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  • Digital tax administration are you ready?

  • Page 1 EY Domestic Tax Conference

    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 taxpayers facts and circumstances.

    These slides are for educational purposes only and are not intended, and should not be relied upon, as accounting advice.

  • Page 2 EY Domestic Tax Conference

    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

    Todays presenters

    Andy Steigleder Principal - Leader, Central Region Tax Policy and Controversy, Ernst & Young LLP

  • Page 3 EY Domestic Tax Conference

    The forces driving our future: megatrends

    Age of discovery colonialism

    Bretton Woods trade liberalization

    East Asian NICs China/India/Brazil

    Latin America/Africa

    Industrial revolution information technology

    Mainframes PCs Online (web)

    Social mobile smart IoT

    Virtual reality AI robotics

    Demographics is destiny Post-WWII baby boom

    China one child policy millennial

    Workforce urbanization aging West

    Global migration young India/Africa

    3Three primary forces:

    Independent variables

    Long-term, multiple waves

    Interact and catalyze each other

    Demographics

    Technology

    Globalization

    are driving multiple megatrends Cohesive narratives with significant interplay

    Driven by interaction between the next waves of

    technology, globalization and demographics

    1. Industry redefinedIs every industry now your

    industry?

    2. The future of smartWhat intelligence will we need

    to create a smart future?

    3. The future of workWhen machines become

    workers, what is the human

    role?

    4. Behavioral revolutionHow will individual behavior

    impact our collective future?

    5. Empowered

    customerHow will you change buyers

    into stakeholders?

    6. Urban worldIn a fast-changing world, can

    cities be built with long-term

    perspective?

    7. Health reimaginedWith growing health needs,

    is digital the best medicine?

    8. Resourceful planetCan innovation make the planet

    resource rich instead of

    resource scarce?

  • Page 4 EY Domestic Tax Conference

    Five

    disrupters

    of tax

    Changingbusiness

    model

    Machinelearning

    Taxpolicy

    The futureof work

    Digitalgovernment

  • Page 5 EY Domestic Tax Conference

    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)

    Increase in tax revenue without

    increase in rate: 38%

    Average increase in audit

    assessment value: 76%

    Mexico

    Source: FTA Advanced Analytic Survey, 2015

    Worldwide

    16Tax administrations now using

    advanced analytics (such as

    predictive models) to reduce

    value-added tax (VAT) fraud and

    increase compliance

    Increase over plan for 2017 audit

    and penalties collected: 42.5%

    Source: http://idg.receita.fazenda.gov.br/orientacao/tributaria/auditoria-fiscal

    Brazil

    Source:

    http://finanzaspublicas.hacienda.gob.mx/es/Finanzas_

    Publicas/Estadisticas_Oportunas_de_Finanzas_Publicas Source: FTA Advanced Analytic Survey, 2015

    What is digital tax administration?Tax authorities are changing the traditional compliance model

    http://idg.receita.fazenda.gov.br/orientacao/tributaria/auditoria-fiscal
  • Page 6 EY Domestic Tax Conference

    Digital disruption of complianceThe shift in focus from returns to data

    The traditional compliance model

    Request

    data from

    accounting

    Analyze/prepare/fix data

    Calculate adjustments

    Submit return

    TaxTax

    Prepare form

    Tax

    Extract data directly

    from source systems

    Cycle time = n + 3 years

    The digital compliance model

    Submit data

    directly to

    government

    IT

    Tax

    ERP

    1000110001

    001001001

    001IT

    Wait

    for

    audit

    Tax

    E-audit /

    E-assess/

    E-match

    $$$$$$

    $$$$$$$$$

    Govt

    Respond to

    assessments/

    audits

    Tax

    Cycle time = n + 90 days

    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

  • Page 7 EY Domestic Tax Conference

    Who should care about digital tax administration?

    IT Finance Tax

    Unexpected data mining and mapping projects

    due to new data requirements mandate

    Causing unplanned impacts to ITs project

    road map, resources and budget

    Increased responsibilities over the global data

    submission process

    Creating risks of penalties, delayed cash flow

    and financial reporting errors if mismanaged

    Increased scrutiny from tax authorities with

    reduced audit cycles

    Triggering increased scrutiny with limited

    insight into the data submitted

    Internal stakeholders affected by 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.

  • Page 8 EY Domestic Tax Conference

    Current state of digital tax administration

  • Page 9 EY Domestic Tax Conference

    `

    Level 1 E-file Level 2 E-accounting Level 3 E-match Level 4 E-auditDigitization level Level 5 E-assess

    Todays state of digital tax administration*

    LATAM

    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

    Europe

    Growing number of

    countries have adopted

    OECDs SAF-T guidance.

    Guidance includes

    detailed invoice and

    accounting data.

    Other countries have

    adopted their own

    variations of digital data

    reporting requirements.

    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.

    China

    Mexico

    Brazil

    India

    Argentina

    Chile

    Russia

    TurkeySpain Italy

    France

    Germany Poland

    Portugal Greece

    Austria

    * Current as of April 1, 2018

    This map is representative and not all inclusive of countries with digital requirements.

  • Page 10 EY Domestic Tax Conference

    and where is it going?Upcoming changes* to digital tax megatrends

    2019 20202018

    2018

    Brazil is introducing new obligations for payroll

    (eSocial) and EFD-REINF.

    Hungary will require live invoice reporting

    starting July 1, 2018.

    Russia plans to introduce country-by-country

    (CbC) reporting in 2018.

    Mexico has announced its intent to increase use

    of e-assessments in 2018.

    2020

    UKs HMRC plans to introduce MTD for other

    taxes besides VAT in 2020.

    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.

    Norways SAF-T requirements will become

    mandatory on January 1, 2020 for submission

    upon request.

    * Current as of April 1, 2018

    This list is representative a

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