By Pippa Booth, UK Tax Reporting and Strategy Leader, PwC
The pressure of change leaves no room to stand still. Minimum global taxes under OECD Pillar 2 are spearheading a renewed wave of global tax reform. There are also more registrations and returns, as digital and destination taxes bring ever more operating territories into the compliance net.
At the same time, boards now want more timely, incisive insights to help them navigate tax reforms and deal with the tax implications of disruptive shifts - in areas ranging from supply chain restructuring to the move to net zero.
These challenges are reflected in the investment priorities of the 300 decision makers we interviewed for our Reframing tax study. The front-runners have already made important strides in bringing their systems up to speed, recognising the need to sharpen efficiency and target resources with ever greater precision – more for less.
Unfortunately, the biggest test for those responsible for tax is coming in under the radar. Making tax digital is allowing tax authorities to collect, analyse and audit more data than ever before. This enables them to request and share more information with other authorities and government departments, comparing the data provided against other taxes paid, other parts of the business and other companies around the world. It's a whole new ball game for how tax is managed, with more transparency over companies' tax affairs, more sophisticated investigations and a sharp increase in enforcement action to come.
Adding to the risks is the lack of public fanfare over this step up in scrutiny. Tax authorities haven’t said what specific areas of taxation they’re targeting, and indeed this may vary. Neither have they warned businesses to be on their guard. It’s almost as if they want the upsurge in audits to come as a surprise, so the resulting shock and awe will be all the greater. As a result, few if any companies – including the ones with the most developed systems – are sufficiently prepared for the dangers ahead.
How can you make sure you’re ready? As a matter of urgency, you should be assessing what the data you’re sharing says about your business, whether it’s consistent between divisions and taxes, and what risks you might face as a result.
The underlying requirement is a single version of the truth. When facing this level of scrutiny, source data needs to be accurate and consistent. It also needs to be traceable from filing all the way back to source. Neither is the case today, with data undergoing so much manipulation, repurposing and reallocation that it’s hard enough for your business to sustain clear governance, let alone contest a possible audit.
Looking ahead, the sea-change in data transparency calls for a rethink in how tax operations are set up and run, which goes beyond the systems modernisation and organisational redesign we’re seeing today.
The need for a single version of the truth is likely to be an especially strong catalyst for the next stage in your transformation. But other factors are at play, including the need to keep tools and technology up-to-date in the face of continuing resource constraints.
Looking at both the increasing demands and budgetary practicalities, four key priorities stand out:
It's not the job of those responsible for tax to clean and adjust the data coming to them. Not only is this a waste of their time, it also heightens the risk of tax authority challenge. The data coming from your business should therefore be right the first time. The fallout from making tax digital will help to provide your business with a clear incentive for bringing data feeds up to scratch. For example, some tax authorities are preventing businesses from issuing invoices if they have questions over the tax coding in the real-time sales data.
To strengthen data governance, some businesses are integrating tax into their centres of data excellence. They’re also bringing tax into the remit of their chief data officers or even appointing dedicated chief data officers for tax on its own.
From a systems perspective, a number of businesses have brought tax into their application managed services. To support this, tax data is subject to round-the-clock automated monitoring to check for anomalies and inconsistencies.
This article is one of a series designed to help those responsible for tax navigate their transformation journey. If you have any questions or would like to know more about redefining the role of tax in your business, please get in touch.
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