Tax technology and transformation

Tax technology and

transformation

Tax functions ‘go digital’

Foreword

In the EY TaxTech India Survey 2016, we had sought to provide a perspective

on the readiness of the tax functions to embrace and capitalize on the

changes in the tax environment, especially on the tax technology front.

In the past one year, the digital wave has become stronger and the business

case for the adoption of new technologies in the tax function has gained

further momentum. Digital tax administration has emerged as one of the

biggest drivers of tax function transformation in 2017, with GST being

the leading technology-led tax reform necessitating a large-scale business

transformation.

Digital technologies are radically altering business and operating models,

resulting in round-the-clock and border-less value creation for businesses.

Tax authorities worldwide are also introducing newer tax laws to deal with

these digital business models and require greater transparency through

disclosures and seamless exchange of taxpayer information between tax

authorities. Tax functions therefore need to be ready to deal with this

digital disruption wave, which requires them to be closer to their business

stakeholders and data like never before, and address the changing

requirements and expectations of businesses and tax administrations with

greater accuracy and efficiency.

The tax technology landscape is rapidly maturing and is now shared by

multiple solution providers and products. For most tax functions, the

challenge today is determining their requirements, tax technology strategy

and resources to execute the strategy rather than the availability of

solutions. With the advent of cloud-based solutions, the cost of deployment

and maintenance of large applications has come down significantly, cost of

sub-optimal compliance is becoming steeper, transparency and information

sharing between/with tax authorities is becoming paramount and tax

authorities are asking “smart” and “informed” questions.

Building on this theme and focusing on the agenda to help tax functions

be ready for the future, we are pleased to announce our second thought

leadership on tax technology and transformation. This report aims to provide

readers with an understanding of the key global and Indian trends directly

impacting tax functions and the future state of digital tax. It aims to guide

organizations in their digital tax journey to embrace newer technologies such

as automation and analytics, enabling them to effectively respond to the

changing tax landscape.

We expect that these factors, put together, would make a strong business

case for tax functions in corporates to develop and execute a digital tax

strategy.

We hope you find this report both interesting and informative. We would be

happy to interact and understand your feedback on this report.

Garima Pande

Partner, Tax Technology and

Transformation, EY India

Rahul Patni

Partner, Tax Technology and

Transformation, EY India

Trends impacting tax functions

- Digital tax administration: Tax authorities adopting technology

- New technologies driving the adoption of digital strategy by businesses

- Evolving tax landscape demanding increased transparency

Are current tax functions in corporates t for digital world?

Future state of the tax function

Technology solutions for digital tax functions

Concluding thoughts: Is tax technology a necessity or an opportunity?

Contents

4 Tax Technology and Transformation

Multiple disruptions, including regulatory, social, political and technological changes, are posing

newer risks and opportunities for businesses, more so for tax functions, which are at an inflection

point. However, tax law changes are struggling to keep pace with technological changes and new

laws are increasingly being enforced. Not giving tax the attention it deserves on digital issues could

increase the risks for organizations.

Tax-specific technologies may make it possible to answer the mandates of the global digital

economy with changing tax data flows, data analytics and data requirements. The new digital tax

function might evolve at great pace to become a strategic component of enterprise transformation.

Tax authorities are increasingly becoming digital and getting closer to the source data to better

understand taxpayer trends and ensure better compliance. Therefore, enterprise tax functions

cannot continue to remain blindfolded due to lack of access to and visibility on their own source

data and ability to assess trends and issues accessible to tax authorities. Hence, there is a need

for the tax functions to undertake timely and accurate compliance and go digital to be able to

undertake more value-adding functions for the business.

Trends impacting tax

functions

Key trends impacting Tax functions

Digital tax administration - Tax authorities going digital

Technology wave - Emergence of new technologies and businesses adopting digital strategy

Transforming Tax policies - Evolving legislative landscape demanding increased transparency and compliances

5Tax Technology and Transformation

Digitalization and emerging technologies have opened the doors to new opportunities not just

for businesses, but for tax administrators as well to transform their day-to-day operations.

Tax authorities are harnessing the power of new technologies such as big data and advanced

analytics to improve tax administration, counter fraud and facilitate taxpayer compliance.

Digital tax administration lifecycle and evolution

As countries move toward digitizing their tax administration, their efforts can often follow a

similar pattern, aligning with different levels of digitization. The move to digitization is not

necessarily linear, nor should higher levels of digitization be viewed as the ultimate goal of

either taxpayers or tax authority.

In their journey to adopt digital technologies, most of the tax authorities generally begin with

IT-enabled electronic filing of tax returns and further extend it to submission of source data in

the e-filings. The major shift happens when this data is further matched with data from other

sources (such as banks) in real time, analyzed across taxpayers and jurisdictions to see any

abnormalities, and generate e-audit assessments. The highest degree of digitization is when

government entities use the submitted data to assess tax without the need for tax forms.

Digital tax administration:

Tax authorities adopting

technology

Governments across

the world are leveraging

digital platforms to assess

taxpayer data, including

cross-referencing

information at the source,

running it through

increasingly sophisticated

analytics and sharing it

among other agencies.

In India, there are

significant technology-led

reforms underway both

on the direct and the

indirect tax side. There is

increased collaboration

among various

government agencies,

resulting in swift exchange

of information using digital

means. This is rapidly

changing the manner

and quality of audits.

Traditional tax function

operating models need to

rapidly evolve to face and

defend these inquiries and

audits.

1.1

Key trends impacting Tax functions

Digital tax

administration

Tax authorities

going digital

Technology

wave

Emergence of

new technologies

and businesses

adopting digital

strategy

Transforming

tax policies

Evolving legislative

landscape

demanding

increased

transparency and

compliances

6 Tax Technology and Transformation

Level 1 Level 2 Level 3 Level 4 Level 5

“E-file” “E-accounting” “E-match” “E-audit” “E-assess”

Use of

standardized

electronic form

for filing tax

returns required

or optional; other

income data (e.g.,

payroll, financial)

filed electronically

and matched

annually

Submit accounting

or other source data

to support filings

(e.g., invoices,

trial balances) in a

defined electronic

format to a defined

timetable; frequent

additions and

changes at this level

Submit additional

accounting and

source data;

government

accesses additional

data (bank

statements),

begins to match

data across

tax types and

potentially across

taxpayers and

jurisdictions in real

time

L2 data

analyzed by

government

entities and

cross-checked

to filings in real-

time to map

the geographic

economic

ecosystem;

taxpayers

receiving

electronic audit

assessments

with limited time

to respond

Government

entities using

submitted data

to assess tax

without the need

for tax forms;

taxpayers allowed

a limited time to

audit government-

calculated tax

Note: Not all governments collect the same information or treat it the same under this model.

Further, the move to digitization is not necessarily linear.

Current state of digitization level across the globe

Level 1 - E-file

Level 2 - E-accounting

Level 3 - E-match

Level 4 - E-audit Level 5 - E-assess

Paradigm shift

Disruptive

Source: EY analysis

Digitization level

7Tax Technology and Transformation

Future state: While 2017 has witnessed various countries adopting digital tax

administrations, many others have announced future plans.

2017

2018

2019

2020

India implemented

new GST requirements

to submit detailed

transactional level data

Norway plans to adopt

and implement SAF-T

requirements

Malaysia plans to use

analytics for E-Audits

on payroll tax

UK’s HMRC plans to

introduce ‘MTD’ for

other taxes besides

VAT in 2020.

Brazil introduced new

obligations for payroll

– (eSocial) and EFD-

REINF

UK’s HMRC plans

to implement ‘MTD’

reporting for VAT in

April 2019

Australia’s ATO plans

to further digitize its

tax administration

through extensive use

of analytics

Hungary is in the

process of introducing

live invoice reporting

requirements starting

July 1, 2018

Colombia plans on

adding e-Invoicing

and e-Accounting

requirements

New Zealand is

following suite

with Australia in its

move to digital tax

administration

Spain implemented new

requirement to submit

daily invoice level detail

Mexico updated layouts

for invoice data (v3.3)

Brazil updated layouts

for (EFD-Contribuições,

NF-e, ECD and ECF))

Italy introduced

B2B e-invoicing and

updated quarterly

VAT obligations with

detailed invoice data

Costa Rica is scheduled

to make e-Invoicing

mandatory for B2B

transactions

2017 2018 2019 2020

Source: EY analysis

The Indian tax authorities have been early adopters of information technology (IT). The IT systems

implemented so far have helped direct taxpayers applying for tax registrations online, e-payment

of taxes, reconciliation and e-viewing of tax credits, e-filing of tax returns, e-processing of returns

and refunds by authorities, etc. E-assessment gives the taxpayer the choice to participate in

tax assessment electronically without visiting the tax office. For indirect tax as well, with the

implementation of the Goods and Services Tax (GST), all compliances, payments and credits

matching are proposed to be administered online. The tax authorities have also used IT systems as

a risk management tool to pick up returns/consignments (in the case of Customs) for scrutiny

The Government is leveraging digital platforms to assess taxpayer data, including cross-

referencing information at the source. Some of the significant initiatives taken by the Indian

Government are as follows:

GST implementation

• With GST, the Government has introduced a uniform indirect tax structure across the country.

Expectations are that it will widen the tax base, do away with the multiplicity of taxes and the

cascading effects, minimize competitive distortions and encourage better compliance.

• The revolutionary IT platform Goods and Services Tax Network (GSTN) provides a common

platform for registration, return ling and e-payment. The objective of the GSTN is to provide a

shared IT infrastructure to all GST stakeholders. It integrates the common GST portal with the

tax administration systems of the Center and states.

Project Insights

Recognizing the value of data available in electronic form, the Indian tax authorities have set up an

integrated data warehousing and business intelligence (DW&BI) platform, which would help them

detect patterns and plug leakages to improve policy and operational effectiveness. This US$156

million (over INR10 billion) “Project Insight” is the Finance Ministry’s flagship project, aimed at

widening the tax base using technology. The analytics tool will collect data not only from traditional

sources such as banks and financial institutions, but also from social media sites to match spending

patterns with income declarations. The tool will:

• enable the capture, linkage and analysis of structured and unstructured data for discovering

non-lers/under-reporting of income.

• use a wide range of analytics methods and technologies to understand what happened

(descriptive analytics), why it happened (diagnostic analytics), what will happen (predictive

analytics), and what is required to make it happen (prescriptive analytics).

• use a collaborative approach for information and knowledge sharing.

• pre-process information to free resources for effective analysis and investigatio

Current state of technology adoption

The Indian tax

administration scenario

The Tax Administration Reform Commission (TARC), under the chairmanship of Dr. Parthasarathi

Shome, has recommended extensive use of information and communication technology (ICT) in

administration and governance of tax to improve the levels of compliance by taxpayers and help

tax authorities in revenue forecasting.

8 Tax Technology and Transformation

The Ministry of Corporate Affairs (MCA) and the Central Board

of Direct Taxes (CBDT)

entered into an agreement in September 2017

to share data and information on

companies. They will regularly share information such as tax returns, permanent account

number (PAN) and financial statements. They will also share financial statements filed by

corporate entities with the Registrar of Companies (RoC), returns of allotment of shares

and statement of financial transactions received from banks.

The Income Tax Department is working on a new system of

jurisdiction-free assessment

(pilot underway), where a taxpayer would be assessed by a taxman based in any part of the

country. This would further facilitate easier electronic communication between the Income

Tax department and taxpayers.

In July 2017, the CBDT announced, three categories of

assessments for compulsory selection of returns/cases requiring

scrutiny:

Limited Scrutiny (Computer Aided Scrutiny Selection), Complete Scrutiny (Computer Aided

Scrutiny Selection) and Compulsory Manual Scrutiny. Currently, the selection of cases for

scrutiny is computer-aided but rule-based

A Non-filers Monitoring System

has been rolled out for pilot implementation to prioritize action on non-filers with potential

tax liabilities. Data analysis will be carried out to identify non-filers about whom specific

information was available in the annual information return, Central Information Branch and

TDS/TCS returns database.

• Sharper and more focused risk-based selection of cases for assessment and selection of cases of scrutiny

linked to the prole of taxpayer using business intelligence and without manual interference

• Real-time collaboration among various authorities because of the following:

• MoU between CBDT and RoC

• Mutual access and sharing of information between GSTN and IT Database

• Transformation in the quality of assessments

• Assessing ofcers to have access to pre-prepared dossiers and prole of taxpayers

• Benchmarking against peers

• Industry and area-based issues and qualitative questions such as effective tax rate

• Pre-prepared returns for individuals (partially pre-populated returns already available)

• New forms for reconciliation with GST, employees’ personal returns etc.

• Concept of “taxpayer as a customer” — measures to facilitate high taxpayers and seek feedback

Expected future state in the short to medium term

1 “India’s ‘Project Insight’ could find tax evaders through holiday and shopping snaps,” TechWire Asia, http://techwireasia.com/2017/07/indias-project-insight-find-

tax-evaders-holiday-shopping-snaps/, accessed 27 Sept 2017

2 “MOU between the Ministry of Corporate Affairs and Central Board of Direct Taxes (CBDT) for Automatic and Regular Exchange of Information,” Press Information

Bureau, http://pib.nic.in/newsite/PrintRelease.aspx?relid=170769, accessed 5 Oct 2017

3 “CBDT Guidelines For Selection Of Cases For Scrutiny During FY 2017-18,” http://www.itatonline.org/info/cbdt-guidelines-for-selection-of-cases-for-scrutiny-

during-fy-2017-18/, accessed 5 Oct 2017

9Tax Technology and Transformation

10 Tax Technology and Transformation

Digital has fundamentally transformed the way companies do business. Enabled by data and

technology, digital is a continuous form of disruption to business models, products, services and

experiences. It has radically changed the way people consume content, communicate and access

products and services.

New technologies driving

the adoption of digital

strategy by businesses

1.2

Key trends impacting Tax functions

Digital tax

administration

Tax authorities

going digital

Technology

wave

Emergence of

new technologies

and businesses

adopting digital

strategy

Transforming

tax policies

Evolving legislative

landscape

demanding

increased

transparency and

compliances

Digital technologies are radically

altering business and operating

models. Businesses are continuously

looking to adopt newer technologies

such as Internet of Things (IOT),

robotic process automation (RPA),

blockchain and artificial intelligence

(AI) to stay competitive. These new

ways of doing business are also

resulting in newer tax laws, which deal

with borderless value creation and big

data.

Therefore, it has become necessary

for the tax function to be ready to deal

with this business transformation.

11Tax Technology and Transformation

Businesses are adopting digital technologies to augment their operational models as these

emerging technologies bring in cost efficiencies and make companies move from a CapEx to an

OpEx model, for example, delivery services on cloud and offering pay-per-use model. The concept

of a sharing economy offers on-demand access to goods and services and brings in efficient

utilization of unused inventory of assets across industries. As the adoption of newer technologies

gains pace, enterprises are realizing the need to identify the business functions that may derive the

greatest value.

The EY-CIO Klub Enterprise IT Trends and Investments Survey 2017 suggests that 83% of CIOs

have shown the willingness to invest in new technologies as well as in the discovery of disruptive

technologies that hold immense value.

While the 2016 EY-CIO Klub Enterprise IT Trends and Investments Survey indicated that CIOs were

leveraging social, mobile, analytics and cloud (SMAC) as a vehicle for enterprise transformation,

the survey responses from 2017 survey indicate the rise of a second wave of digital disruption.

Key trends such as the IOT, RPA, blockchain, AI and virtual reality (VR) are emerging, and it is

increasingly incumbent on businesses to adopt these disruptive technologies to yield better

business outcomes.

Organizations are experiencing the following changes due to

digital transformation:

• Augmented traditional business models, such as moving from selling products to

providing solutions

• Emergence of completely new types of business models with the implementation of

robotics, augmented learning and analytics

• Service delivery models growing borderless (multiple-location deliveries)

4 “Deconstructing disruption: Impact of future technologies, Enterprise IT trends and investments 2017,” EY Report, May 2017

12 Tax Technology and Transformation

The digital wave is disrupting many traditional business models

and therefore traditional tax functions will also need to change

because:

• tax functions will need deep understanding of such technologies and digital businesses in

their current processes.

• requirements of internal stakeholders and expectations from the tax function are

changing, as businesses are now running 24x7 — the expectation from the tax function

to contribute and partner with the business is the highest ever.

• there are new laws that deal with inherent difficulties in determining the jurisdiction in

which value creation occurs — because the value in digital can (and typically is) delivered

from multiple locations.

The second wave of digitization:

Cloud

Computing

Mobile Advanced

analytics

AR/VR 3D

Printing

Articial

Intelligence

IoT Robotics

The rst was about creating point solutions. Now it is all about integration and connectivity…

13Tax Technology and Transformation

Globally, economies have witnessed prolonged periods of

timid economic growth and budget deficits. Authorities have

realized that traditional tax laws may not be very relevant in

the new business models of the digital world. The new business

models based on digital technologies and transactions in virtual

marketplaces would need a new tax management system.

Hence, governments are focusing on real-time electronic

transaction reporting to drive compliance and collection.

Evolving tax landscape

demanding increased

transparency

From country-initiated legislations to

globally initiated frameworks, including

BEPS and the OECD’s common reporting

standards, there is an undeniable trajectory

of tax authorities asking for information

directly from financial systems rather than

waiting for the synthesized information from

the tax function through its traditional filing

process. This real-time, connected, digital

world is enabling governments to get closer

to the source of information, providing

them entry points and more direct access to

transactions, tax and finance data than ever

before.

In India, tax administrators have introduced

a numbers of changes to tax filings that

will increase transparency and reporting

requirements. Invoice-level filing in GST

is the most notable change; a number of

measures have been undertaken/in the

offing on the direct tax side as well.

1.3

Governments are looking at digital ways to interact with companies so as to have complete

transparency of their tax, finance and operations data. They are relying on consumption taxes and

improved tax transparency by large global companies.

Tax authorities are harnessing the power of digital to improve tax administration, counter fraud

and facilitate taxpayer compliance. They are demanding near real-time data reporting and

Key trends impacting Tax functions

Digital tax

administration

Tax authorities

going digital

Technology

wave

Emergence of

new technologies

and businesses

adopting digital

strategy

Transforming

tax policies

Evolving legislative

landscape

demanding

increased

transparency and

compliances

14 Tax Technology and Transformation

performing increasingly sophisticated analytics. Digital methods will help tax authorities drive

better enforcement, increase the tax base and plug leakages in both an intrusive and a non-

intrusive manner.

Consequently, tax administrations are quickly adapting to new strategies. For example, the various

reporting requirements under Base Erosion and Profit Shifting (BEPS) Action Plans have been

designed to drive transparency on the part of taxpayers. Information filed as part of three-tiered

transfer pricing (TP) documentation structure — i.e., (i) a master file, (ii) local files and (iii) country-

by-country reporting (CbCR) — is expected to be analyzed by tax administrators using sophisticated

data analytics tools. Likewise, the demand for increased transparency is also reflected in the

agendas and action plans of the G20, the European Union and the United Nations.

On 7 June 2017, 68 jurisdictions signed the Multilateral Convention to Implement Tax Treaty

Related Measures to Prevent BEPS (the MLI) during a signing ceremony hosted by the Organisation

for Economic Co-operation and Development (OECD). Eight other jurisdictions expressed their

intent to sign the MLI in the near future.

Until 2016, 84 countries had signed the Multilateral Competent Authority Agreement for

Automatic Exchange of Information (AEOI), with 101 countries committing to it. From 2017

onward, 54 countries will start exchanging information automatically. From 2018 onward, another

47 countries are expected to start exchanging information automatically.

Sharing of tax-related information among countries using digital platforms has become the norm.

India has also been expanding its treaty network by signing new tax treaties and Tax Information

Exchange Agreements (TIEAs) with many jurisdictions to facilitate the exchange of information and

to bring transparency.

5 EY report,

http://www.ey.com/Publication/vwLUAssets/68_jurisdictions_sign_the_Multilateral_Convention_to_Implement_Tax_Treaty_Related_

Measures_to_Prevent_BEPS/$FILE/2017G_03676-171Gbl_68%20jurisdictions%20sign%20the%20Multilateral%20Convention%20

agreement%20to%20Prevent%20BEPS.pdf, accessed 29 Sept 2017

6 EY report,

http://www.ey.com/Publication/vwLUAssets/CBDT_Achievements/$FILE/CBDT_Achievements.pdf, accessed 29 Sept 2017

The Indian Tax Authorities

have introduced a numbers of changes to tax filings which will increase transparency and reporting requirements

1. Monthly GST returns with invoice-level information details

2. Reconciliation of GST returns with audited financial statements and potentially

in the future with filings across tax filings, e.g., income tax

3. Increasing levels of disclosures in income tax filing, e.g., disclosure of personal

assets, comprehensive filing for cross-border remittances and Income

Computation Disclosure Standards (ICDS)

4. Mandatory linking of Aadhaar and PAN and quoting of Aadhaar on particular

transactions

5. Annual information return (AIR) replaced by statement of financial transactions

(SFT) and expansion in the scope to include details of high-value cash and other

transactions such as buybacks by listed companies, and purchase and sale of

immovable property

6. Under BEPS section plan, requirement of three-tiered TP documentation, i.e.,

(i) a master file, (ii) local files and (iii) CbCR

7. Expansion in the scope of online filing, e.g., online filing of appeals

Authorities are using analytics on the significant volume of data being

captured to identify potential non-filers who carried out high-value

transactions but did not file a return of income.

• The CBDT had identied 6,754,000 potential non-lers with potential tax liabilities for assessment

year 2015-16.

• The CBDT publishes names of willful tax defaulters on public domain for the purpose of tax recovery.

In June 2016, the CBDT further suggested that after a due notice, the PAN of tax defaulters should

be blocked to prevent them from ling their tax returns and availing the benet of carry forward of

business loss and losses under other heads where ling of tax returns is mandatory.

15Tax Technology and Transformation

7 “Income Tax Department Identifies 67.54 lakh Potential Non-Filers for F.Y. 2014-15,” Press Information Bureau, http://pib.nic.in/

newsite/PrintRelease.aspx?relid=155757, accessed 27 Sept 2017

8 “CBDT’s Central Action Plan 2016-17,” http://www.taxsutra.com/sites/taxsutra.com/files/webform/Central%20action%20plan%20

2016.pdf, accessed 27 Sept 2017

16 Tax Technology and Transformation

This clearly shows the gap between the existing and the desired state of use of technology.

Currently, the use of basic software such as Excel or standalone non-integrated tax software is

prevalent. Additionally, the tax departments face a number of challenges due to lack of integration

with other departments and manual ways of working.

Are current tax

functions in

corporates fit for

digital world?

The EY TaxTech India Survey 2016 clearly

highlighted the gap in the current and the

desired state of technology implementation

in tax functions. Additionally, organizations

today are looking at tax functions to operate

at a more strategic level to provide business

insights and help in making informed

business decisions, apart from being able

to cope up with increasing governance by

tax/authorities. Having a tax technology

strategy is a must for organizations to thrive

in the digital world.

According to the EY TaxTech India Survey 2016

45%

45% of organizations currently

use basic infrastructure and

technology for tax accounting

and consolidation

24%

24% use tax software with no

integration with ERP systems

90%

Over 90% voted that their tax

reporting and compliance system

is not automated at all or only

partly automated

9 “Get set for the tax function of the “future” EY TaxTech Survey 2016,” EY report, November 2016

17Tax Technology and Transformation

70%

voted that more than

half the time is spent

on re-working the data

received from finance

to make it useful for

tax purposes.

Traditional tax department challenges:

• Difficulty managing and locating final versions of critical documents

• Inadequate information-sharing across tax functions and geographic locations

• Redundant and email-intensive data-collection methods

• Excess time and effort spent on administration and manual tracking

• Dealing with multiple data sources and spending valuable time translating them to a common

structure or data definition

• Lack of visibility and oversight of deadlines, deliverable status and resource allocation

The traditional methods used in tax functions may not be capable of answering many questions

raised by tax authorities’ systems, hence the need for robust ERP systems, tools for consolidation,

automation and data analytics.

One of the important to-dos for the tax functions is to have an integrated tax data source. As

data is the foundation of accurate and timely reporting, being able to collect and manage that data

is critical to timely and accurate compliance. Since tax-related data resides everywhere across

the organization, from operations to marketing to finance departments, it is important to have a

seamless, consolidated and integrated view of that data. This will prevent a siloed approach and

facilitate the availability of 360-degree data across departments at all times.

Some of the other tax areas where technology can be

introduced are as follows:

• Document management

• Litigation management

• Management of income and reporting

• Management and group reports

• Data collection

• Process controls and workflow in the tax function

• Data support for TP compliances

7 “Income Tax Department Identifies 67.54 lakh Potential Non-Filers for F.Y. 2014-15,” Press Information Bureau, http://pib.nic.in/

newsite/PrintRelease.aspx?relid=155757, accessed 27 Sept 2017

8 “CBDT’s Central Action Plan 2016-17,” http://www.taxsutra.com/sites/taxsutra.com/files/webform/Central%20action%20plan%20

2016.pdf, accessed 27 Sept 2017

18 Tax Technology and Transformation

Tax is being viewed by the top management as a critical input

to take informed decisions and to deliver increased value to the

business

The ability to factor in precise tax cost estimates in business decision making is a competitive

advantage. Effective communication of the tax function to C-suite executives is important

considering the high reputational risk organizations may face on account of tax litigation or social

media-initiated challenges. Now, more often than before, tax finds an important place in the

agenda of board meetings. Today, leadership teams are keen to participate in decision making to

minimize tax risks and to invest in making their tax functions more efficient and robust.

The focus is on making tax functions operate at a more strategic level to provide business insights,

but without significant resource addition. Hence, organizations look at technology to improve their

business decision making, keeping in view their cost and margins pressures.

Appropriate dashboards, based on contemporary data and sound dynamic algorithms, need to be

developed in organizations to enable meaningful communication from their tax functions to their

boards. It is clear that the traditional role of the tax function in managing local compliance-related

matters, submitting data in a tax audit etc. has changed substantially in the evolving business

scenario. To optimize decisions, up-to-date forecasting and precision are needed.

It is critical that tax has a “seat at the table” in discussions on buying, implementing and

configuring new technology systems. The tax function needs to bring senior management,

including the CFO and CIO, on board to treat tax technology as a priority.

84%

voted that technology

is the most important

factor in improving the

effectiveness of the tax

function and

over

90%

acknowledged role

of technology as an

enabler in various tax

areas.

Benefits of a tax technology strategy

• Allows tax professionals to better focus their resources on analyzing data and creating strategies to

generate revenue and cut costs, rather than spending valuable time gathering data

• Enables the tax function to more effectively evaluate current tax processes, identify areas for

improvement, and leverage the most supportive technologies at the right time

• Can help a company spread out costs associated with investments in licensing and implementation

of technology

• Reduces risks, thereby protecting the reputation of the rm

19Tax Technology and Transformation

Future state of the

tax function

With the implementation of tax technology

strategy, companies may aim to improve

data quality through maximized automation

of data from multiple source systems and

improved data analysis. The idea will also

be to have improved collaboration, process

control and visibility across all taxes through

workflow and information management. The

end outcome of such a strategy might bring

forth to the management clear, concise

and instant dashboard reporting to support

business decisions as well as improved

efficiency and audit-ready documentation

for audit defense.

As discussed in the previous section, in-house tax functions have relatively more manual processes, are

heavily reliant on spreadsheets and are generally under-invested in technology. The volume of reporting

requirements and the ever-increasing complexity of the responsibility of tax demand a more innovative

approach leveraging tax technology.

Digital tax technology: A view on the technology ecosystem of today

The current ERP systems used by companies have limited tax functionalities, hence a lot of work is done by

tax professionals using spreadsheets and version controls of changing financial statements.

The current model involves significant manual effort with limited controls or auditability. There are inherent

risks around inconsistencies, tailored calculations, manipulation of data and data versioning. Additionally,

there are undefined inputs and outputs and unclear roles and responsibilities.

Tax data

analysis & reporting

Tax data

visualisation

Tax data

capture

Tax data

collating

Tax Data

Repository

Consolidation

system

Tax governance, content management

and collaboration

Tax Engine

ERP

Analytics &

Reporting

Solution

Retention

& Archiving

eFiling

Tax dashboard platform

Tablet

Internet

Transfer

pricing

Direct

tax

Indirect

tax

Controversy

management

Compliance

management

Entity

management

Tax Dashboard

CbCR

Source

Systems

Direct Tax

Compliance

Indirect Tax

Compliance

Industry/

Regulatory

Statutory

Accounts

Tax

Provision

Solution

Transfer

Pricing

20 Tax Technology and Transformation

Digital tax technology: What a future-proof tax technology

stack will look like

Companies can use integrated ERP systems to capture tax-related data from various departments

and collate it at a single source using automated tools. Improved and efficient consolidation of data

will minimize the risk and inefficiencies associated with the use of spreadsheets.

With the use of cloud-based applications, data can be stored and accessed anytime, anywhere.

Enterprises can adopt analytics solutions for real-time informed decision making and embrace

predictive analytics to gain actionable insights from data generated through internal business

processes as well as external market sources.

Companies might be able to standardize and improve visibility throughout the end-to-end

tax lifecycle process and create a better audit trail between source data and consolidated

tax disclosures. Additionally, there can be appropriate controls in place and clear roles and

responsibilities created. An integrated view of tax data may help optimize tax accounting process

and maximize the time spent on data analysis and review.

Tax data

visualisation

Tax data

analysis & reporting

Tax data

collation

Tax data

capture

Tax Data

Lake

Tax

Engine

ERP

Tax Provision

Archiving

Transfer

pricing

Direct

tax

VAT / GST

Controversy

management

Compliance

management

Duties

Tax Dashboard

Source

Systems

PDF, Excel,

Third Party

Content

TP Doc

CBCR

Risk

Analytics

Cash

Analytics

Continuous Monitoring

Real-Time Data Access

Indirect

Compliance

Direct

Compliance

Stat

Accounts

On Premise Applications

Cloud Applications

Chat

Bot

Group Tax

Excise

Tax governance, content management and collaboration

SSC

Others

Consolidation

21Tax Technology and Transformation

This new model might include these features:

RPA to drive

efficient data

flow across all tax

processes

Meeting the

e-assess

and e-audit

requirements

of local tax

authorities

Immediate data

transparency,

including real-

time reporting

Instant and

accurate

dashboard

management

reporting

Flexible self-

service reporting,

with routine query

handling (chat

bot)

22 Tax Technology and Transformation

There is no “one size fits all” for a tax technology strategy. Across

all the stages of the tax life cycle – data capture, collection,

analysis and governance – there are multiple technology solutions

providing off-the-shelf solutions and platforms. Companies

can choose from various options for automation, including

customized solutions such as ERP system sensitization, robotics

and off-the-shelf applications. There are several tools available

that help organizations streamline their internal processes and

generate reports as per tax documentation requirements. Such

tools are also compatible with existing ERP systems. Different

technology solutions can be used to meet the shifting paradigms

of tax reporting and tax transparency requirements imposed

under both the Indian law and the global tax landscape. The

new digital tax function will need to provide real-time global tax

management, data access, analytics and government data feeds.

Tax Technology and

Transformation

As companies move toward digital adoption

in their tax functions, there are various

technology options for them to choose

from. Correct need assessment and

identification of the desired outcomes can

help them select the best possible solution.

Organizations need to not only correctly

evaluate which technology to deploy

but also make sure that the technology

is flexible to the changing regulatory

environment. Newer technologies such as

RPA and analytics have found many use

cases in tax, while technologies such as

blockchain and AI have many emerging

possibilities.

Use of technology will fast-forward the

transformation of the tax function,

thereby helping it keep pace with business

expectations, create more efficiencies and

manage risks better.

Companies can also decide to manage this

change in-house or outsource to a managed

services provider.

• A data reconciliation engine can reconcile data from different sources and to increase the

accuracy and reliability of the data being submitted to the authorities.

• A workflow and team collaboration application can be implemented to increase the efficiency

of the tax team, along with making it easy to store and retrieve tax data when required even

after several years.

• An entity management system with built-in global tax and regulatory compliances that

provides alerts, reminders and escalations can go a long way in addressing compliance

monitoring.

• For companies operating in multiple jurisdictions, a tax notice and tax controversy

management application will help ensure timely response to authorities

Tax processes that involve high volume, repetitive tasks and recurring deadlines are ideal for RPA.

Some of the automation “hot spots” for tax include e-filing with relevant tax authorities, personal

tax compliances, TDS processes, GST compliances and reconciliations, printing to PDFs/audit-ready

file creation and TP economic analysis.

23Tax Technology and Transformation

Ofﬂine ledger

Processes characteristics to consider for RPA

Activities typically performed by RPA

BOT BOT BOT

High, repetitive

transaction volume

High manual

data entry

Multiple systems

to perform a task

Multiple tasks to

perform the

process

Data entry and

validation

Copy and paste

operations

Automated

formatting

applications/emailing

User interface

navigation

Enterprise

resource

planning

system

Database

and

systems

Consolidate

data,

worksheets

and reconcile

Populate

tax forms

XML and

e-ﬁle tax

return

Case study

A large India-headquartered conglomerate had a significant number of cross-border

remittances. The company implemented RPA technology to automate the process of

preparation as well as filing of prescribed forms (Form 15CA/CB), which included automated

review by the tax team, CA certificate filing and uploading on the required website. This

reduced its resource requirement from six people to two. These two resources now do

technical review of the forms from a tax risk/opportunity assessment perspective.

Data analytics is becoming a valuable enterprise asset, improving visibility and facilitating better-

informed business decisions. There is need to have an integrated view of a comprehensive end-to-

end analytics program in the tax compliance process: from data collection, validation and testing,

to analytics reports.

• Tax departments can implement analytics around GST, financial reporting and TP (TP

benchmarking) to detect risk, reduce controversy and eliminate unwarranted costs in a variety

of areas.

• Companies can also use data analytics to test all tax-related data to detect outliers and identify

trends to spot areas that may require further investigation. Other areas would be to analyze

related party transactions, ETR analysis, book-to-tax differences and TDS rates.

24 Tax Technology and Transformation

A large conglomerate with a significant asset base primarily relied on the classification of fixed assets used for

statutory reporting purposes for income tax determination and reporting. Due to differences in the classification

and definitions for income tax and statutory reporting, the company was not claiming optimal tax depreciation; the

significant volume of data also posed a challenge. This problem was solved using text-mining technique, which helped

to reduce the work of months to days.

Cognitive computing and AI could be even more powerful in this area, making it easier for tax functions to predict where

problems might happen, for example, tax rate determination and responding to tax queries of business personnel (using

chatbots to reply to routine tax queries). This is an evolving field and experiments are underway — it would be interesting to

see what comes out of it.

Blockchain technology has the ability to streamline transfer of any value (data, assets, currency and information) in a

secure and cost-efficient way and in real time. Blockchain administers transactions globally without centralized oversight.

Blockchain has the potential to revolutionize transactions across industries. This is especially true of transactions that

require multiple authentications and verifications, contracts and any type of record verification. Hence, this technology

could be applied to transactional taxes, such as VAT and TP. This technology also makes it easier to detect fraud and errors

by providing clear and transparent information about transactions. In the future, Governments and taxpayers can use

blockchain to exchange information, and the requirements to file returns can be done away with.

Fast emerging managed tax services model

Deploying technology for tax takes investment (cost and effort) and specialization. Further, technology needs to keep

evolving as the tax law and administration evolves. Therefore, there is a level of risk associated for companies investing in

tax technology.

Given the specialized skills required to deploy tax technology coupled with the occasional discomfort around making

investments in tax technology (given the associated risks), companies are increasingly looking to professional firms to

provide “managed services.”

Managed services involve companies outsourcing their entire tax function to professional firms. While some compliances,

litigation, pieces of advice etc. are often outsourced to professional firms, the data management backbone (i.e., collating,

curating and reconciling data) has been largely done by companies in-house, often consuming a significant portion of the

in-house tax function’s time. Piecemeal outsourcing of certain elements of compliance alone leads to even more time spent

on co-ordination between parties, connecting tax with stakeholders, data curation etc. A large portion of tax technology

touches upon these data management and workflow elements.

Such outsourcing can also allow companies to leverage on the professional firm’s specialized knowledge and investment in

people, process and technology without making such specific investments themselves. This also gives companies the time

to focus on their core competencies while tax is managed by professional firms.

Some key advantages and outcomes that companies look for from a “managed services” model are risk managed tax

compliance, access to quality resources, scalability of the tax function and reduced people dependency. While these

advantages do exist, the needs of one company would be quite different from those of another; therefore, it is important

that companies introspect on their specific needs to determine the right outsourcing balance.

Case study

25Tax Technology and Transformation

Concluding

thoughts: Is tax

technology a

necessity or an

opportunity?

With the implementation of tax technology

strategy, companies may aim to improve

data quality through maximized automation

of data from multiple source systems and

improved data analysis. The idea will also

be to have improved collaboration, process

control and visibility across all taxes through

workflow and information management. The

end outcome of such a strategy might bring

forth to the management clear, concise

and instant dashboard reporting to support

business decisions as well as improved

efficiency and audit-ready documentation

for audit defense.

While tax technology is a necessity for organizations to thrive in the new digital world, it can also

become an opportunity for early movers who embrace technology into their tax functions to add

more value to business and take informed decisions for the future.

Traditionally, tax functions have functioned in silos and have been technology-deprived. However,

the emergence of new technologies, digitization of the working world, governments going digital

and new transparency requirements are forcing organizations to take immediate actions to

respond to this changing landscape and harness the opportunity to make tax functions more

strategic and responsive to business needs. Lack of preparation, visibility and analytic capabilities

across data sources can leave companies open to the risk of real-time audits, increased tax

penalties, refund delays and reputational risk.

Future tax functions would need to have elements of both

technical and professional skills:

• Technology needs to be adopted to improve how tax is integrated with finance and other

functions to have seamless data extraction, using tax-specific tools and solutions for

automation and analytics.

• Every tax professional needs to have analytical capabilities, at all levels, to help the business

take informed decisions. This might require organizations to rethink their organizational designs

to suit the next-gen workforce.

26 Tax Technology and Transformation

This new tax technology paradigm shift will make it important for senior in-house tax employees to be proficient

in the use of technology tools and platforms. Digital natives will be ahead of the game and those with specialists

skills will be much in demand. Tax teams will likely include technology specialists, with programming skills,

and specialists in data analytics. Team members will need to understand new tools, interface with reporting

technology and interpret reports and analysis to be able to answer questions that arise from authorities.

Developing a mobile and digitally skilled workforce requires an organization-wide redesign, change management

and HR transformation in order to embed people strategy with business outcomes.

Redefining skills and capabilities

required to drive value

Skills of today

current workforce

Technical

skills

Team work and

communication

Analytical

thinking

Skills of tomorrow

workforce of the future

NegotiationInnovative

Lean

Six Sigma

Process

automation

Excel

Business

diplomats

Data

analytics

Artiﬁcial

intelligence

and

blockchain

Workforce impacts

• Multiple generations

• New workforce models (digital,

contingent, etc.)

• New skills and competencies

Business impacts

• New services (increase in planning

and consulting)

• New business models and pricing

strategies

• New technology

Foundation: tax domain knowledge and expertise

Executive

insight:

risk and

opportunity

assessment

Management

insight:

operational

analysis

Semi-

operationalized

insight: proactive

assessment

Operationalized

insight:

predictive

analysis

Data

extraction

Perform

testing

Revise and

amend

calculation

Automated

filing and

compliance

Integrated

analytics

The professional element

Analysis, insights and advice from data and advanced analytics

Technical solution

Advanced technologies and a proven platform

How to start a tax

technology and

transformation journey:

To succeed in their tax technology strategy, organizations need to do a thorough assessment of

the current processes followed during the formulation and collection of data, conduct a candid

review of their automation and analytics capability maturity and create a plan for implementing

appropriate IT-enabled processes.

Make it a strategic imperative:

The vision needs to be embedded as part of the overall organization’s strategy, with backing from

the leadership. This can be done in a number of ways, such as setting up of separate centers of

excellence, specific alignments with business units or a distinct centralized unit. The structure may

gradually evolve as per business needs.

Strengthen using a governance model:

Trust in data accuracy and security can be developed by setting up a governance council and

defining enterprise-wide data governance standards. The council typically should comprise

business heads, tax leaders, and IT and analytics leaders.

Identify what value technology will create and review periodically:

There should be clarity in the role technology can play in value creation for the organization.

Development of formal key performance indicators and their period assessments will ensure that

the efforts are focused in the right direction and deliver tangible results.

Train your talent:

Appropriate skill sets are required to gather and analyze data, and create analytics-based business

insights. Hence, there is a need to organize training for the business as well as tax teams to help

them be better consumers of analytics.

The key challenge for most organizations is to drive a cohesive change touching people,

systems and processes without business disruption. One of the approaches for companies to

drive this digital agenda is to go through a 2*4 gradual immersion journey:

27Tax Technology and Transformation

2 hours

of digital

awareness

2 days of

workshop

for digital

immersion

2 months for

developing

the digital

strategy

2 years of tax

transformation

and change

management

Questions to ponder upon

What is my “wish list” of outcomes I want to achieve with my tax

function? What are the impediments in achieving them?

What are the expectations of the business from my tax function?

What are the key drivers I need to focus on to add value?

Where are my team and I spending all our time? Is there some

room for efficiency?

How much time do my team and I spend on coordination, data

management etc.?

Am I leveraging technology enough to meet my tax needs?

Is there need to re-visit my tax processes and check for areas that

can be done better with technology?

What kind of insights do I need to play my role better?

Are there any internal data/information points I am not getting

today that can help me make decisions better?

Should I take on the task of building and maintaining an efficient

tax function myself or should I pass it on to tax function outsource

service providers?

28 Tax Technology and Transformation

29Tax Technology and Transformation

Notes

30 Tax Technology and Transformation

EY Tax Technology and Transformation

(TTT) India team

Garima Pande