At EY, we see several key trends driving the increasing digitalization of tax administration functions:
Technology changes everything. And when ways of conducting business and engaging with customers change, it can often have unforeseen implications on how that activity is taxed.
“We see a lot of companies now bundling together goods and services,” says my colleague Nick Muhlemann, EY Asia-Pacific Operating Model Effectiveness Partner. “That might include services that weren’t provided before, such as those related to diagnostics and analytics. The concept of selling a bundle of goods and services creates a whole new framework for taxation.”
Processes are also undergoing changes that may act as a catalyst for corresponding changes in tax administration. For instance, my Singapore-based colleague Edvard O Rink, EY APAC’s Operating Model Effectiveness Leader, asks, “How much value can be attributed to an algorithm instead of people functions?”
“Technology — from 3D printing to robotics and artificial intelligence — will keep changing the way businesses operate, and where and how value is created. This requires new interpretations and applications of tax rules,” Edvard explains.
Albert Lee, EY Asia-Pacific Tax Technology & Transformation and Digital Tax Leader based in Hong Kong, says tax systems are trying to adapt. “A lot of the tax systems were built to tax tangible things, in a world where people didn’t really travel much, when things were more bricks and mortar,” he explains. “But since the world has gone more virtual, and people and entities don’t have clear residency, it has become more difficult to come up with a clear answer to tax jurisdiction questions that were previously straightforward.”
As next generation products and practices race beyond the current capability of tax authorities and corporate tax functions to assess and report on them, new technologies and processes will need to be a priority.