With the arrival of digitalisation, today’s tax administrations must contend with a continuously-increasing amount of structured and unstructured data – from both traditional and digital sources. And tax administrations’ data collection capabilities are only increasing due to global tax transparency initiatives, the Internet, third parties such as banks, and other digital channels such as bitcoin networks or social media. As an example, the UK tax authorities plan to increase the amount of data Her Majesty Revenue and Customs (HMRC) can collect and analyse by extending their legal right to gather data from merchant service providers and data aggregators, including those that are based outside of the UK.
One of the main drivers of tax digitalisation is the need to ensure compliance. Governments around the world require businesses to transmit their invoices electronically, and some even require real-time submissions. These e-Invoices are fast becoming the standard method of reporting, eliminating the manual, paper-based invoices that were error-prone and difficult to track. This model is already prevalent in Europe and some LATAM and Asian countries and is expected to reach worldwide adoption by 2025. In fact, the 2019 global e-invoicing and enablement market was estimated at €4.3 billion and is expected to reach approximately €18 billion in 2025.
Having all this data should go a long way toward helping tax administrations achieve their goals of enforcing compliance. However, they must first figure out how to find the buried treasure in all this data; how to convert their information overload into actionable insights.
At the recent Tax Transformation Summit in London, tax professionals from the world’s leading brands came together to discuss today’s hottest topics in the tax function: transparency, transformation and technology. Remco Dewaerheijt, VP Tax & Product Strategy for VATBox, hosted panellists Jose-Manuel Pedron-Garcia, Global Tax Compliance Process Leader at Michelin; Ksenija Cipek, Head of Tax Risk Analysis at the Croatian Tax Authority’s Ministry of Finance; and John Shuker, Indirect Tax Partner at PwC.
Mr Dewaerheijt opened the discussion with the powerful observation that the digitalisation of our lives is unstoppable, with data doubling every two years. He quotes the IDC’s prediction that by the end of 2020, we’ll have 44 zettabytes – or 44 trillion gigabytes – of data, and that number is expected to reach 175 zettabytes by 2025. The panel then had an open discussion about the effect digitalisation is having on the tax function.
Ms Cipek* discusses how authorities can handle and process the massive amount of data they collect every day in transactional data. She explains that the Tax Authority emphasises the quality of data that is stored in their data warehouse so that they can ensure that their data analysis will also be of high quality. Based on their risk management analysis, they profile their taxpayers, so that they “know which taxpayers are fully compliant, are medium risk or are high risk.” The high-risk taxpayers are then quickly audited. Ms Cipek says, “We are living in a digital world, so we have to be fast to manage this data, and we have tools for that.” For example, she says the authorities can forecast taxpayer behaviour for both the short and longer-term and determine which taxpayers will potentially be risky in the future.
Certainly, when an administration’s Big Data capabilities are modernised, the tax authorities will achieve their goals. Connect is HMRC’s strategic risking tool that cross-matches over one billion internal and third-party data items and presents the information as a network of associations. For the first time, HMRC can see the majority of the information it has about a taxpayer at the touch of a button. Connect has helped the UK secure £3bn in additional tax revenue since its inception.
To stay competitive in today’s fast-moving financial times, companies must ensure that their tax reporting is in full compliance of all local, national and international regulations. To learn more about how VATBox empowers financial professionals to make strategic decisions based on their transactional data while ensuring unrivalled compliance and savings, click here.
*Views expressed are personal and do not necessarily reflect the position of the Croatian Tax Authority’s Ministry of Finance
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