands and
In India, the goods and services tax (GST) reform will
introduce a uniform indirect tax structure across the country,
moving away from a model that empowers both the federal
government – through excise duty and services tax
– and state government – through VAT on goods
and entry tax. This move is an extremely significant event for
India and will have an impact on all segments of the economy.
Expectations are that it will widen the tax base, do away with
the multiplicity of taxes and the cascading effects, minimise
competitive distortions and encourage better compliance.
Similarly, the Shura Council in Saudi Arabia ratified the Gulf
Cooperation Council (GCC) Value Added Tax (VAT) Framework
Agreement in April. Officials at the Saudi Arabian Ministry of
Finance have indicated that the VAT regime will be applicable
from January 1 2018, and a 5% levy will apply to goods and
services as set forth in the GCC agreement. These official
affirmations are in line with similar pronouncements made by
government officials from other GCC member states.
Authorities are responding to digitisation
Governments worldwide believe they are losing billions of
dollars in tax revenue each year through non-compliance,
evasion, fraud and non-collection. Faced with heightened public
and political scrutiny, tax authorities are under pressure to
take action to increase transparency and close the tax gap.
Moreover, as their own operating budgets are cut, they need to
find ways to do more with less. As the global tax environment
becomes increasingly complex, new solutions are needed.
Starting on January 1 2015, taxpayers in Russia were
required to submit VAT transactional data along with their
electronic VAT returns. That year, domestic VAT revenues
increased by more than 12%, the equivalent of around $4 billion
(RUB 267 billion). Was this driven by an improving economy?
Perhaps more likely is the fact that the Russian Federal Tax
Service had delivered on its vision for a nationwide VAT
The experience of the Russian tax authority provides one
example to illustrate the enormous potential of advanced
analytics in tax administration. Using various statistical and
data-mining technologies to identify anomalies, unusual
relationships and patterns, tax agencies can address a wide
spectrum of non-compliance behaviours in a proactive, targeted
and cost-effective way.
We saw growth in 2016 in the number of countries moving to
require more transactional VAT data. Spain, for example,
launched a new digital VAT reporting system and expanded its
monthly VAT filing requirements to include digital submission
of all invoices, customs documents and accounting documents.
These changes will come into effect from July 1 2017. And as
recently as December 2016, Italy enacted a new law –
referred to as "Spesometro" – requiring
quarterly communication of VAT invoice data.
While VAT is one element, there are numerous other data
sources including those related to country-by-country
reporting, transfer pricing master and local files, and
mandatory disclosure requirements including SAF-T that are all
being impacted by the increased scope of data requirements and
the frequency with which data must be submitted.
Many tax authorities have invested in digitalisation, data
integration and analytics, and several have already improved
service, administration and compliance. However, much still
needs to be done to leverage analytics as a standard practice
across tax-related activities. Companies too will need to make
major investments in their technology and data analytics
infrastructures to ensure they can meet the challenges
– and opportunities – of providing
information on an almost real-time basis.
Technology is changing taxation processes
Accelerated by technology, digital is a disruptive megatrend
that is enabling real-time access, real-time analytics and
heightening the expectation for real-time visibility.
Responding to this, the tax function needs to increasingly
operate across a number of fronts.
Organisations must ask how technology can be leveraged to
help build an operationally more effective tax function and
meet the requirements of real-time data. New technologies, such
as blockchain, robotics process automation (RPA) and artificial
intelligence (AI) can offer a new era of visibility into
transactional data and unlock value, help manage risk, improve
efficiency and provide critical business insight.
Blockchain, for example, creates an environment in which
every transaction is open, verified and available in real-time.
Its application in tax has the potential to move the function
from retroactive analysis and historical financial information
gathering to a position where transactions, expenses, assets
and liabilities can be recorded in real-time and publicly
scrutinised. Mistakes, risk and fraud could, in theory, be
RPA is another step in the evolution of business process
bundling and outsourcing, facilitating a virtual workforce of
software robots that can work faster, more inexpensively and
more accurately than human beings. TaxBots are already being
used to transform tax function operations, helping to
accelerate indirect tax compliance, tax provision, and sales
and use compliance to name just a few activities.
The benefits of RPA promise to be significant and universal
for both companies and professionals. The promise of companies
achieving faster services through the adoption of RPA, allows
professionals to shift the work paradigm by being able to focus
on value-added efforts and contributing more strategically.
Similarly, AI is delivering many benefits for the tax
function, such as improved decision-making. AI will be loaded
with information such as tax codes, case law and administrative
guidelines, and will be able to make certain decisions on this
But what does all of this mean in terms of the day-to-day
business impact? By improving the connection between both
financial systems and historical transactions, technology can
provide the foundation for real-time data that tells the most
accurate tax story to both the organisation and relevant tax
administrations. It can help to provide more robust predictive
analytics and help organisations better address global
requirements around key issues such as transfer pricing and
initiatives like BEPS.
Companies need to decide if they are going to manage this
technology disruption internally or whether they will outsource
to others. And in contemplating that question, key developments
around the trend toward process outsourcing discussed below
could be critical.
Tax business process outsourcing is here to stay
The pace of legislative change globally and in the US,
combined with the application of disruptive technologies, will
result in companies evaluating which aspects of the tax
function should stay in-house and what concerns should be
outsourced to a provider that could potentially do it better,
faster and/or cheaper. By combining the attributes of
resources-on-demand through business process outsourcing (BPO)
with integrated, value-oriented technology such as RPA,
companies will have the agility required to manage their global
tax footprint and compliance needs more effectively than at any
time in history. And a technology savvy business may find that
it is more efficient to outsource these capabilities to a third
party than to build it in-house. The level of tax outsourcing
is estimated to stand at about $25 billion in 2016 and is
expected to grow as much as 5% per year through 2021. This will
certainly be a trend that is here to stay.
Traditional outsourcing models that rely on offshoring
processes to remote locations may no longer be fit-for-purpose
and may not be reliable enough to successfully navigate the
many issues that the tax function of the future will have to
deal with. Going forward, we believe companies will
increasingly look to third-party providers with leading tax
expertise, a global infrastructure and specialist tax
technology capabilities that enable them to confidently
outsource certain core tax functions without disrupting
operations, keeping outsourced operations close to their
business and helping them to operate effectively in this
Once strategically defined, BPO can help the tax function
adapt to changing business and regulatory environments in a
scalable and cost-effective way. It will allow companies to
focus on the core aspects of their tax business while
delegating administrative and back-office functions, and
enabling internal talent resources to be deployed on more
business-critical and value-add work.
Bringing it all together
In today's dynamic environment, organisations must not only
have the infrastructure – talent, technology, policies
and processes – in place to manage legislative change,
but they also need to be agile and have a culture that embraces
a greater degree of transparency. The tax function is certainly
being elevated within organisations and a move from a
back-office approach to increased board involvement in their
company's tax strategy is more prevalent, particularly against
a backdrop of greater public disclosure, more widespread
interest in the tax affairs of corporations and reputational
Effective ongoing communication between a company's tax and
finance leaders, the C-suite and the board is essential.
Effective automation of processes requires a coordinated
approach, while centralisation also promotes consistency, which
has become significantly more important because of increased
transparency, information sharing and controversies involving
Global compliance and reporting leader, tax
Jon Dobell has over 20 years' experience in
corporate and international tax, working in Asia and
Europe. He specialises in advising clients on managing
their global and local compliance and reporting
Jon has a strong background in tax and finance
processes, software and systems, and advising clients
on how best to structure their functions globally.
Jon is married to Kirsten with three children, and
in his spare time enjoys vintage sports cars and all