Disruption: the new normal for global tax

Fintech start-ups are displacing traditional banking products and services. Electric cars, drones and wearables are driving developments in electricity and battery technology. Big data is being harnessed to build more efficient products, machines and buildings. The rise of mobile apps is evolving established consumer purchasing models in many industries, including retail and media and entertainment.

In an era of increasingly globalized opportunity, where a company can be started from a laptop in a Nairobi coffee shop and execute business in China, the capacity for cross-border activity has accelerated exponentially. Businesses can grow at rates not possible before in the era of digitalization and disruption. And with today’s focus on how companies small and large, new or established, represent themselves, no company is too young or too new to ignore tax implications.

And it is this rise in new business opportunities that challenges many international tax principles, transfer pricing rules and decades’ worth of tax treaties relating to business practices that have quickly become outdated. For both tax authorities and tax departments, technology disruption and the digital economy usher in a thicket of complexity and change.

In response, businesses need to be proactive in understanding and managing their role in organizational and business transformation. Transformation in finance can disrupt the tax function through the loss of highly knowledgeable tax resources at the local level and the erosion of skills and competencies stemming from the globalization or regionalization of processes. Technology transformation in business operations often improves customer engagement, but can inadvertently alter an organization's tax, adversely affecting the bottom line.

A number of landmark tax transparency initiatives, including proposals through the OECD’s Base Erosion and Profit Shifting (BEPS) project, will fundamentally change the level of reporting by multinational companies - large and small - to global tax authorities. Businesses will have to start thinking about how they will accurately collect the required data at minimal cost, and whether this can be supported by new technology

Tax authorities are certainly becoming technology-savvy. Many countries are taking advantage of digitization to introduce new e-invoicing requirements into national legislation to assist with the collection of indirect taxes, including GST and VAT. Others are going a step further, asking companies to provide electronic audit files directly from their ERP systems.

Disruption is changing long-established ways of doing business. In fact, no boardroom discussion is complete these days without disruption being on the agenda. Organizations need to be thinking about how they respond to and think through the implications of disruption. Disruption of the business also creates a requirement to review the tax planning of an organization to ensure it still aligns with the new business operations.

At times of distinct change like these, it is critical to communicate with key stakeholders, align with the business and its supply chain, and leverage technology to respond to tax law changes. New technologies must be understood and acquired; new talent, skills and competencies must be nurtured; and sustained investment in technology must be secured. Disruption of the global tax function has just begun.

Disruption: the new normal for global tax