How connected data can transform tax compliance

By Stan Berings, Connected Tax Compliance NL and EMEA & Sabine Barlage, Connected Tax Compliance NL and EMEA

Tax functions are on a mission to digitalise and automate their compliance and reporting. It’s a mission that demands technology skills and a clear strategy for sourcing and scaling digital capability. It also requires data that is structured, usable and accessible.

However, many companies have tax data that is fragmented and incomplete. In our recent PwC global survey on the Future of Tax, fewer than a third (29%) of respondents said that the full span of data needed for tax compliance and reporting was stored in a central repository. Barely more than a quarter of companies (26%) said they were able to use their data to generate a full digital audit trail.

Access to the data that tax functions do have is also sub-optimal. In our survey almost half of companies (48%) were unable to say they had ready access to high quality historical data, and 47% were unable to say they had ready access to real time data for use in their wider business.

These data challenges are typical of legacy corporate IT systems. Yet in the case of tax, where accuracy is a regulatory requirement, they can become critical failure points. This means that companies need a proactive tax data strategy to support the digital transformation of tax.

In our Connected Tax Compliance practice we help companies develop and implement a compliance data strategy, and we find most companies will need to act on data in at least four different ways.

• Firstly, they need to review how they gather data, and that means creating a centralised hub where all tax data to meet different reporting demands can be accessed. This creates a ‘single source of truth’ for all tax compliance.
• The second step is to systematise the kinds of tax-relevant data they hold, bringing structure to the diverse sources of data that are found in any large organisation. 
  
• Thirdly, companies need to activate data, making it ready-to-file in all the different jurisdictions where a business is active and for all the tax reporting requirements they must fulfill. This is where data moves from sitting in an accounting record to becoming an active part of compliance fulfillment.
• Lastly and most importantly, companies should see their tax data as a resource that can generate business insights. They can use data to better understand their effective tax rates, or the true tax-adjusted performance of products or markets. Insight for business planning is the most under-used dimension of tax data, and an effective data strategy should recognise this resource.

Data strategy is at the heart of Connected Tax Compliance. If companies can structure and organise their data better they will also be able to harness the power of artificial intelligence in their tax functions, making data-in and insight-out an automated process, integrating finance and tax procedures, and drastically reducing manual input and associated errors.

They will also be better able to manage the shift to real-time tax reporting. Tax authorities increasingly demand real-time data in areas such as VAT, and it needs to be accurate at the time of invoicing rather than corrected and reconciled after the fact. A robust data strategy is a vital part of meeting these demands.

The PwC Connected Tax Compliance approach recognises that the role of the tax function is changing. Data and technology have empowered tax professionals, creating opportunities to contribute much more to complex cross-border businesses.

There’s an old saying that ‘tax follows business’. But we are not sure that holds in the way it used to. Today, business decisions can also be shaped by the tax context, and by the insights that can be drawn from tax data that is robust, accurate and designed to create value beyond the tax return.