3 minute read 28 Feb 2020
Rocky peak landscape with people on top brasil

How to keep up with the digitization of tax authorities

By Albert Lee

EY Global Tax Technology and Transformation Leader and EY Asia-Pacific Tax Technology and Transformation Leader

Technology leader in the world of tax. Passionate about innovation.

3 minute read 28 Feb 2020
Related topics Tax Tax function operations

Show resources

  • The intelligent tax function 2020 global TTT survey highlights (pdf)

An intelligent tax function will help you manage ever-increasing global tax reporting requirements and turn data into insights.

The digitalization of tax administrations is dramatically disrupting the tax profession. New technology enables more reporting requirements, more real-time data, digital data collection, application of data analytics and machine learning, as well as more data sharing between tax authorities.

More and more nations are requiring e-filing of returns, and some already have or have announced plans to mandate e-invoicing. Other countries are going even further.

The UK is striving to become one of the most digitally advanced tax administrations in the world with its Making Tax Digital initiative. Also, the China has been deploying technology around its Golden Tax System, 1000 Taxpayers Initiative and blockchain invoicing pilots.

At the same time, the Organisation for Economic Co‑operation and Development (OECD) has been pushing global transparency through the exchange of information between tax authorities with initiatives such as the Common Reporting Standard and Country-by-Country Reporting.

Data-driven tax decisions

With data collected from taxpayers, third parties, and other government departments, tax authorities can use risk profiling and advanced data analytics (social network analysis, predictive analytics and unsupervised machine learning) to spot anomalies and identify tax audit cases.

Not surprisingly, tax authorities are intent on strengthening these data analytics capabilities. The Australian Taxation Office has been explicit about their approach to risk assessment, intelligence, analytics and overall data management.

“We gather data from an increasing variety and volume of sources,” reports the Australian Taxation Office. “We use the data to understand our clients, improve client interactions and help us make better, faster and smarter decisions with measurable results.”

Despite some progress, much work remains for many companies to create an intelligent tax function.

Toward an intelligent tax function

In this era of more sophisticated tax authorities and the accompanying corporate responsibility to pay the right amount of tax, organizations require a new kind of tax function – an intelligent tax function – that is connected to the business and thinks about data differently. This intelligent tax function must have both the right talent and technology to harness data to create value.

Our 2020 Global Tax Technology and Transformation Survey examines the spotty efforts firms are taking overall toward building an intelligent tax function. For instance, we found that 46% of tax functions are not overseeing real-time submission of transactional data.

Historically, tax functions have paid close attention to tax return filings, but it seems that they have not adapted to the new world of real-time or near-real-time submissions of more detailed data.

About half of survey respondents report that they spend 40-70% of their time on data extraction, manipulation and cleansing before it is ready for tax processing. Moreover, one-third of manual adjustments are related to allocations. 

ERP gap

90%

of companies surveyed do not have a true single-instance ERP.

One of the contributing factors is only 10% of organizations have a true single-instance enterprise resource planning (ERP) system. Tax functions need to focus on getting data processed correctly at the source, which means setting up ERP and other source systems correctly for tax requirements.

Good quality data at the source will deliver tangible downstream benefits by reducing risks, saving time associated with manual adjustments and enabling more frequent reporting. Moreover, with better quality tax data, organizations will be able to better leverage internal shared services centers and/or outsource to external providers to enable tax functions that can focus on value-added work.

Mixed progress

73%

of surveyed companies plan to increase tax headcount with people with data and tech management skills

Tax authorities are rapidly acquiring technology and data skill sets, giving them a potential advantage unless tax functions do the same. Given that environment, more than 73% of tax functions surveyed intend to hire more data and technology professionals; correspondingly, only 25% or less anticipate hiring more accountants and lawyers.

If tax functions do not hire technology or data specialists, tax authorities will have the advantage as they are quickly acquiring these skills.

It’s a mixed result and shows that, despite some progress, much work remains for many companies to create an intelligent tax function.

Show resources

  • Download: 2020 Global Tax Technology and Transformation Survey highlights

Summary

While some tax functions are adapting to an increasingly data-centric, automated tax  environment, others are not. Hiring additional data and technology professionals and building a true single-instance ERP are key investments to consider.

About this article

By Albert Lee

EY Global Tax Technology and Transformation Leader and EY Asia-Pacific Tax Technology and Transformation Leader

Technology leader in the world of tax. Passionate about innovation.

Related topics Tax Tax function operations