The global business environment continues to evolve at a rapid pace, with factors such as globalization and technology disrupting traditional roles, processes and operations. One of these areas is in the tax landscape, where the changes are fundamentally and permanently changing how tax professionals operate.
A recent article published in Ernst & Young’s Spotlight on Business magazine, “Three trends shaping taxation for business,” identifies some significant traits that are redefining the tax function, as well as the role of tax practitioners all over the world. These trends include:
MORE COMPLEXITY
With recent collaboration among global tax administrations, such as with the Base Erosion and Profit Shifting (BEPS) project implemented by the Organization for Economic Co-operation and Development, signatory countries now have minimum standards to adopt in order to review bilateral tax treaties and enable better tax compliance, close taxation gaps and review business structures, supply chains and operations. With increased data submissions (like Country-by-Country Reporting) and automatic exchange of information being adopted by more countries to facilitate tax transparency, companies will need to consider more complex standards in their tax compliance strategies.
MORE DIGITAL CHALLENGES
Because of the speed at which digitalization is spreading, traditional tax rules are often hard pressed to keep up, creating uncertainty. However, there is still no clear guidance or consensus for tax administrations on how to address the challenges of the digital economy. This lack of clarity means that each country may choose to find its own solution to address the taxation of the digital economy. This may pose more challenges in the future in trying to create a consistent body of digital taxation standards on a global level.
MORE POWERFUL TAX ADMINISTRATIONS
Digital technology is changing how tax administrations interact with taxpayers and other tax authorities. With direct access to taxpayer data, tax administrations are increasingly relying on data analytics to help them step up tax collection and target tax audits. Some countries are even initiating real-time data collection from taxpayers with machine-based tax assessments and collection. Empowered by digital and technology, tax administrations are expected to have more tools and processes to ensure tax compliance.
With these three emerging trends, how can future tax professionals evolve to meet the demands of tomorrow’s tax practice?
TECHNOLOGY ENABLEMENT
Traditionally, tax professionals and IT consultants are widely different personalities with entirely different skill sets (e.g., the highly specialized tax professional versus the highly specialized technology or IT professional). However, as we move further into the digital age, the gap between the tax professional and the IT professional will continue to narrow. While the tax professional of the future does not necessarily have to also be an IT professional, they will still need to acquire a modicum of technology proficiencies to complement their tax technical skills. At the minimum, the future tax professional must be able to understand and appreciate emerging technologies and how they affect the tax function and the tax environment.
COLLABORATION AND MULTI-SKILLED TEAMS
Traditionally, the world of tax compliance was a simple relationship between the tax preparer/reviewer, the tax return and the local tax authority. As the tax environment becomes more and more digital, the number of elements involved and the interrelationships among these parties will become increasingly complex — these include (among others) the taxable event/transaction (data source), the accounting/recording process, the accounting system, the tax preparer, the digitally empowered tax administration, and multi-jurisdictional reporting – each with its own tools and technology enablers.
Different elements and technologies will require different skill sets to address. Working in such a dynamic tax environment therefore requires a flexible, multi-skilled service team, in some cases even capable of working across multiple tax jurisdictions. And given the pace at which the tax environment is evolving digitally, “mixed teams” of people who are either tax or technology proficient will ultimately evolve into “blended” teams with blended skill sets (e.g., tax people who understand tech, tech people who understand tax).
SHIFTING FOCUS TOWARDS ANALYSIS AND SOLUTIONS
As digitalization and automation become more and more widespread, the fear of the traditional tax professional is that he may eventually become obsolete. Tax return preparation will eventually become automated, and there are already many tools in the market that can help to sift, process and analyze high volumes of digital tax data (or tax Big Data). Traditional tax compliance skills (i.e., tax return preparation, filing, reconciling books vs. returns, etc.) may soon lose value. Tax professionals, as tax “advisors,” must therefore be able to elevate their roles from “preparers and processors” to “reviewers and analysts.”
In recent tax audit case, for example, a BIR examiner had asked the taxpayer to check the completeness of the sales reported in the taxpayer’s VAT returns by reviewing and matching transactional level sales data – data that consisted of hundreds of thousands of transactions, each with dozens of fields of information, resulting in millions of data points that needed to be analyzed. If we were to apply traditional worksheet/spreadsheet skills, it would have taken months to perform such a task — if it was even possible to process the big data through traditional means in the first place.
With various big data tools available, reconciliations and exception reporting may soon be “automated,” performed in minutes, and ultimately rendering these traditionally man-hour based tasks obsolete. In order to stay relevant, tax professionals must be able to elevate their roles by understanding the complex tax environments in which they operate and being able to provide answers to questions such as “What went wrong?” “Why did it go wrong?” and “What can we do about it?” Moreover, as submission of tax digital data to tax authorities moves towards real time or near real-time, traditionally sought-after corrective or remedial tax advice might likewise soon become irrelevant.
Traditionally, the practice of tax required highly specialized understanding of tax rules and regulations, which may be something that has defined the persona of tax practitioners. However, given the trends shaping taxation in the future, tax professionals may have to learn to be more adaptable and transformative, both personally and professionally, to stay relevant to tomorrow’s tax expectations.
This article is for general information only and is not a substitute for professional advice where the facts and circumstances warrant. The views and opinion expressed above are those of the authors and do not necessarily represent the views of SGV & Co. Lee Celso R. Vivas is a Tax Partner of SGV & Co.
