In September the OECD released the eighth edition of its annual Tax Administration Series (“TAS”) report. Building on findings from the 2017 and 2018 TAS reports and The Changing Tax Compliance Environment and the Role of Audit report (OECD, 2017), the publication provides comparisons and examples of the ways tax authorities in 58 jurisdictions are implementing technology and developing new business models to adapt to the evolving tax landscape. While this report may raise concerns within tax teams regarding the accuracy of their filings (as it should), it helps taxpayers understand what they are up against and provides ideas that can similarly help them adapt to the changing landscape.
Faced with resource challenges due to an ageing workforce and increasing workloads caused by initiatives like FATCA, CRS, BEPS, and DAC6, tax administrations have been forced to find ways to create more efficient and effective processes (like most tax departments). But rather than simply stay within their existing process framework, many examples illustrate that these tax administrations threw out the old and redesigned how they operate; it’s almost like they took a page out of Michal Hamer’s famous article, “Don’t Automate, Obliterate” (Harvard Business Review, July-August 1990).
One example, from HMRC, discusses how they have leveraged the increased availability of data to take merchant sales figures directly from processors of credit card transactions; using technology to transform their processes to fit into a real-time data driven environment. Another example, from the US IRS, shows how they have used data scientists and machine learning to develop tools that develop risk assessments for large business and international corporate filers; using technology to increase process efficiency through a risk-based approach. A final example, a non-technology-based process innovation, discusses how multiple tax administrations have adopted “co-operative compliance” programmes to build transparent relationships and develop proactive approaches to solving tax risks with the taxpayers, with the goal of creating efficiencies by reducing queries and disputes.
Facing similar challenges to tax administrations, many tax departments are looking for solutions that will help them create efficiencies and increase compliance accuracy. This report illustrates that innovation is not just a nice-to-have, but is now required, just to keep the pace. However, that innovation should not just be considered with regard to technology, but also to processes and business models. The tax function is changing along with the digital landscape, tax departments need to understand how the change will impact them and evolve or face a tougher time from tax authorities who did.
