Tax & Digitisation: Considerations For Tax Experts

If there were any doubts as to the necessity of digital transformation for ensuring long-term business growth and competitiveness, the coronavirus pandemic has silenced them. 

In our digital, contactless world, the majority of day-to-day business now takes place virtually. With few exceptions, operating digitally is the only way that businesses can continue to ensure future viability. If you don’t take digitisation seriously, you run the risk of losing out on opportunities to your competitors. 

The mandate for digital is nothing new; the pandemic has simply put it front and center. Prior to the pandemic, a shift toward digitization was already underway, and current events have simply accelerated it. 

Right now, all businesses and business functions are facing a digital transformation, and this includes areas that many forget about such as the tax function. 

According to a 2021 global survey of tax professionals by Deloitte, 92% said that digital tax administration will have a moderate or high impact on tax operations and resources. 

So, where should tax professionals go from here? 

Progress begins with knowing the value of digital tax technologies and what they can do to support tax teams. This is most apparent in compliance. 

Tax technology and compliance

This is an area where digital transformation is having the biggest impact on the tax function. Digitisation of tax authorities and their functions have taken place across many European countries already. This is piling new compliance obligations on companies who are having to quickly adapt to new tech-led requirements and processes. 

In Spain, for example, a near-live reporting system for VAT has been developed, the Suministro Inmediato de Información, or SII for short. It primarily focuses on the obligation of Spanish companies to electronically declare information on invoices issued and received by sending this information to the Spanish tax authorities. Similar systems have been deployed in Hungary and the list of countries is continuously expanding… 

In response, technology companies have had to develop compatible systems that conform with these new standards and direct filing requirements. So, in practice, tools are already available, and in some cases like Spain and the UK, they’re mandatory—recording transactions and filing VAT returns can no longer be done on paper. It must be meticulously tracked, recorded, and handled through approved digital tools. 

The reason for this is fairly obvious. Big data and analytics have made it much easier to generate insight opportunities and spot errors for both the end user and tax authorities. Every two years, data is doubling. By the end of 2025, we’ll have 44 zettabytes of data in the global datasphere, that’s 44 trillion gigabytes. Compliance has therefore become more stringent as more data is being generated and collected, with the value of compliance now being more focused on making sure that wholly accurate figures are being reported so that businesses are not in a position where the tax authority knows more about their affairs than the company itself. 

What Is the impact on tax departments?

While you might be thinking that this is more relevant to accounts teams than it is to tax teams, the impact on the tax function in the future will be significant. 

With tax authorities demanding and having increased access to transactional-level data, tax departments are beginning to take on more of a role at the front-end by working closely with operations and accounts teams rather than only being involved at the very end of the pipeline. 

Tax teams will begin to find that more of their time will be spent on challenging and clarifying legal issues rather than tax optimisation, something which historically dominated their workloads.

Working in the digital tax environment of the future will also have potential implications for the knowledge and technology required to support the tax function. This is especially true when a business operates or works with other businesses across borders because tax regimes, compliance requirements, filing and reporting rules, expense rules, and other factors can vary drastically. 

Don’t forget that there’s also the challenge of having to navigate government portals and native technologies (e.g., the SII in Spain) to file directly as paper is phased out. This creates even more challenges and overheads, and it will continue to do so as these digital systems evolve from being primarily focused on VAT/GST to encompassing all tax affairs, from income tax and pension contributions to employee expenses and more. 

3 ways tax advisors and teams can prepare

The focus of digitisation is on data. It’s the lifeblood of the modern world and it has been the driving force behind the trend of recent compliance initiatives and the digitisation of tax authorities. Simply put, they know the power of the data you hold, and they demand that you hand it over. And you have to comply. 

With this in mind, here’s what tax teams can do to prepare for the inevitable changes. Some of which, as we’ve explored, are already manifesting into serious challenges for tax teams.

1. Identify emerging talent requirements

When talk of digital transformation crops up today, it might be easy for tax professionals to bury their heads in the sand and think of the negatives. However, technical tax knowledge will continue to be important because of the increasing complexity of international taxation and the need to be able to convey tax information to stakeholders.

One way to identify talent is to learn how other areas within the business, or perhaps even other tax departments in similar companies, are using digital tools and processes to support the tax function. 

The technologies that are set to become mainstream within the next few years will already be undergoing pilots elsewhere, so investigate and understand who’s doing what, why they’re doing it, and how it’s having an impact on their workflows. 

2. Adopt an agile mindset

It’s easy for tax professionals who are used to working with unarguable facts, accurate figures, and strict deadlines to dismiss the idea of digital transformation—the diametric opposite of all these things with its loosely defined nature and end-state. 

Tax departments that adopt an agile mindset by opening themselves up to the influence of modern tax tooling, however, can reap many rewards by breaking down process improvements driven by the digital transformation into smaller chunks, thus enabling them to access a series of smaller victories along the way as individual transformation elements are completed. 

Doing so will lead to a more fit-for-purpose department that’s equipped with all the right skills and knowledge, ready to face the tax challenges of tomorrow.  

3. Rethink current tax operating models

Tax teams often face the high cost of digital transformation and the realization that the capital needed to transform the tax function will not always be available. There’s also a myriad of other challenges, some of which we’ve already touched on such as gaps in expertise and the need for new sets of skills. As such, tax professionals have no option but to work together as a team and rethink their current operating models. 

There are many different operating models, which can range from handling everything in-house supported by digital tax tools to outsourcing some activities to third-party providers, which is an ideal way to access innovative tech solutions, expertise, and capacity immediately when it’s needed, often at a lower cost. 

In our digital, data-driven world though, the question is which activities can be entirely managed by technology? Tax teams can now access technological capabilities, skills, and resources without having to front the cost of implementing and maintaining them. For some, this will necessitate the rethinking of tax operating models so as to unlock enhanced capabilities and efficiency. 

The Blue Dot Solution

For tax teams, one of the most pressing issues of today is remaining in line with the rapidly changing compliance landscape while simultaneously keeping on top of their evolving role. They need to find a way to ensure compliance and accurate reporting that covers the entirety of their domestic and cross-border operations to avoid issues with tax authorities while putting in place an efficient and controlled process that is not solely dependent on people to run.

This is where Blue Dot comes in. We offer a powerful data-driven VAT/GST recovery solution that streamlines the entire reclaim process. Blue dot automatically validates your finances and identifies recoverable VAT/GST according to local requirements on a global scale, eliminating the complexities that plague the recovery of T&E expenses.

If you would like to learn more about how you can put Blue Dot to work for your organisation, get in touch today for a product demonstration.