The 2019 Tax Technology Leadership Summit in London, revealed further indicators about how corporate tax teams are adapting now that the reality of increased regulation, and the impact of more digitally capable tax authorities are starting to bite.
Highlights from the 2019 European Tax Technology Survey, which was released the same day also show that:
- 76% of senior tax executives have seen an increase in attention on tax compliance and planning at the board level
- 28% of tax teams plan to increase spend significantly (>10%) in next 12 months – mainly to address the needs of digital tax reporting
- Managing compliance across multiple jurisdictions continues to be the biggest challenge, although preparing for Brexit had also significantly increased in importance
- Most tax teams consider themselves “intermediate” in their adoption of tax technology, however there was a big increase in the number that now consider themselves “advanced” – reflecting the growing maturity of tax technology adoption.
- 89% consider tax technology as strategic to the success of their tax function, although only 39% have a tax technology strategy.
- The most important criteria for new technology investments is to buy from a vendor with an integrated tax technology platform
Piotr Marczewski, President of Corporates at Thomson Reuters, identified the major trends as increased regulation (both in terms of complexity and the rate of change), changes in business models, and advances in technology which in turn generate demand for transacting more digitally.
Taking the view that compliance based departments are increasingly driven by technology, the need for transparency and accuracy paints a picture of both an improvement of business process but also a potential arms race with the tax authority.
Digital tax is becoming a reality
Steven Smith, Propositions Lead in Europe for Thomson Reuters, reflected that “The implications of digital tax is becoming real. After hearing about it for a number of years, it is here and we are seeing it happen across EMEA. MTD for VAT is the UK’s focus, but this is following in the wake of digital initiatives in Spain, Portugal, Poland and with more countries following including Germany and Norway”.
The pressure on businesses to conform is mainly around adapting processes, but it comes at a time where there is also increased media attention on tax matters, and subsequent added interest from the boardroom.
“Tax affairs are now being scrutinised in terms of investor relations and share price, and there is evidence that forecasting on tax is increasingly becoming a forethought rather than an afterthought”, he added.
Transparency in data and process
For Smith it also indicates a material change in the relationship with the tax authority: “In time we will see a movement away from the calculation and submission of returns, to it being the other way around – where a view of your tax position is already known and assessed, and the role of the adviser (tax expert) will be to see if it is accurate, and a fair on balance position”.
The thought of an authority knowing more about a company’s tax position than the business may not be so far fetched in principle if, as in Spain, transaction level data becomes accessible. The role of big data analytics and AI, may seem an emergent technology for some organisations, but governments have the scale and intent to get much more out of raw data if they are motivated by increasing tax revenue.
Smith also provides other evidence where regulators are just as interested in controlling and auditing process as they are the outcomes, “The FCA for financial services in the UK, is a very real example of pushing good practice as well as accuracy of service, and this will be replicated in tax as well”.
The softlanding around digital links (and to extent penalties) of MTD for businesses reinforces how HMRC is keeping a tight rein on mandating process, requiring businesses to get it right sooner rather than much later. This emphasis on process is likely to take centre stage once more when the arrangements for corporation tax become known over the next few years.
Tax technology is on the agenda
Before we get that far however, the adoption of technology for some organisations is still a challenge. From a corporate perspective some of these challenges are well understood, however, summit delegates feedback indicates that there is a greater desire to push back to the wider organisation (notably IT and the board) to look again at investment in updating tax systems.
A delegate from one of the major banks emphasised the leverage MTD had given the department to seek investment for point solutions, but also as a way to ignite a more general review of tax technology across the department.
Another representing a city property company, talked about having to prepare for more active conversations with their external tax advisers and IT partners, with a focus on looking at optimising their financial processes and adopting cloud.
With evidence of a more attentive board, and a visible increase in the workload being generated, it would seem that 2019 is seeing tax technology taking a more prominent place on the agenda.