The future may be uncertain, but there is consensus that it will throw up new challenges for tax professionals
It has been six months since the Covid-19 pandemic and despite some good news on the vaccine front, no one is sure what a post-Covid world will look like. Experts are predicting an alphabet soup of scenarios. These include a ‘V’-shaped impact (a sharp downturn and equally quick upturn), a ‘W’-shaped path (double-dip slides and rises), a ‘U- shaped forecast (long recession, stagnation and then growth) as well a ‘K’-shaped future (where some parts of the economy perform well while others suffer, thereby increasing inequalities).
Amid all this uncertainty, everyone – from global bodies like the International Monetary Fund (IMF), the Organisation for Economic Co-operation and Development (OECD) as well as tax administrators and tax managers of global enterprises – seems to agree on two aspects. The first is that sooner or later, , governments will have to take a path to fiscal consolidation. This could come in the form of new taxes and more regulatory changes.
The second is that governments will move to plug all possible revenue leakages. To do this, they will employ technology more aggressively in their tax administrations and demand more access to primary data from companies.
The accelerated pace of change
Both of these are bound to pose considerable challenges to tax managers. Take the accelerated pace of regulatory change for example. Every year, the global consulting firm EYpublishes its Worldwide Corporate Tax Guide. In 1991, the first year of publication, it covered 106 jurisdictions and was 381 pages long. By 2019, for the same jurisdictions, the Guide had ballooned to over 1,300 pages. Tax professionals are already struggling to keep up with the ever-changing regulations. As the rate of change increases, it will get harder and harder for tax professionals to keep up.
There are two elements to the impact of governments’ access to primary data. The first is the tax administrator often knows more about the enterprise than the tax manager. The second is the sharing of data between governments.
An OECD paper on Tax and Fiscal Policy Response to the Coronavirus Crisis noted how international cooperation between governments has advanced since 2008 to fight tax avoidance by MNEs. In 2018, governments exchanged information relating to 47 million financial accounts with a combined value of EUR 4.9 trillion. .
Tax administrators are analyzing this data using Artificial Intelligence and Machine Learning (AI/ML) to build risk models that can identify patterns, highlight anomalies and shifts.
This allows us to understand where the pockets of risk might be sitting and where we might have to take further steps and conduct further compliance activity
Rebecca Saint – Deputy Commissioner for Public Groups, Public Groups and International Segment, Australian Taxation Office at a recent Thomson Reuters webinar
Increased levels of scrutiny
Looking to a post-Covid future, Jenny Clarke – Asia Pacific Leader of Tax Transformation and Compliances, KPMG Australia, believes that while a search for additional tax revenues is inevitable, most likely governments will follow a nuanced approach. They are likely to rely on increased use of data to drive compliance and tax payments.
Automated data feeds, regulated invoicing systems, and invoice matching will continue to rise. There will be a greater collection of taxes through withholding mechanisms, and reverse charge capital collections and the likelihood of higher consequences of non-compliance
Jenny Clarke – Asia Pacific Leader of Tax Transformation and Compliances, KPMG Australia speaking at the Thomson Reuters webinar
The challenge, Ms. Clarke explained, is that tax professionals will have to deal with the situation while battling costs. They will have to deal with internal pressures of doing more with less, even as the external demand for enhanced transparency and oversight continues to rise.
Giving a tax administrator’s perspective, Ms. Saint said, there will be higher levels of scrutiny in the tax performance of large enterprises and their economic contributions to each community. Large corporates, she said, need to think about providing greater insights on their tax performance, because not doing so would be counterproductive from the point of view of the community, investors andgovernments.
Take ownership through technology
How do tax professionals deal with the situation? There is a consensus among respondents to most CFO/tax manager surveys carried out by organizations like Thomson Reuters, Boston Consulting Group, Gartner and EY that the answer lies in enhanced use of tax technology.
Experts believe that use of the appropriate technology in taxation will give tax teams ownership of their data and control over filing along with a centralized compliance documentation. Most importantly, visibility on key analytics will enable them to shift from a reactive to a proactive approach while dealing with tax administrators.
Ms. Clarke said that the key is that enterprise tax departments will have to start taking control of their data and not be a receiver of these products. “Transformation of the tax function is inevitable, and technology solutions will become a necessity. In the end, winners will be those enterprises who partner with and not fight those regulators,” she said.
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