The growing relationship between tax and technology

In Thomson Reuters’ 2019 Tax Technology Survey, it was revealed that 76% of the senior tax executives asked have seen an increase in the attention placed on tax compliance and planning at board level.

This has largely been driven by the implementation of Making Tax Digital (MTD) for VAT by HMRC.

In this poll, a huge 98% of the tax professionals revealed that they plan to invest in tax technology over the next 12 months. In 2018, this percentage was reported at 54% of respondents—this highlights that there has been something of a late surge of executives looking to expand their presence in the arena of technology.

“There is clear evidence from Poland and Spain that implementing new digital and near real-time reporting obligations yields significant return in tax revenue.”

Of the 98% who revealed they had plans to invest in this area, they further said:

• The respondents planning to increase their spending significantly: 28%
• The respondents planning to increase their spending only slightly: 32%
• The respondents planning to keep spending stable: 38%

The main driver found by Thomson Reuters to be the main reason for this anticipated investment is the rise in digitally capable tax authorities.

Thomson Reuters stated: “Almost half (45%) of respondents said that they had started or have plans to implement digital tax filing and compliance for new standards, such as MTD and Standard Audit File for Tax (SAF-T)—the international standard for the electronic exchange of reliable accounting data, as defined by the Organisation for Economic Co-operation and Development (OECD).”

However, the number of respondents who revealed that they are being asked to provide more detail surrounding the contents of their filings has fallen over the same period of time, from 52% in 2018 to 32% in 2019.

“Whereas GDPR impacted organisations in 2018, 23% of tax professionals reported that one of the key challenges facing their tax department for 2019 is Brexit.”

Thomson Reuters has indicated that this drop could be due to the fact that some tax authorities – such as Poland – are well advanced into their SAF-T introduction. This is enabling these tax authorities to see the level of detail they initially require coming straight through from the corporate tax departments.

“There is clear evidence from Poland and Spain that implementing new digital and near real-time reporting obligations yields significant return in tax revenue,” said Steve Smith, proposition lead for corporates at Thomson Reuters.

“It is inevitable [that] we will see more and more jurisdictions following suit in the coming years, and multi-national corporations need to be prepared to address these requirements with future-proofed technology solutions.

“Furthermore, the report indicates that many tax departments are looking to centralise and manage compliance across multiple jurisdictions in response to the continued globalisation and digitilisation of tax.”

“This interest in new technologies indicates that tax departments are recognising that the deployment of tax technology can help increase efficiencies, reduce human error, and deliver a consistent and manageable way of addressing these new tax regulations.”

Through the centralisation of the process, an ordered building of this new world in the tax industry can be controlled so that it is as seamless and painless as possible.

“Whereas GDPR impacted organisations in 2018, 23% of tax professionals reported that one of the key challenges facing their tax department for 2019 is Brexit,” said Thomson Reuters.

The requirement to keep up with the newest regulations and processes has been cited as a concern for respondents to the survey, with a 20% year-on-year increase. As it stands, 36% of respondent admitted being concerned about this. A further 30% of departments recognised the need for increased efficiency for internal processes and workflow—a 12% increase from 2018.

Technology to hit the tax department

Unsurprisingly, the results from Thomson Reuters’ poll have shown that tax departments across the UK wish to adopt in-house technology, rather than having the additional cost and hassle of outsourcing.

“This interest in new technologies indicates that tax departments are recognising that the deployment of tax technology can help increase efficiencies, reduce human error, and deliver a consistent and manageable way of addressing these new tax regulations,” explained Smith.

Having efficient and effective in-house technology would allow tax departments to “take control of [the] digital tax transformation.”

“Compliance is in the midst of a revolution, and, looking forward, we can expect to see more regulatory attention to the process and governance, rather than the end number.”

There has been a 20% “leap” in the acknowledged interest of new technologies in the market, as the pressure of gaining a competitive edge and staying ahead of the tax authorities continues.

Thomson Reuters looked at the increase of technologies being implemented, investigated, or already live:

• Big Data Analytics: 60%
• Blockchain: 39% (from 16%)
• Robotic Process Automation (RPA): 56%

“Compliance is in the midst of a revolution, and, looking forward, we can expect to see more regulatory attention to the process and governance, rather than the end number,” said Smith.

He concluded: “In a digital world, the tax authorities will easily be able to validate the output. Tax teams need to prepare for this shift now.”

The full survey can be found here.