Corporate Tax » The collision of tax technology and the digital world

Tax functions are feeling the strain with several forces putting the UK’s tax departments under greater pressure than ever before. Keeping on top of increased regulation, Making Tax Digital (MTD), requirements to analyse and report varied data sets currently residing in traditional silos and the demand for increased, real-time reporting and transparency, are all forcing tax departments to evolve quickly.

As the recent Thomson Reuters 2018 European Tax Technology Survey shows, tax departments are not only having to deal with a new level of complexity to meet increased  IT security procedures mandated through the General Data Protection Regulation (GDPR), but also have to provide greater access at a granular transaction level to meet new regulations.

Technology adoption should not just be viewed as the remit of the tax department; it can be positively impacted by working with the IT department, an external partner, or with an internal tax technology specialist. Just waiting or doing nothing is no longer an option, and with the majority of organisations citing tax technology as being of strategic importance, the signposts indicate a broader shift in how large businesses will choose to meet the changing circumstances they now find themselves moving towards.

The Thomson Reuters survey found that technology and transformation projects were a priority for over a third of those surveyed. This need is being driven by demands of an increasingly complex regulatory environment which is confounded further by managing compliance requirements across multiple jurisdictions. Factors such as Base Erosion and Profit Shifting (BEPS) and Country-by-Country Reporting (CBCR) add to this increased level of detail being requested by tax authorities.

If the trend towards the digitalisation of tax, as reported by 37% of tax professionals surveyed by Thomson Reuters, continues, then the need to have granular access to data could see the number of organisations engaging in new technology programmes increase over the coming years, but just how equipped are tax departments to deal with this change?

With as few as 6% of respondents saying that “most processes” are already covered by tax technology, the picture for nearly everyone else is complex. Many are choosing to run processes manually or with spreadsheets, highlighting just how far organisations have to go to catch up with the leaders in the field.

Unsurprisingly, direct tax compliance is the most widely used tax technology, supporting the generally held view that companies prefer to manage this process in-house with tools that have been available for some time.

Tax technology roadmap

Although there is an overwhelming recognition that tax technology is of strategic importance, less than half of those surveyed have a clear roadmap or plan in place. Furthermore, only 35% have a recognised internal tax technology specialist (taxologist) on whom to call, making the task that much more difficult. This is even though deeper analysis of the data suggests that those with a tax technology specialist:

  • Are more likely to have a defined strategy (60% with, compared to 25% without)
  • Have a higher correlation to describing the organisation as intermediate or advanced adopters
  • Are twice as likely to be investigating new technologies (e.g. RPA, big data, blockchain)

For the 52% who see the strategic importance of technology but do not have a roadmap, creating a plan with either a trusted technology partner or independent external advisor would seem like a good step. But where do tax departments start?

From the survey we can see that businesses want to invest in tax technology and view it as a strategic move in addressing this tax transformation, but tax teams are not necessarily tech-savvy. Here are some tips to help those teams working under pressure to systemise and automate processes:

  1. Build a tax technology strategy — Start to plan your journey, document your end goal, set milestones and objectives along the journey that everyone can buy into
  2. Understand what the tax authorities are planning — As you contemplate tax technology solutions for your organisation, make sure you are keeping up with the new digital requirements to ensure your organisation is future-proofed
  3. Avoid the “Islands of Automation” — Tax departments are prone to managing specific areas of compliance. But with new regulations such as Country-by-Country Reporting, these silos of data and process are being broken down. Modern tax technology helps integrate processes and share data to reduce errors and improve efficiency
  4. Hire a Taxologist — Tax technology specialists can help you navigate the complexity of new systems and be a focal point to help implement change
  5. Work closely with your IT team — They are key to understanding corporate standards and requirements and how tax technology can work with central ERP systems. Make sure you understand how new technologies such as cloud-based solutions, Robotics Process Automation (RPA), Artificial Intelligence (AI), and blockchain
  6. Understand data security issues — Security is the most important consideration in implementing new technology and especially with the introduction of GDPR, make sure you understand how it impacts your tax function
  7. Work with your colleagues in other countries — Tax is now international and fellow tax teams in other countries probably face similar challenges. By collaborating, you can leverage systems that can be used across jurisdictions to save money, ease integration requirements, and be more consistent.

There’s no doubt that there is a perfect storm of technology change, and increased regulation, with resource constraints meaning that tax departments are increasing pressure to improve efficiency. Now is the time to ask, challenge, learn, plan and implement a tax revolution in your organisation. Automation is no longer an option, it’s a prerequisite for survival.