Emerging Trends in Global Tax and the Need for Implementation of Tax Technology
Multinationals as well as domestic organizations are now faced with new emerging trends of governmental taxing authorities constantly finding ways of increasing its tax revenue base. Moreover, the global tax system has continued to evolve and migrate over to digitization versus legacy analog systems and hard copy tax forms.
Along this trend is a continued globalization of commerce, which has encouraged the migration of businesses in all industry facets towards digital transformation. Jeff Bezos, founder of Amazon once said “In today’s era of volatility, there is no other way but to re-invent. The only sustainable advantage you can have over others is agility, that’s it. Because nothing else is sustainable, everything else you create, somebody else will replicate.” – Jeff Bezos.
More and more organizations have and continue to invest more dollars into transforming their operational enterprise resource planning (ERP) capabilities into digitizing its commerce footprint. Data shows that the global spending trends on digital transformation from 2017-2025 have more than tripled from that of pre-2017 spending, and that it is projected that in 2022 alone digital transformation (DX) is estimated to reach 1.8 trillion U.S. dollars.
The global shift toward digital transformation and cloud applications has presented new frontiers and opportunities for organizations to re-invent and get ahead of competitive market forces. From customer relationship management (CRM) systems to the financial accounting life-cycle of accounts receivable, accounts payable, inventory cost management, and financial data analytics, organizations need to pay attention and make capital expenditures (CapEx) in upgrading its business application development.
Investing in new tax technology is part of that digital transformation journey. Whether in the U.S. or internationally, the tax landscape presents ever-changing tax policies and tax reform. For instance, in just the past five years, the Tax Cuts and Jobs Act (TCJA) was passed in 2017, and in the more recent amendments under the Coronavirus Aid, Relief and Economic Security (CARES Act) for changes in relevant tax policies. On the global side, in 2021 more than 130 countries including the U.S., representing approximately 90% of global GDP, joined together in a statement to establish a new global framework for international tax reform.
This has brought about the ever increasing need to implement tax technology in organizations that want to and should stay ahead of the market and ready itself for global and domestic tax reform and the trend toward digitization of taxes. Ideally, an organization should implement some iteration, if not all of the following ecosystem of tax digital solutions:
If you’re in tax, then you know the most common frustrations of tax personnel, is that in most ERP instances, tax is not fully aligned to enterprise solutions, and tax data has to be manually pulled, collated, and compiled to be useable in tax compliance filings, and tax provision calculations . This takes an enormous amount of people power and resources for each accounting life-cycle close period, whether monthly, quarterly or annual. By aligning tax technology to the organization’s ERP and master databases, data can be utilized in a more efficient and effective way to meet tax deadlines, FP&A deadlines, and provisions on accounting for income taxes under ASC 740.
Tax connected applications that are implemented the right way can be powerful and leverage tax data at its ERP source. This allows for effective, efficient and reliable tax reporting solutions that avoid the common manual data errors.
With combined tax technology solutions, data can be readily available, and large sets of tax data can be analyzed into more transparent and visual trends in organizational tax spend, effective tax rates on a domestic and multi-national basis, and provide for deeper understanding for leadership on the tax ramifications of day-to-day transactional activity as well as planned M&A tax due diligence.
Digital tax compliance submission capability.
Global trends in digital tax filing requirements have placed increased demand for organizational indirect tax functions to meet transactional reporting and real-time data reporting. Italy and in some Latin American countries like Argentina, Mexico and Chile, now require both B2C and B2B transactions to real-time invoice reporting. Poland, effective 2016, required compulsory real-time reporting for large VAT-registered companies. In Italy, the new Italian tax regime’s tax reporting center is the “sistema di interscambio” (system of exchange), or SDI, which requires a real-time interface for reporting invoices. On July 1, 2017, the Spanish tax authority introduced a new obligation called “suministro inmediato de información del IVA” (immediate supply of VAT information), known as SII, which is similar to the new indirect tax reporting in Italy. Hungary and India have followed suite with respect to VAT and GST tax reporting respectively.
Tax provision automation.
Given the new complexities of tax provisioning, especially on the foreign side of the house, with FIDI, GILTI and other consolidating tax provision calculations, it makes better sense to implement tax automation technology in assisting organizational tax departments with available technological advances on master data pulls, APIs and the ability to quickly gather general ledger data from an ERP to assist with cycle tax provisioning.
Continuous tax process improvement and governance.
One of the benefits of implementing tax technology is the added benefit of tax data transparency. This allows for further identification of tax process improvements for compliance reporting and overall trends in tax data visibility, which lends itself to better tax planning in support of organizational leadership goals and objectives contributing to the organization’s bottom line.
A recent EY survey in 2020 showed that 51% of respondents expect an increase in organizational tax risk for complying with emerging global digital tax filing requirements, and also that about 84% of the corresponding respondents also expect increased workload for the tax, finance and accounting department functions as a result of global digitization tax filing requirements.
It makes perfect sense to get ahead of the curve and implement new tax technology to be fully aligned with an organization’s ERP systems so as to avoid tax risks, find process improvements and tax cost savings as well as provide better visibility of an organization’s tax data trends to leadership.
John Chambers, former Executive Chairman and CEO of Cisco, once said a sobering thought that “At least 40% of all businesses will die in the next 10 years…if they don’t figure out how to change their entire company to accommodate new technologies.” – John Chambers, Cisco. On a more positive note, George Westerman of MIT Sloan Initiative on the Digital Economy, once said that “When digital transformation is done right, it’s like a caterpillar turning into a butterfly, but when done wrong, all you have is a really fast caterpillar.” – George Westerman, MIT Sloan Business School.
