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Video: The tax function of tomorrow

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Utilising technology has become a vital aspect of any businesses tax function, but without international standardised regulations corporations face uncertainty.

Tax technologies have expanded and developed across all practices in international taxation. With corporate income tax software available for data collection, tax planning, tax provision, audit support and tax task management, it’s no wonder that developing an integrated solution is being discussed by tax vendors in detail.

“Corporations would desperately like countries to adopt a common system rather than a disparate mix of approaches adopted by different countries,” said George Bull, senior tax partner at RSM, on the inconsistency in operating systems.

Compliance software, especially, is a core part of indirect/direct tax e-filings. However, with governing bodies, such as the OECD, developing reporting global standards such as the common reporting standard (CRS) for the automatic exchange of information (AEOI), implementation has varied across member states.

As a direct result, research conducted by Aberdeen Group and commissioned by Sovos Compliance, a compliance and reporting software, has shown that only 44% of the US’s foreign account tax compliance act (FATCA) filings have been accurate.

“The nature of the problem with AEOI is that it’s changing dynamically,” said Andy Hovancik, CEO at Sovos Compliance. “It’s no longer a matter of simply automating the reporting. Financial institutions must deal with data from multiple systems spread across dozens of regions around the world and, as a result, we’re seeing financial institutions begin to shift from point solutions to centralised technology solutions that are capable of keeping up with these regulations.”

In Part I of International Tax Review’s tax technology videos, Paul Banker, vice president of global accounts at Sovos Compliance, and Matthew Sontag, manager of RSM’s corporate tax office in the US, discuss the tax technologies most of use to businesses and the direction it is taking. 

Corporations in the spotlight

As global business reporting requirements become standardised , corporations face increased transparency requirements. Transparency regulations have become an essential part of most tax administrations, with stakeholders also driving scrutiny for businesses.

Sontag affirms that big data-driven tax compliance and risk assessment will be an area of continued growth. “Software analytics are becoming increasingly capable of producing robust assessments of non-compliance risk, meaning that tax authority audits will be more specifically selected, more focused, and more likely to return results,” said Sontag.

For the CRS, the new account procedures to record the tax residence of a business was put in place from January 1 2016 across early adopter jurisdictions. For these early adopters, due diligence for identifying high-value pre-existing accounts will be completed by December 31 2016. By March 2017, financial institutions will be filing the first CRS reports.

FATCA is said to have acted as the catalyst for similar automatic exchange requirements being adopted across the globe. For non-US financial institutions, FATCA requires a report on a business’s financial accounts held by US taxpayers or foreign entities that US taxpayers hold a substantial ownership interest.

The new global standard of sharing financial information between tax authorities and corporations has forced businesses to have information gathering procedures in place, since the start of the year. However, growing concerns over the potential mirroring of FATCA filings in the US has EU businesses looking to digital solutions to comply with the AEOI.

Preparing your business

“Taxpayers need to be prepared for this additional transparency and the information that will become available to the authorities,” said Boris Nemirov, global leader of Transfer Pricing technology at Deloitte. “That will ultimately drive the need for a lot more consistency in [businesses] financial results across global operations and certainly require the need for deep insights into what their systems hold and proactive management of those results in real-time on a very regular basis.”

“All of those things coming together will ultimately lead to tax technologies really changing the paradigm in the tax world in terms of how data is used and analysed ,” he added.

Present tax functions will make dedicated tax data hubs mainstream, which will allow businesses to focus more on tax strategy with the help of technology.

In Part II of International Tax Review’s tax technology videos, Nemirov provides an exclusive insight into Deloitte’s journey with tax specific software and tools and what new technologies businesses can expect in the future.

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