Digital tax administration are you ready?

Transcription

1 Digital tax administration are you ready?

2 Disclaimer EY refers to the global organization, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young LLP is a client-serving member firm of Ernst & Young Global Limited operating in the US. This presentation is 2018 Ernst & Young LLP. All Rights Reserved. No part of this document may be reproduced, transmitted or otherwise distributed in any form or by any means, electronic or mechanical, including by photocopying, facsimile transmission, recording, rekeying, or using any information storage and retrieval system, without written permission from Ernst & Young LLP. Any reproduction, transmission or distribution of this form or any of the material herein is prohibited and is in violation of US and international law. Ernst & Young LLP expressly disclaims any liability in connection with use of this presentation or its contents by any third party. Views expressed in this presentation are those of the speakers and do not necessarily represent the views of Ernst & Young LLP. This presentation is provided solely for the purpose of enhancing knowledge on tax matters. It does not provide tax advice to any taxpayer because it does not take into account any specific taxpayer s facts and circumstances. These slides are for educational purposes only and are not intended, and should not be relied upon, as accounting advice. Page 1

3 Today s presenters Greg Petolick Executive Director, Digital Tax Administration Services, Ernst & Young LLP Adam Broda Executive Director, Digital Tax Administration Services, Ernst & Young LLP Marita Fegley Director, Brand, Marketing & Communication Services, Ernst & Young LLP Andy Steigleder Principal - Leader, Central Region Tax Policy and Controversy, Ernst & Young LLP Page 2

4 The forces driving our future: megatrends 3Three primary forces: Independent variables Technology Long-term, multiple waves Interact and catalyze each other Industrial revolution information technology Mainframes PCs Online (web) Social mobile smart IoT Virtual reality AI robotics are driving multiple megatrends Cohesive narratives with significant interplay Driven by interaction between the next waves of technology, globalization and demographics 1. Industry redefined Is every industry now your industry? 3. The future of work When machines become workers, what is the human role? 2. The future of smart What intelligence will we need to create a smart future? 4. Behavioral revolution How will individual behavior impact our collective future? Globalization Age of discovery colonialism Bretton Woods trade liberalization East Asian NICs China/India/Brazil Latin America/Africa 5. Empowered customer How will you change buyers into stakeholders? 6. Urban world In a fast-changing world, can cities be built with long-term perspective? Demographics Demographics is destiny Post-WWII baby boom China one child policy millennial Workforce urbanization aging West Global migration young India/Africa 7. Health reimagined With growing health needs, is digital the best medicine? 8. Resourceful planet Can innovation make the planet resource rich instead of resource scarce? Page 3

5 Changing business model Tax policy Five disrupters of tax Machine learning The future of work Digital government Page 4

6 What is digital tax administration? Tax authorities are changing the traditional compliance model Tax authorities: Have invested in big data platforms to synthesize data submissions Have built analytics and logic to enhance compliance and limit fraud Are sharing and obtaining information: Intra-agency (between different tax types) Inter-country (between revenue authorities) Within the supply chain (between vendors and suppliers) Mexico Increase in tax revenue without increase in rate: 38% Average increase in audit assessment value: 76% Worldwide 16 Tax administrations now using advanced analytics (such as predictive models) to reduce value-added tax (VAT) fraud and increase compliance Brazil Increase over plan for 2017 audit and penalties collected: 42.5% Source: Source: Publicas/Estadisticas_Oportunas_de_Finanzas_Publicas Source: FTA Advanced Analytic Survey, 2015 Source: FTA Advanced Analytic Survey, 2015 Page 5

7 Digital disruption of compliance The shift in focus from returns to data The traditional compliance model Request Analyze/prepare/fix data Prepare form Submit return Wait data from accounting Calculate adjustments for audit Tax Tax Tax Tax Tax IT Extract data directly from source systems ERP Cycle time = n + 3 years The digital compliance model Submit data directly to government IT E-audit / E-assess/ E-match $$$$$$ $$$$$$$$$ Gov t Respond to assessments/ audits Tax Digital disruption Unprecedented volume of information and data being submitted directly to the government (B2G reporting) Tax not involved until audit Cycle time from transaction to audit drastically compressed Cycle time = n + 90 days Page 6

8 Who should care about digital tax administration? Tax has ultimate responsibility for managing the increased risk from additional governmental scrutiny. However, the IT and finance functions also play a key role for verifying compliance and mitigating risk. Internal stakeholders affected by digital tax administration: IT Finance Tax Unexpected data mining and mapping projects due to new data requirements mandate Increased responsibilities over the global data submission process Increased scrutiny from tax authorities with reduced audit cycles Causing unplanned impacts to IT s project road map, resources and budget Creating risks of penalties, delayed cash flow and financial reporting errors if mismanaged Triggering increased scrutiny with limited insight into the data submitted Page 7

9 Current state of digital tax administration Page 8

10 Today s state of digital tax administration* Europe LATAM Germany France Portugal Spain ` Poland Austria Greece Italy Turkey Russia China Growing number of countries have adopted OECD s SAF-T guidance. Guidance includes detailed invoice and accounting data. Other countries have adopted their own variations of digital data reporting requirements. Pioneer in digital tax administration Focus on e-invoicing and transactional-level accounting data Primary objective to raise tax revenue by detecting fraud and tax evasion Mexico Chile Argentina Brazil India Asia-Pacific India requires reporting of detailed invoice data. China introduced data reporting through its 1,000 accounts plan for select large taxpayers. Other countries are in process of adopting digital reporting initiatives vary by country. Digitization level Level 1 E-file Level 2 E-accounting Level 3 E-match Level 4 E-audit Level 5 E-assess * Current as of April 1, 2018 This map is representative and not all inclusive of countries with digital requirements. Page 9

11 and where is it going? Upcoming changes* to digital tax megatrends Brazil is introducing new obligations for payroll (esocial) and EFD-REINF. UK s HMRC is implementing Make Tax Digital (MTD) for VAT in April UK s HMRC plans to introduce MTD for other taxes besides VAT in Hungary will require live invoice reporting starting July 1, Russia plans to introduce country-by-country (CbC) reporting in Mexico has announced its intent to increase use of e-assessments in Italy is introducing live invoicing requirements in January Ireland is introducing real-time payroll tax reporting requirement in Colombia is adding e-invoicing and e-accounting requirements. Malaysia is set to use analytics to prioritize audits. Australia is in discussion to further digitize its tax administration under its Reinventing the ATO initiative. New Zealand is undergoing a tax modernization program focused on technology processes, policy and the training of people. Norway s SAF-T requirements will become mandatory on January 1, 2020 for submission upon request Hungary is increasing e-audits/assessments from live invoicing feeds * Current as of April 1, 2018 This list is representative and not all inclusive of upcoming changes. Page 10

12 What are we hearing in the US? Federal expects no significant developments in the next three to five years. Some state authorities have expressed interest in what countries are doing. States and localities initial focus: Sales and use tax Property tax Excise tax Page 11

13 How are companies being impacted? Page 12

14 What we ve heard from our clients Four key themes Support and skill sets How do we help the other functions understand the impact that these changes are having? What will the tax and IT resources that support tax look like in the future? Page 13

15 Creating a sustainable process Going from reacting to responding to being proactive Current state Overwhelmed by reporting Leading practice Reporting under control Tax Provide governance and oversight Perform tax technical review Manage global tax risks Respond to notices and audits Digital tax administration reporting IT Determine data gaps and remediate Deploy data management strategy Digital tax administration reporting Finance Provide digital submission compliance Page 14

16 Responding to the environment Page 15

17 Our approach Digital tax administration life cycle EY services Review for readiness for digital reporting Readiness review Assessment report: Review of current data submission process and global operating model with improvement recommendations Data enablement Project based: Enablement of source systems for digital tax administration Defend in digital audits Global dashboard Remediate identified challenges and risks Monitor and inform Monitoring portal: Service providing latest upcoming changes, testing/analytics, penalties and tax authority enforcement trends Manage, analyze and Manage, submit analyze data and submit data Data as a service Audit and defense Managed service: Manage your company s submissions by transforming, analyzing and transmitting, and responding to information requests Ad hoc consultation: On-demand services for audit requests and defense of digital submissions Page 16

18 Governments are becoming more and more savvy in their use of technology, big data and analytics are you ready? Page 17

19 Q&A Page 18

20 Thank you! #EYDTC Page 19

21 EY Assurance Tax Transactions Advisory About EY EY is a global leader in assurance, tax, transaction and advisory services. The insights and quality services we deliver help build trust and confidence in the capital markets and in economies the world over. We develop outstanding leaders who team to deliver on our promises to all of our stakeholders. In so doing, we play a critical role in building a better working world for our people, for our clients and for our communities. EY refers to the global organization, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. For more information about our organization, please visit ey.com. Ernst & Young LLP is a client-serving member firm of Ernst & Young Global Limited operating in the US Ernst & Young LLP. All Rights Reserved ED None This material has been prepared for general informational purposes only and is not intended to be relied upon as accounting, tax or other professional advice. Please refer to your advisors for specific advice. ey.com