|New technologies are transforming the way businesses deal with their tax work|
Remarkably, some public sector participants were just starting to investigate the new digital technologies that we see as both promising and pressing: robotic process automation (RPA), blockchain and artificial intelligence (AI). However, some tax administrators are more advanced and are accelerating the deployment of advanced technologies alongside new legislation, such as 'real-time VAT compliance' and 'virtual permanent establishment' enforced through withholding taxes. The aggressive approach of these early adopters is what EY and other global tax advisers see as the future of tax administration and companies must be ready to connect to tax authorities in ways not previously required.
What is driving the change?
In a word, revenue. Corporate tax rates have been falling for 35 years, and now, after many years with the world's highest corporate tax rate, the US has enacted a 21% rate (reduced from a previous rate of 35%). Belgium has already replied by cutting its rate four percentage points and scheduled another four-percentage-point drop for 2020. Other nations with higher rates may also follow suit.
Continuing rate cuts will put even more pressure on revenue authorities to collect corporate tax more quickly by accelerating digital enforcement, and this accelerated change comes just when global companies are least able to keep up because of cost-saving cutbacks in tax and finance teams.
Authorities see revenue in digitised tax data
Quite apart from falling statutory rates, governments worldwide believe they are losing billions in revenue to aggressive tax planning, tax filing errors, deliberate tax evasion and fraud. This 'tax gap' might be reduced, some think, if tax authorities can leverage digital tools, and public pressure to do so is intense.
Digital enforcement is well underway for VAT. As soon as Russian taxpayers were required to submit VAT transactional data along with their 2015 electronic VAT returns, domestic VAT revenues rose 12%. Was this driven by an improving economy? Possibly, but it is likely that the Russian Federal Tax Service's nationwide VAT analytics platform delivered some of that extra revenue.
Faith in digital enforcement is spreading. In July 2017, Spain launched a new system requiring electronic submission of VAT payments within eight business days of a taxable transaction and, as of January 1 2018, this permitted delay was cut to four business days. And it's not just transactions. Tax authorities expect data from country-by-country reporting, transfer pricing master and local files, and mandatory disclosure requirements such as SAF-T to yield additional revenue.
So how are organisations responding?
Corporations are building more effective accounting and tax functions using cloud-based digital technologies including implementing tax data lakes, blockchain technologies – especially around transaction tracking – RPA and AI. Tax advisers can help by working with corporations to ensure that the 'best in class, best in cost' assessment is made and corporate resources are best deployed – this can include extracting more value from clients' transactional data while also managing risk, improving efficiency and providing critical business insight.
Companies continue to see the benefits of RPA. As a virtual workforce of 'bots' improves the accuracy of indirect tax compliance and tax provisioning, working faster and more inexpensively than people, tax advisers can spend more time supporting clients in strategic business decision-making backed up by better data. Similarly, but a little further on the horizon, AI systems will be able to be equipped with information such as tax codes, case law and administrative guidelines, and will be able to make certain decisions on this basis.
Possibly even more transformational is the potential of blockchain, a programming environment in which every transaction entered is verified, available in real-time and cryptographically secure. This technology has the potential to move the accounting and tax functions from historical financial information gathering and retroactive analysis to a position where transactions, expenses, assets and liabilities can be recorded in real-time and potentially publicly scrutinised. Mistakes, risk and fraud could, in theory, be eliminated.
Tax business process outsourcing is here to stay
The pace of global legislative change combined with the application of disruptive technologies is forcing companies to decide which aspects of the tax function should stay in-house and which should be outsourced to a provider that can do it better and faster while saving money, often by mastering the handling of tax in shared services centers.
By combining the attributes of resources-on-demand through outsourcing with value-oriented technology, companies have the agility to manage their global tax functions more effectively than ever before.
What does it all mean for tax advisers?
The digital revolution is driving a complete change in the way taxpayers, regulators and advisers interact. As organisations realise that they need to transform their tax infrastructure – connecting it to talent, technology, policies and processes – in order to manage new enforcement demands, they are often expecting outside advisers to design and operate parts of their tax function on their behalf. So while the work of tax advisers is changing faster than we are accustomed to, the skillsets that we are developing to harness the tools of the digital revolution will make us the tax professionals of the future.
The views reflected in this article are the views of the author and do not necessarily reflect the views of the global EY organisation or its member firms.
Global compliance and reporting leader, tax
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