Americas regional interview: Deloitte

Ronnie Dassen

Americas Indirect Tax Leader

Deloitte

Countries within the Americas region have long been considered advanced in their use of technology for indirect tax collection, reporting, and analysis, but an acceleration over the past 12 months has taken it to the next level. Countries are expanding their use of technology, with more countries introducing near-time/real-time reporting and e-invoicing. While Brazil has been requiring e-invoicing for almost ten years, similar legislation was passed in Mexico and Colombia last year and additional technology-based compliance and reporting developments are on the horizon.

Organizations are increasingly deploying digital technologies to comply with the new tax authority requirements. They are adjusting their information technology (IT) environments and increasing the rigor of their compliance processes to respond to the tax authority mandates, which include stronger compliance validation methods and systems. Companies' entire approach to tax compliance and tax controversy is changing. The days of a taxing authority doing an audit "after the fact" (i.e., after transactions occurred, tax reconciliations are made, tax returns were filed, etc.) are over. Companies will need to be able to perform all tax analysis and calculations real-time—or even ahead of time. And, most importantly, all of the above needs to be synchronized with normal day-to-day business operations. If organizations in the region thought indirect tax was a heavy burden in the past, the future is truly taking it to the next level.

In the past, tax authorities needed to rely on taxpayers when conducting an audit, but now, by deploying digital technologies, a full-fledged audit is possible without involving the taxpayer. In response, organizations are shifting their mindset from being reactive to proactive. Deloitte's network of member firms in the Americas region is helping clients adjust their indirect tax strategies and systems to not only comply with the new mandates, but to reconcile their financial data with reporting requirements. Where historically Deloitte in the Americas would mainly help companies with tax technical qualifications of their business transactions, we are now helping them manage the rapid changes and significantly increased need for governance through new and enhanced processes and technology. Indirect tax compliance as we know it today will be gone in ten years from now. Instead, it will have transformed into indirect tax projections and monitoring.

Deloitte's network of member firms in the Americas region is having more strategic, rather than transaction-based, conversations with clients about the holistic indirect tax function and are working with them across the indirect tax life cycle: determining tax treatment, setting up processes and systems, extracting data, reporting to authorities, and supporting audits. In addition to focusing on the processes and technology, Deloitte is working with clients on creative solutions to transform their IT infrastructure and systems, including innovative technologies like Robotic Process Automation (RPA) and other enabling tools. For example, Deloitte's network of member firms in the Americas region now has Artificial Intelligence (AI) solutions that provide tax analyses for our clients, in either a back-office support role within Deloitte or a front-office delivery role as a client-specific solution.

The expectation is that tax authorities' use of technologies will continue and broaden across the region, including the deployment of advanced analytics in audit like Brazil's public digital bookkeeping system, SPED. On the tax technical front, there is an expectation for continued proposals of new legislation addressing the complexities of indirect taxation of digital delivery models for goods and services as well as the use of digital platforms and web stores. A heavy focus is being put on identifying ways to tax both domestic and foreign providers of goods and services in an equal and fair way.

Another major change facing the region is related to rising protectionism and an increasingly volatile global trade environment that includes US tariffs applied to products of varying origin, from anticipated North American Free Trade Agreement (NAFTA) changes, to US steel/aluminium tariffs, to those proposed and/or implemented by Canada, Mexico, and the European Union.

Organizations will have to make significant investments in their technology landscape to be compliant with the exponential increases in the volume, frequency, and detail of tax-related data requests. Technology will also help support the uncertainties surrounding the disruption of global trade by allowing increased transparency to trade data, which can be used in value chain planning activities.

Because of the necessary investments in process and technology improvements, in response to the expected legislative changes in both the tax technical area and the technology area, there is an expectation that this will have a positive effect on the regional need for indirect tax and Global Tax Advisory services.

The requirements being imposed by tax authorities are based on the increased adoption of digital technologies and digital delivery models. It is fair to say that in the Americas region—or any other region for that matter—most existing legislation never considered digital delivery models, which has made it challenging to deal with the indirect tax treatment of supplies of goods and/or services using these models. This is therefore driving a lot of change in legislation, adapting the law to properly apply indirect taxes. Organizations will face additional tax obligations, including indirect tax registrations and compliance obligations as well as new withholding agent requirements as a result of such new legislation. For instance, the concept of "foreign taxable person," a concept related to the indirect taxation of nonresident companies/persons, is being introduced in many countries to providers of digital services. This is an entirely new taxation concept in Latin America.

While governments in the region are largely tackling the right challenges in today's environment, it is most important that future legislation will address creating a level playing field for companies and increases efficiency of the indirect tax system. Increasing certainty for businesses and relieving complexity for businesses in complying with the legislation and for taxing authorities in enforcing it is critical. There is a great deal of inefficiency in the region and around the globe in how taxes are levied for all parties involved. With the volume and complexity of business increasing, the focus should be on simplifying the tax legislative landscape—and, further harmonization of indirect tax rules across the region, could be an important step in that direction. Another important step could be the adoption of new technology, such as blockchain in the compliance and reporting space. And if you would apply a consistent blockchain-based methodology across the region, which is technologically feasible, that would be a major win for taxing authorities and businesses operating in the region. Adopting such an approach would allow companies to develop more standardized and consistent solutions to comply with the requirements, which would enable taxing authorities to better enforce them. All parties would see significant increases in efficiencies resulting in a reduced administrative burden, increased compliance at lower costs.

Because countries across the region are so diverse, it is politically difficult for the region to take a standardized approach and reach a level of harmonization. However, certain initiatives are underway, such as those launched by the Inter-American Center of Tax Administrations (CIAT), and the Organization for Economic Cooperation and Development (OECD), including Standard Audit File for Tax (SAF-T), Base Erosion and Profit Shifting (BEPS), and the report on consumption.

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