At the same time, tax authorities all over the world are becoming more powerful and proactive by using digital-enabled technology, driven by the need for enhanced tax collection and greater efficiency in an environment of limited internal resources. As a result, multiple new reporting requirements have been established over the last years (for example, CbCR, FATCA, CRS, TP documentation, etc.). The various pieces of information collected from companies, regarding for example shareholders, ultimate beneficial owners, the business and its financial and tax situation will create a completely transparent taxpayer. We estimate that there will be a higher incidence of regular and systematic tax audits by such Digital Tax Administrations, with a clear view to increase tax revenues.
The compilation of such data from different business units should not only be seen as an onerous compliance obligation. With appropriate data analytics, Tax Big Data could play a key role in business decisions and thus be considered a valuable asset for many organizations as the effective use of tax and financial data becomes a competitive advantage.
Such rapid digital expansion has created a high volume of new and potentially unexpected compliance and regulatory obligations. In certain areas, it has even led to a disruption of long-established Global Compliance and Reporting processes. For instance, the traditional model of filing tax returns and undergoing potential tax audits long after the end of the respective fiscal year, is already an outdated concept for many countries. Considering this changing international tax environment, taxpayers must prepare themselves for a future where structured tax data must be available and shared in a predefined format with the tax authorities, almost immediately after a transaction takes place.
Where taxpayers do not consider such developments, firstly, they expose themselves to various risks – non-compliance and related financial penalties, double taxation, unexpected tax assessments, tax audits and reputational risk. Whether a company provides asset management services, manufactures cars, is a retailer or is in the financial sector, being compliant on a global level is one of today’s critical areas of risk with increased attention from the company’s management as well as from the public.
Secondly, organizations must understand that the availability of real-time data will facilitate decision-making, with tax functions being important users of enterprise data. Data management will further provide the opportunity to better understand data patterns that tax authorities would look for.
Finally, cost savings arising from improved internal processes via professional and technology-enabled compliance management, may compensate significantly for the additional compliance obligations. Consistent with other areas, digitalization brings significant challenges for companies in the field of taxation but also creates opportunities in terms of process efficiency, tax risk analysis and control.
Elmar Schwickerath , Partner, Tax, Global Compliance and Reporting Leader Luxembourg
Christian Mertesdorf , Associate Partner, Tax, Global Compliance and Reporting