'Innovation' and 'Tax strategy' have my interest. In the UK the Executive has to sign off the company's tax strategy and publish. The strength of the UK approach is that the Executive has to take position and also has to keep its promise as a public statement is made.
Sign off a new global tax trend?
This legal change realises that it has now become an Executive owned KPI to manage 'overall tax risks' resulting that the supervisory board and external auditor have the responsibility to audit 'in compliant or not' as the company might face reputational risks when that promise is not kept. Without such Executive sign off not much would have changed tax function wise. At least that is the lesson learned from the Dutch initiative: 'Horizontal Monitoring' where such a sign off and public statement were missing.
Do you see the difference from a governance perspective?
Lets just assume that tax transparency and disclosure of tax risks to the tax authorities is mandatory in force in every country and that the effectiveness of a tax control framework should be proven.
- Are OECD's Standard Audit File for Tax Purposes data requests (monthly and on request) - now rolled out in various European countries - the start of a new beginning for better audits by the tax authorities?
- Is it likely that tax authorities will get access to more sophisticated tax analytics tools?
- Do companies need better risk management tools to meet tax objectives set derived from business objectives?
- Do companies face additional tax risk due to (close to) real time data requests of the tax authorities - implemented for example in Brasil and will be in force in Spain per July 1, 2017 - and does it impact a company's audit defense, tax risk management, ERP systems and tax technology?
Without doubt, the answer to all questions is a resounding yes.
Tax Control Framework: standalone or aligned
Do we see tax technology as an enabler or as a 'magic' way to be and get in control?
A Tax Control Framework should not operate in silo, but has to be aligned to the company's business control framework (BCF) and should cover more from a tax risk management perspective than only compliance and financial risks. There are various BCF models developed and therefore differences exist between companies.
That same principle applies when we 'wish' for example to copy paste a "Best practice tax technology framework' from one multinational to another multinational. The devil is often in the 'implementation' / 'configuration' detail as most of the time it is not 'Plug & Play'. For example the legacy systems, business models and/or the structure of the tax function could be different.
When we talk about tax control framework do we focus nowadays not too much on compliance and financial risks?
What has been designed from a tax planning is not always properly implemented or has changed after implementation due to new business initiatives that are an unknown to the tax function due to lack of visibility or disconnect. That could result in material tax risks. Take for example strategic tax risks such as the management of non-routine transactions:
- Open 'Converting the sales middleman function from Commissionaire to LRD' for an example
Technology might be an enabler to manage such change management process better, but the people element ('the interaction') - especially if many work streams are involved - are the key drivers that together can realise 'being in control' at go-live and beyond.
Anticipating in time on tax developments and take action 'see the 4 questions I raised and the answer I gave above' is an other example that highlights why managing change is important from a tax control framework as it impacts all the risk categories including reputational, strategic and operational risks.
Artificial Intelligence & Robocop
I truly love innovation. The sooner the better, but I consider all the stories about artificial intelligence and robotics still science fiction when this is discussed in connection to indirect tax.
A critical condition for success would be that ERP systems supported by tax technology could actually present real-time all the company's (intercompany) business transactions. However, real-time access to a company's blue print is often a recurring bottleneck during business model change (see above example 'Commissionaire to LRD').
Certain consultancy firms perform such transaction mapping exercises still via interviews.
Without access to a complete data set, is artificial intelligence not useless?
Automating the adviser
That being said I think much more can be automated and will be automated. I published in February 17, 2012 my article 'Google the (tax) adviser of the future':
[Time stamp 2012!] I am following the developments of Apple’s Siri and of Google in general with great interest. Siri is the speech recognition engine that Apple uses as a virtual personal assistant for their devices. The software truly understands your questions, searches the web and provides you with answers immediately.
Google’s executive chairman, Eric Schmidt, has conceded that Siri could pose a “competitive threat” to the company’s core search business.
If that is the case, is it not realistic to assume that Google and/or other companies are going to invest a considerable amount of money in developing similar functionalities?
Such competition between these powerhouses will boost technology improvement.
- Will such technology in the end truly understand all your technical questions?
- Is a virtual personal assistant going to respond immediately?
- Is this science fiction or our near future?
I am aware that some people will argue that certain knowhow depends on individual skill sets and expertise. For the moment, they are right, but they might be proven wrong in the future.
Can this also be automated?
What successful examples relate to strategic insight and decision-making? Chess is a strategic game and relates on fact-based information (pieces on the chess board: relevant facts) and a number of possibilities (moves: calculation of the impact of various options combined with overall strategic insight).
- If a chess-playing computer, Deep Blue, can beat world champion Gary Kasparov in a six-game match by two to one with three draws against, shouldn’t the automation of an adviser’s strategic decision-making also be possible?
- Deep Blue’s successor - Watson - has beaten Jeopardy champions at their own game. What was needed to make that happen: “natural language processing, searching immense data sets and creating relationships among disparate sources of information to finally culminate in an answer.”
The good news is that the profession of service providing is a people business. We like to be connected to people. Maybe the statement about automating the adviser is a bit too provocative, but I still believe a lot more can be automated than we can currently comprehend.
Having an open mind is the message I want to get across. The only things that probably cannot be automated are our feelings and interactions. That is why it is and will remain a people business.
Last but not least, I don’t pretend to write the strategy plan for Google. I just admire companies like Google, Apple and Virgin for their innovations and culture. In this blog “Google” represents companies that are technology innovators. The future adviser could therefore be somebody else [Time stamp 2012!].
Do you agree?
Written by Richard Cornelisse
Richard advises multinational businesses in improving the efficiency and effectiveness of their Indirect Tax Function and Tax Control Framework.
He started his career as a manager at Arthur Andersen and then became a partner in EY where I led the indirect tax performance team for Netherlands and Belgium. Currently he is a senior managing director of Key Group.
Richard has over 20 years’ experience advising clients on international VAT issues. He is specialized in the tax aspects of financial transformations, shared service centre migration, and post merger integration work. Richard is also somewhat of a mentor, giving back to the profession. If you are interested in conversation and discussion, please feel free to contact him.