What is driving the Regulators?
The landscape of tax compliance is evolving at a rapid pace, with the introduction of new complex local and international compliance obligations, many of which have resulted from the dual pressures of increasing tax revenues and the media spotlight falling on the tax strategy of multi-national enterprises.
Regulators worldwide are aiming to increase tax revenues whilst remaining competitive and attractive by pursuing a low-rate and broad base business tax strategy, with jurisdiction specific incentives such as R&D schemes being used as a differentiator. They are leading the way, demanding retention of and access to digital records, creating new digital platforms for the submission and gathering of tax data and running sophisticated data analytics on the data submitted.
In the UK, the regulators are focused on reducing national tax gaps (£34bn in October 2017) through increased efficiency, clamping down on tax avoidance, collaborating on global standards to cut international tax evasion (such as the BEPS-related changes) and increased transparency to ensure that businesses are paying their fair share. Additionally, Making Tax Digital will modernise the way in which tax is reported starting with VAT in 2019.
Volume and complexity of regulations
In 2017 alone the UK’s draft finance bill was the largest on record running to 665 pages. New international reporting included the OECD’s Common Reporting Standard (CRS) and BEPS/ Country- by-Country Reporting have come into force in Ireland and the UK. On top of this HMRC’s Making Tax Digital (MTD) initiative is set to modernise the UK’s Corporation tax system and will result in a four-fold increase in corporate tax reporting obligations.
Tax authorities, investors and the public are looking for greater tax transparency from business. How a business communicates its approach to tax and the amount of tax paid is a key component in building trust, reducing reputational risk and maintaining a good risk rating with the tax authorities.
The legal requirement for all large businesses operating in the UK to publish their UK tax strategy online (disclosing their approach to risk management and governance arrangements, the level of risk the business will accept and their approach in dealing with HMRC) has increased tax transparency.
Furthermore, the OECD’s Country-by-Country reporting initiative, that stemmed from the need to counteract tax planning through profit shifting, and Making Tax Digital in the UK demonstrate how tax authorities are now demanding and sharing more data, more regularly and in more detail with the underlying requirement that the digital records are there, available for audit, supporting the information reported.
The impact on Business
This changing environment presents in-house tax teams and advisors with many challenges. Tax is now much more than compliance, the tax team must adopt a good tax strategy and governance model, protecting the business from penalties and guarding their reputation.
Tax function under pressure - The new wave of reporting obligations and complex legislative changes have put increased pressure on tax teams who are expending valuable resource on collating data from disparate systems, before consolidating the data into the prescribed format for reporting purposes.
Systems that don’t Scale – To keep up with accelerating demands, existing systems and data processes will need enhancing to allow the processing of ever greater volumes of data into a range of reporting formats whilst ensuring the accuracy and consistency of submissions. Inconsistent implementations and integration of accounting and ERP systems result in multiple data sources, each with different data formats necessitating manual collection and re-working of data. On top of this many systems don’t allow simple data sharing, creation of cleansed data pools, or the ability to filter, validate and drill down on data.
Increased Risk – Increased obligations, workloads and issues around data management and process control leads to increased risk of missing submission deadlines, incurring penalties, attracting additional scrutiny from the tax authorities and potential reputational damage. Organisations relying on manual spreadsheet based risk management processes will struggle to get the information that’s required to meet these challenges.
Inefficient Processes – Organisations meeting the large numbers of compliance obligations face the risk of inadequate process and controls, often stuck in process bottlenecks as deadlines approach, with rework loops driving down the productivity of staff. Addressing the issues
- First, adopt the right technology, implemented to suit your business requirements, to reduce the manual elements of your compliance and submission processes, reduce costs and free up skilled staff to focus on strategic tax work.
- Secondly, focus on systems that collect and store data digitally, complying with regulatory requirements for digital record keeping, whilst ensuring data privacy, improving data security and giving you powerful data management and analytics capability.
- Thirdly, take control and reduce risk by adopting central systems for process and controls. Working from a well-designed and documented process workflow, with clear segregation and allocation of duties combined with inbuilt controls and alerts that are automated and enforced by technology.
- Finally, gain power over your data via an integrated business intelligence solution providing all stakeholders, from the business leaders to the case workers, with visibility over filing status, deadlines relating to e.g. audit and investigations, legal entity management and tracking efficiency.
How can organisations achieve this?
Use technology solutions that help automate the end-to-end corporation tax compliance process with tools for data collection, process management, tax compliance and reporting, helping you to leverage your data for tax related business intelligence, and risk management.