The digitalisation of tax administrations is disrupting the tax profession. New technology and e-filing enables more reporting requirements, more real-time data, digital data collection, application of data analytics and machine learning, as well as more data sharing between tax authorities.
The OECD has been pushing global transparency through the exchange of information between tax authorities with initiatives, such as the common reporting standard (CRS) and country-by-country reporting (CbCR).
Some good examples of digitalisation initiatives have emerged from the UK, Australia and China. The UK is striving to become one of the most digitally advanced tax administrations in the world with its Making Tax Digital (MTD) initiative. The Australian Taxation Office (ATO) plans to make use of data, analytics and tools to extend automation and analytics use cases and enhance their realised artificial intelligence capabilities. China has been deploying technology around its Golden Tax System, 1,000 Taxpayers Initiative and blockchain invoicing pilots.
Data, data, data
With data collected from taxpayers, third parties, and other government departments, tax authorities can use risk profiling and advanced data analytics (social network analysis, predictive analytics and unsupervised machine learning) to spot anomalies and identify tax audit cases.
As a result, tax authorities are intent on strengthening these data analytics capabilities. The ATO has been explicit about their approach to risk assessment, intelligence, analytics and overall data management.
"We gather data from an increasing variety and volume of sources," reports the ATO. "We use the data to understand our clients, improve client interactions and help us make better, faster and smarter decisions with measurable results."
The intelligent tax function
In this era of more sophisticated tax authorities and the accompanying corporate responsibility to pay the right amount of tax, organisations require a new kind of tax function, 'an intelligent tax function', that is connected to the business and thinks about data differently. This intelligent tax function must have both the right talent and technology to harness data to create value.
The EY 2020 Global Tax Technology and Transformation Survey examines the wide-ranging efforts that organisations are taking overall towards building an intelligent tax function. For instance, we found that 46% of tax functions are not overseeing real-time submission of transactional data.
Historically, tax functions have paid close attention to tax return filings, but it seems that they have not adapted to the world of real-time or near-real-time submissions of more detailed data.
About half of survey respondents report that they spend 40-70% of their time on data extraction, manipulation and cleansing before it is ready for tax processing. Moreover, one-third of manual adjustments are related to allocations.
One of the contributing factors is that only 10% of organisations have a true single-instance enterprise resource planning (ERP) system. Tax functions need to focus on getting data processed correctly at the source, which means setting up ERP and other source systems correctly for tax requirements.
Good quality data at the source will deliver tangible downstream benefits by reducing risks, saving time associated with manual adjustments and enabling more frequent reporting. Moreover, with better quality tax data, organisations will be able to effectively leverage internal shared services centres and/or outsource to external providers to enable tax functions that can focus on value-added work.
Tax authorities are rapidly acquiring technology and data skill sets, giving them a potential advantage unless tax functions do the same. Given that environment, more than 73% of tax functions surveyed intend to hire more data and technology professionals. Or put another way, only 25% or less anticipate hiring more accountants and lawyers.
Creating an intelligent tax function requires a transformative approach. Businesses must look from changing team skills to leveraging enterprise systems to harnessing technology. How is your organisation getting ready for this new world of tax?
An intelligent tax function will help you manage ever-increasing global tax reporting requirements and turn data into insights.
of companies surveyed do not have a true single-instance ERP.
of surveyed companies plan to increase tax headcount with people with data and tech management skills.
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Albert Lee is the global co-leader of the tax technology and transformation (TTT) practice and is also the Asia-Pacific leader.
The TTT practice brings together transformation strategists and technology professionals dedicated to helping organisations redefine the tax function to meet the demands of the digital age: from rapid business model change and global transparency, to expanding digital tax administrations, escalating reporting requirements and cloud-based solutions.
He has three decades of experience in international taxation, working both in the profession and industry, with a distinctive combination of tax, and process and technology skills. With experience working in major global markets, leveraging proven methodologies, and having in-depth knowledge of tax technologies, he helps clients build sound reporting foundations, effective risk management protocols, and a higher-performing tax organisation.
Albert has a masters of commerce degree in taxation from the University of New South Wales and a further masters of taxation degree in law from the University of Sydney.
T: +852 2629 3709
Agnes Fok is a director in the TTT practice based in Hong Kong SAR. She has more than 10 years' experience assisting clients to execute global compliance and reporting models with central coordination and monitoring.
She has deep experience in planning and implementing digital tax initiatives for companies, helping to identify the tax function's immediate challenges and developing an enhanced operating model strategy fit for the digital age. She has in-depth knowledge on matters including global tax compliance procedures, disclosure requirements and tax provision logics including current and deferred tax provision schedules.
Agnes holds a degree in professional accountancy from the Chinese University of Hong Kong SAR.
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