Digital transformation has been visible to consumers in sectors such as travel, shopping and banking for some time. Attention has now turned to professional services with the spotlight focussed on disrupting the delivery of tax services, whether it be services provided by an in-house department or a professional services firm. The rate of digital disruption and innovation in the tax and accounting sector is unprecedented.

Developments in technology particularly automation and artificial intelligence coupled with the ever increasing volume of knowledge readily available through the internet challenges advisors to ensure their business model offers value to their client. As clients are more empowered they are not prepared to pay a premium for the delivery of routine services which can be easily automated.

Additionally, in an era of global transparency surrounding tax, multinational organisations have firmly placed tax on the board room agenda and recognise it as an area that can provide deep insights into the direction and performance of the business rather than a mere compliance function.

The challenge presented to advisors and in-house tax leaders is to shift the focus from tailoring tax strategies to fit a business plan and satisfying statutory tax obligations to ensuring the tax strategy is an integral part of the business and becomes a key consideration in the commercial decision making of the organisation.

Automation and digitisation

An Oxford University study ranked tax preparers as among the ten roles most susceptible to computerisation out of more than 700 jobs analysed. Routine tax compliance is becoming increasingly digitised and automated.

Automation and digitisation of tax has the ability to drive efficiencies through enhanced standardisation of processes enabling the tax compliance function being delivered at a lower cost and with fewer errors.

While the shift towards automation and digitisation of the routine tax compliance function for many organisations is arguably only a matter of time, and is underway in many cases, the future role of tax professionals is likely to be focussed on the interaction between human and artificial intelligence.

Role of advisors and artificial intelligence

The tax profession has long been based on the ability of tax advisors to provide technical advice, planning and solutions to taxpayers in both every day and complex commercial situations. A key challenge is to provide innovative and relevant solutions in an environment of evolving regulation and increased media scrutiny associated with the tax planning of global corporates.

Given the pace of change in recent years, many tax professionals may question the relevance and longevity of their skills and knowledge in the coming decades. There is no doubt the shift towards digitisation and artificial intelligence will alter the way in which advice is delivered, however practitioners must identify the opportunities provided by technological advancement and shape their service offering accordingly.

Key considerations should include the identification and separation of tasks which can be better carried out or enhanced through the use of artificial intelligence and the tasks which must be physically addressed by advisors. As tax law is open to judgement and interpretation, the threat of complete automation or reliance on artificial intelligence of the tax functions is somewhat far-fetched.

However, the use of artificial intelligence and machine learning will boost the data mining and analytical capacity of organisations enabling the provision of real-time advice to clients in a more efficient and accurate manner. Sophisticated artificial intelligence systems now have the ability to learn from specific examples thereby developing the expertise and knowledge to provide solutions to future scenarios.

While developments in IT infrastructure should result in computers generating robust information rapidly and efficiently, opportunities should exist for practitioners in distilling and interpreting automatically generated information.

The ability to use artificial intelligence to add value in areas such as precise business forecasts, benchmarking performance against competitors or firms in similar sectors and identification of future red flag issues allowing for corrective action to be taken in real time notwithstanding the various tasks such as interpretation of legislation should safeguard the role of the advisor. The dynamic of a tax team is likely to evolve to include a greater number of individuals skilled in IT and data analytics with a reduced requirement for individuals specialist in the interpretation of legislation.

One of the biggest opportunities is for tax advisors to be solution driven and involved in decision making throughout the formulation of a business strategy, identifying and raising potential issues throughout the formulation process rather than responding to complex situations arising following the implementation of a business strategy.

Tax authorities

The attitude of Revenue and other global tax authorities continues to harden and their statutory powers for information gathering are increasing. The traditional approach to tax reporting has been a look back approach where appropriate information was returned to Revenue subsequent to the period end. However, digitalisation of Revenue systems is bridging the time lag between the occurrence of particular events and the reporting deadline. Improved processes for collecting information coupled with investment in data analytic software enables Revenue to benchmark companies, analyse risk and identify potential issues in tax reporting of individual companies and sectors. Such a drive to real time reviews is likely to only increase into the future becoming the new normal.

As increased information facilitates increased analysis, the risk of discrepancies and errors being detected by Revenue also rises, ultimately prompting additional queries or audit. Therefore it is critical that the entire organisation understands the nature of information being reported. As an organisation increases in size, automatic processes and artificial intelligence systems will be instrumental in managing tax reporting and risk of the company.

As discussed in the article by Paul Braden in the September issue of tax.point, iXBRL reporting (the reporting of financial statements in a computer readable language) which is now mandatory for companies satisfying certain criteria is an example of the increased information gathering powers of Revenue.

Global environment

Digitisation and automation of tax processes is assisting the OECD in driving greater transparency from multinational organisations and generating consistency from governments in designing tax legislation. One such example is the introduction of new reporting measures such Country by Country (CbC) reporting.

CbC reporting requires large multinational enterprises to provide a breakdown of the amount of revenue, profits, taxes and other indicators of economic activities for each tax jurisdiction in which the multinational group does business. CbC reporting only applies to multinational groups with annual consolidated group revenue of €750 million or more in the preceding fiscal year. CbC reporting will now provide global tax authorities with a more detailed insight into the operations of multinational groups arming authorities with additional information to determine the appropriateness of transfer pricing strategies and other BEPS risks.

Such change comes at a time when the global tax environment is encouraging large organisations to make tax a key priority at boardroom level and across the entire organisation. Today’s business leaders face unrelenting scrutiny from wider stakeholders, who are increasingly demanding more than just shareholder return but also good citizenship and corporate reputation from organisations which they have invested in.

Additionally, as part of the ongoing work of the Task Force on the Digital Economy, the OECD opened a public consultation in relation to tax challenges raised by digitalisation and the potential options to address such challenges. The public consultation covers three main core areas of (i) digitalisation, business models and value creation (ii) challenges and opportunities for tax systems and (iii) implementation of the BEPS package and potential exacerbation of BEPS risks. Responses are sought before 13 October 2017.

Sasha Kerins is a Tax Partner at Grant Thornton

Email: Sasha.Kerins@ie.gt.com

Greg McAnenly is a Tax Assistant Manager at Grant Thornton

Email: Greg.A.McAnenly@uk.gt.com