The future of global tax compliance is seamless and real time

Four years ago, the OECD laid out its vision for the global tax administration of the future in its Tax Administration 3.0 report. Today, that future is just about here. Aspects of the OECD’s end state have already arrived, and these changes have considerable implications on global indirect tax compliance. 

The OECD report I’m referring to addresses the digital transformation of tax administrations and the document’s analyses and guidance are equally relevant for both SMEs and large enterprises: “In order to stay synchronized with daily life and business transactions and events, tax administration processes will be increasingly real-time or close to real-time,” the report states. “...Artificial intelligence (AI) tools and algorithms will support the characterisation and assessment of liabilities and will increasingly support decision-making.” 

Another passage of the report states that “paying taxes will become a more seamless experience over time integrated into daily life and business activities as much as possible.” 

Components of this tax compliance “future” continue to arrive on almost a monthly basis with global expansion of B2B e-invoicing and (near) real-time reporting mandates. France, Poland, Germany and other EU countries are rolling out e-invoicing and (near) real-time reporting requirements for VAT compliance that will replace traditional invoices with structured digital documents, supplemented with more granular and (near) real-time transactional reporting. Following the success in Latin America in using e-invoice reporting as a means to fight the grey economy and tax gaps, Italy was the first EU country to mandate B2B e-invoicing in 2019. 

In addition to collecting transactional information through e-invoicing and (near) real-time reporting, global tax authorities are experimenting with emerging technologies to gain real-time visibility into business transactions, which requires businesses to perform tax compliance with unprecedented speed and accuracy. Let me share a few examples: 

• Costa Rica, Mexico and Peru collaborate in a blockchain-based initiative that enables information-sharing on authorised economic operators (AEOs) among the Customs administrations; 
• The Netherlands has built a predictive model to integrate risk indicators and optimise the selection of VAT declaration with a refund for a check; 
• The Spanish Tax Administration uses web scraping to detect economic activity in open networks. Results include the collection on the internet of real estate rental offers and the evaluation of sales in e-commerce virtual shops; 
• The Mexican Tax Administration Service incorporated powerful data analytics allowing them to analyse and integrate 10 million electronic invoices in a matter of minutes; 
• Canada uses advanced predictive analysis to better understand taxpayer decisions and actions with respect to tax debt. 

That’s a lot to process (no pun intended). These and other global tax administration trends (including replacing period government assessments of indirect tax revenue with (near) real-time assessments, and the growing use of enhanced cross-border information exchanges and joint audits) raise crucial questions for indirect tax leaders, such as: 

• To what extent do we rely on people and manual tax compliance processes and periodic reporting? 
• Are we equipped to assess our business’ compliance in real time? 
• Are we ready to comply with new and emerging e-invoicing and real-time reporting requirements in EU countries and elsewhere? 
• Do we have the expertise and capacity required to respond to new compliance demands associated with tax administrations’ adoption of advanced technologies? 
• To what extent can we leverage tax data analytics to identify and mitigate compliance risks in a practice manner? 

Answers to those questions will give tax leaders a better feel for the efficacy of existing tax technology solutions at a time when corporate tax groups are not the only bodies investing in tax technology transformation.