The challenges of disruption in the tax world are becoming more and more apparent and are hitting taxpayers especially hard as they struggle to keep up with voluminous, fast-paced and inconsistently designed changes — on both the tax policy and tax administration fronts.
According to EY’s Tax administration goes digital report, digitalisation is accelerating the timing of tax reporting and filing obligations for businesses, upping the pressure on data governance, availability and quality, as well as refocusing controversy professionals on “digital audit defense.”
An overarching conclusion regarding the digitalisation of tax administration is that companies must be absolutely ready, absolutely all of the time. Today, you must be prepared to supply new, accurate and quality-checked data on demand — monthly, quarterly or on a mix of different schedules.
One vital dimension of this is coordination with the tax authority, but collaboration with the developers of new and disruptive technology, as well as the taxpayers using it, are also essential. And that’s where tax authorities must strive to being business with them on the journey. It’s a massive, transformative change that is bigger than any single stakeholder, according to the report.
Other factors in play are the implementation of new data submission and electronic auditing requirements; more tax administrations go digital to crack down on evasion and fraud and the development of digital tax administration that it is clear in the form of how tax authorities will use data analysis to assess risks within Country-by-Country Reporting (CbCR) data.
Tax administration going digital doesn’t just mean the paradigm shift of “the end of the tax return” arriving. It means gradually increasing data submission requirements, enhanced data analytics routines, and more routing sharing of electronic files — between taxpayer and tax authority and between tax authorities themselves.
The drivers that brought tax administration digitalisation to this point are recognisable to anyone operating a business. More must be done with less — fewer people and lower budgets.
Tax authorities also want to remove as much human interaction as possible, leveraging automation and analytics to drive decision-making. And they want to glean more insight from growing volumes of data, focusing their scarce resources on the most serious cases of evasion, fraud and aggressive tax avoidance.
But tax administrations must also address other catalysts. They must react to pressure to perform — from the public, political circles, the media, and charities and nongovernmental organizations. In effect, they have a “moral obligation” to do something with all the data they have sourced.
The report offers tips for tax, finance and IT leaders to consider when developing the company’s response to prepare for digital tax administration:
- Define company strategy
- Monitor digital requirements
- Consider data quality and integrity
- Streamline data submissions
- Respond to authority inquiries
- Sustain and improve
Four important actions a company can take are to define the overarching digital tax administration strategy; coordinating the response from the tax, IT and finance functions; creating a library of tests that the tax authority is known (or believed) to run to prepare the tax teams for digital audit defense activities.