We are entering a new world where the relationship between taxpayers and tax authorities is fundamentally changing. A world where the use of data digitised by the private sector together with the application of new technologies will give global tax authorities superpowers.
We are seeing tax authorities across the globe require more data in digitised form. And at the same time they are demanding “high control” environments over tax matters. These novel, control based regimes will be predominantly driven by data and algorithmic decision making - simple analytics and machine learning tools that are very good at identifying outliers.
It’s probably a stretch to call these superpowers, as the technologies required are relatively simple and low cost. But applying these readily available tools in the tax world is a game changer. It changes the world of tax compliance and tax audits as authorities will no longer rely on disclosures but will instead use a broad range of data to build their own picture of a company and where to focus attention.
In the medium term these changes should be positive for an organisation. But right now it’s vital that companies build or access capabilities to control and understand their data. A company should aim for “internal coherence”, painting a picture of their business activity which aligns the tax narrative for all tax types and territories with the underlying data. And they should also aim for “external coherence”, being aware of how their picture compares with similar organisations.
Without ensuring coherence at both levels companies run the risk of increased levels of scrutiny, additional tax audits and even penalties. It will be challenging but a strategic response will manage these risks and ensure this changing world is beneficial as businesses obtain more certainty, reduce costs of compliance and gain greater commercial insights.
This is all part of broader disruption, driven by technological developments, that is transforming business.
We have developed a Tax Disruption Framework to help you obtain an overview of where this new digital disruption may impact your tax function and allow you to plan your next steps.
The main goal of the Framework is to help you strategically decide when and how to invest in digital capabilities. It should help with the prioritisation problem, the challenge of distributing limited resources to where they are most needed. And it will help you with scenario planning and issues of timing. It also gives you a tool to monitor progress and risks. It’s not kryptonite but it should be pretty helpful in addressing these new superpowers.