The OECD Forum on Tax Administration (FTA) has published a report titled “Tax Administration 3.0: The Digital Transformation of Tax Administration”. This discussion paper sets out a different model of tax administration, enabled and in fact called for, as a result of increasing digitalisation of the economy and of society in general. Moreover, it takes clear direction for tax administrations to become real time data driven and able to automate validation of taxpayers. It is important for taxpayers to understand the paradigm shift and already anticipate that when starting an ERP transformation.

Over four chapters the OECD discussion describes how tax authorities will need to respond to a future driven by digital tools, increasing amounts of data and open communication channels: The way is being paved for the seamless and automated transfer of fiscal data to tax administrations. This will reduce the need for active, burdensome compliance for both taxpayers and tax administrations. Moreover, the taxation point has moved closer to taxable events, and this development reinforces the need to integrate automated E2E tax processes into the different ERP systems that tax functions use to accomplish accurate and effective tax compliance across jurisdictions.

The key idea behind the digitisation drive is for tax to “just happen” in the background without the need for onerous compliance processes and manual intervention. As well as efficiency gains, this also allows taxpayers and tax authorities to see in real-time the tax affect of their activities and transactions and use this as a decision-making respectively assessment tool. The additional transparency enables tax administrations to more easily perform checks and reviews on the tax data.

Traditionally, when organisations started ERP transformations, tax was not part of the E2E business process and systems design. It has been considered to be a part of finance business processes which can be covered by a so-called lift & shift approach. This means processes related to tax are copied from the legacy environment into the new ERP model. Given the evolving tax regulatory landscape, tax departments need to provide careful input to avoid a lift and shift approach creating incremental tax risk. In the past tax functions have not always had a seat at the table when their organisations have undergone ERP transformation projects, meaning the tax team has not necessarily been able to add the tax priorities to the ERP “shopping list”. The development led by the OECD and outlined in the Tax Administration 3.0 underpins what tax functions have been asking for since tax authorities have started to engage directly with companies` ERP systems – which includes real time reporting, e-invoicing with direct systems access as well as e-audit and e-assessments. The evolving approach of the tax authorities means that the tax department needs a seat at the table for ERP transformations from the beginning. Reading the OECD`s report carefully the following arguments become obvious:

1. Tax can no longer be effectively transitioned with a lift & shift methodology. Tax processes need to be newly established and need to be right first time. The result of this is that it will no longer be possible for the tax function to fix things outside of the ERP systems. This means especially that the tax design must be flexible enough to anticipate and to respond to upcoming digital requirements of the tax authorities. Thus, tax is not a local requirement but rather an integrated part of the central “global” ERP design.
2. Tax functions will no longer be able to protect the license to operate for the business in certain jurisdictions through applying workarounds in order to ensure that tax compliance and reporting obligations can be met (globally). To protect the license to operate data, processes and systems need to be designed with tax in mind to support the right first time approach that is demanded by tax authorities around the globe.
3.  According to the OECD future tax administrations will rely on (real-time) data rather than tax forms that are submitted after the transaction / year end etc. This shift demands tax functions to be at least partially responsible for the data quality within their organizations. New, especially cloud based, systems come with new data models promising a single source of truth. Master data structured and accurately linked with tax demands enable the tax function to shift from being a protector at the end of a process to being truly embedded into all business processes. This facilitates the provision of real-time insights, predictive analysis and valuable business partner input on opportunities and risks in a constant and rapidly changing tax environment.
4. A traditional ERP transformation addressed tax in the standard solutions available. However, most standard ERP systems were designed 15+ years ago and are not capable of meeting the challenges in the current and future digital tax landscape. Relying on outdated systems will no longer provide a sustainable model. As changes, as anticipated by the OECD, will be exponential and increasing in pace it is crucial for tax to contribute to the business case for ERP transformations. By involving the tax function at the outset of the ERP program, the tax function should be able to collect products, add-ons or accelerators into the program shopping basket that help protect the licence to operate from a regulatory perspective. In addition, there are often enhancement opportunities available in connection with tax processes that can positively contribute to the broader ERP business case.

The OECD`s report addresses the urgency of tax functions adapting to the digitalised environment and provides tax functions with tangible arguments to help them obtain a permanent seat at the table in the context of ERP transformation projects.

What is next?

Deloitte has a dedicated tax management consulting team that has extensive experience of supporting companies successfully navigate tax challenges through ERP transformations. We would be pleased to share experiences and insights and plan to hold a number of client events on this topic over the next 12 months.

If you would like to discuss more on this topic, please do reach out to our key contacts below:

Key contacts

Martin Krivinskas -  Partner, International Tax

Martin is an international tax partner with 20 years experience working on international tax matters. He has worked extensively with global multinationals, with a particular focus on helping international group’s mitigate tax risk and manage their effective tax rates. Martin has significant experience of supporting clients with a wide range of transfer pricing and international tax matters and is part of Deloitte` s Global Value Chain Alignment leadership team. Martin`s clients are predominantly in the life sciences, industrial products and consumer products industries.

Martin is a Chartered Accountant and a member of the Chartered Institute of Taxation

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Romy Mueller - Director, Indirect Tax

Romy Mueller is an Indirect Tax Director in the Business Tax practice of Deloitte Switzerland assisting clients with Swiss as well as International Indirect Tax matters, such as VAT, Customs & Excise Duties. In addition to that Romy has a focus on Tax Technology as well as Tax Management Consulting supporting clients with ERP implementations and automation of VAT compliance processes. Romy started her career in the Big4 environment 15 years ago and has extensive expertise in providing VAT advisory & compliance services to national and international clients. She is currently a member of our Swiss outbound team, serving Swiss based multinationals and European headquarters with a focus on business model transformation. Romy regularly teaches Master Classes for VAT and Direct Tax at Swiss Tax Law School (Kalaidos Fachhochschule). She is a German lawyer and holds a Post Academic Master’s degree in International VAT.

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Sarah Rathgeb - Senior Manager, International Tax

Sarah is a Senior Manager with over 13 years of experience in the corporate tax field at Deloitte and currently leads Tax Technology projects, specialising in process optimization and automation. She has experience providing tax reporting services for several Swiss financial institutions as well as trusts in 5 jurisdictions and was involved in developing the additional software to capture data required for reporting. Sarah developed Deloitte’s QI and FATCA template compliance framework and controls matrix and acted as technical lead in various recent FATCA audits. In addition, she developed Deloitte’s standard QI/FATCA periodic review work program, including account sampling tool. Sarah is a Qualified Chartered Accountant and in 2015 obtained an LL.M in Swiss and International Taxation.

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