Regulators continue to be tasked with increasing tax revenues, reducing tax evasion and ensuring businesses are paying their fair share to support government spending, reduce national debt and reduce annual deficits without the need to raise taxes. UK debt levels were at £1,720 billion for the financial year ending March 2017, which represented 86.7% of Gross Domestic Product (GDP). UK deficit levels were at £46.9 billion for the same period.
As a result, there is ever-increasing collaboration between governments and agencies (especially since the financial crisis in 2007 and the Panama Papers in 2016) which is seeing regulators increase local and international compliance obligations. They are investing in sophisticated digital platforms for greater data gathering and analysis to achieve their objectives efficiently and sustainably.
In addition, and due to tax featuring increasingly in the media, how businesses communicate their approach to tax and the amount of tax paid is a key component in building trust, reducing reputational risk and maintaining a good relationship with regulators, shareholders and consumers.
Tax is no longer about calculating and submitting the correct tax number. It is about having an agile tax function that can protect your business from financial penalties or reputational damage, responding efficiently and accurately to the regulator in the event of non-compliance or audit notification, whilst offering proactive expert tax advice on strategic activities such as mergers and acquisitions, disposals, and geographical and operational structures.
In 2017 alone, the UK’s finance bill was the largest on record running to 665 pages.
New international reporting included the OECD’s Common Reporting Standard (CRS) and Base Erosion and Profit Shifting (BEPS) have come in to force in both the UK and Ireland. BEPS requires organisations with a group turnover of greater than 750 million euros to submit detailed transactional information on operations and group transfer pricing for every country they operate in, on an annual basis.
On top of that, other initiatives include HMRC’s Making Tax Digital (MTD) initiative, which from 2019 will modernise the way tax is reported starting with VAT and then moving on to corporation tax, which will result in a four-fold increase in reporting obligations. The Irish Revenue will be introducing real-time reporting of payroll taxes from January 2019.
Last but not least, there is now a legal requirement for all large businesses operating in the UK to publish their tax strategy if, in the previous tax year, the business had a turnover above £200m or a balance sheet over £2 billion. For groups and sub-groups, it is the combined totals of all the relevant bodies that must be used.
Regulators are leading the way in creating new digital platforms for the submission and gathering of tax data. Those submission requirements will vary based on each specific country but most will determine a file format and a deadline, along with the tax and transactions to be included.
The powerful part of collecting and storing data digitally is what the regulators using analytical software can then do. Data can be mined, matched and shared to ultimately find ways of increasing tax collections and creating new reporting obligations to help meet their objectives. Due to the level of data the regulator will hold, it will no doubt increase the number of audit notices, which will require swift responses from businesses with a greater level of quality and accuracy.
Ultimately, as with any data project, this will end up with the regulator wanting to consume more and more data so that they can digest it and analyse how best to monetise the facts presented. Ultimately, we will end up with the regulator wanting to ‘drill down’ from any submitted tax number to see how it has been calculated and via which transactions.