Kim Hau discusses the evolution of tax legislation and digitisation, and how there has never been a better time for businesses to future-proof their digital tax audit defence.
Everywhere we look we see clear and compelling evidence that big changes in technology mean big changes in industry. Just look at how companies like Amazon, Google and Facebook use machine learning algorithms to improve recommendations, suggestions and news feeds.
The global evolution in tax legislation and the gradual move towards real-time interaction and on-demand access to VAT related data is one area being accelerated and simplified by the very same technologies.
For companies in the UK, the arrival of digital tax reporting is not pie in the sky, as HMRC’s Making Tax Digital (MTD) for VAT initiative will become a reality for 96.5% of the UK’s VAT-registered businesses from April.
The driver for government is simple: it wants greater transparency. The intent behind initiatives such as MTD is threefold: firstly, to reduce fraud and increase revenue; secondly, to lower the cost of auditing and thereby raise the success of audits; and finally, to create fairness thanks to the increase in transparency.
With less than a year until the MTD deadline, there are clear and compelling reasons why businesses need to better understand the technology trends and how they are driving a dramatic change in tax and how organisations will interact with tax authorities in the future.
Whilst many have viewed MTD as challenge and headache, there has never been a better time for businesses to embrace the move towards digital tax reporting, future-proofing their audit defences, streamlining processes and improving the understanding of VAT across their business. Here are a number of ways in which businesses are already doing this:
Robotic Process Automation (RPA: essentially, software robots that mimic human tasks across applications in a non-invasive way. RPA will enable businesses to assess tasks that are prone to errors, high-risk or indeed manually intensive and offer a suitable alternative to automating some business tax processes.
Machine Learning and Artificial Intelligence (AI) are related and often used interchangeably. Both have capabilities that can be applied to finance and tax, particularly in areas where accurately categorising, grouping or classifying large volumes of data. Ingesting data from a dozen different ERP systems and getting it lined up for tax compliance and reporting is a fairly obvious example.
The latest advancements in data analytics are giving taxing authorities the upper hand when it comes to analysing data submitted. Analysing and comparing ratios, like return on sales or assets, can help organisations gain critical insights on performance and they can also help tax authorities in determining potential tax avoidance by comparing ratios to other companies in the same industry or region — and efficiently identify potential anomalies.
Blockchain is, in essence, a distributed ledger that records transactions — and many of those transactions will be taxable events which is why it is so important. The details around blockchain get complicated quickly, suffice to say there’s a reason so many governments and industries are actively experimenting with blockchain projects. From a tax point of view, it’s likely that blockchain will impact tax departments via governments and tax authorities pursuing digital strategies around e-government and that businesses will need to adapt to this evolution to stay compliant.
It's not just technological developments that are driving this change in the UK but also tax reforms from other governments. Indeed, dating as far back as 2008 tax authorities in Brazil introduced the NOTA Fiscal/SPED system as their standard for the electronic exchange of accounting data. Since then, Portugal, Luxembourg, Poland and Spain have all introduced SAF-T, as well as various mandates for filing returns and invoice reporting. Many other countries have also introduced new tax frameworks or the requirement for real-time or near to real-time invoicing information to be sent to tax authorities.
Embrace and capitalise on MTD
There’s no doubt that governments are finding more novel ways to drive efficiencies in the administration of tax in order to reduce the tax gap using technology. It is therefore critical that businesses keep pace and start to prepare and adopt processes and technology that will enable real-time tax guidance, as well as planning, analysis and compliance support.
As the digital transformation of tax spreads across the world’s tax regimes it’s important that businesses don’t just take a sticking plaster approach to meet the latest reforms. Companies need to be proactive, developing processes and adopting technologies that are nimble enough to adjust and comply to these emerging trends and new government systems. Do this, and they can reap benefits far beyond simply complying with legislative requirements.
About Kim Hau
Kim is Senior Proposition Manager for ONESOURCE Indirect Tax, Thomson Reuters.
She has over 12 years’ experience in indirect tax, and managed indirect tax compliance for several large, multinational banks and insurance companies. Kim is responsible for the tactical strategic direction of the ONESOURCE Indirect Tax solutions and identifying growth areas in the EMEA market by working and speaking to customers.
Most recently Kim has put this extensive experience to use by leading a project to explore the use of machine learning algorithms for indirect tax processes at Thomson Reuters. Kim holds a degree in Law from the University of Southampton and trained at Deloitte LLP.