Tax Consulting 2.0
With information becoming more freely available to both taxpayer and tax authority, a mix of legislation and technology may be in the early stages of throwing open the doors to near-full disclosure.
March 25, 2010
Over the last 10 years, there has been a significant shift in the nature of work carried out in the tax consulting profession, especially in respect to larger corporations. We have witnessed a move away from the more traditional compliance reviews and health checks or the design of complex planning mechanisms with an overarching focus on effective tax rate. What has emerged in their place has been a very broad set of compliance requirements that have been given weight by legislative developments and have been driven in large part by new software applications and more tech-savvy tax experts on both sides of the jurisdictional fence.
Focus on Compliance
Although there is still a place among small and medium sized enterprises for more manual accounting, planning and auditing methodologies, Sarbanes-Oxley and similar legislation around the world has turned the attention of many tax professionals to the higher-level, more strategic concepts of risk management, credibility assessment and statistical analysis. In other words, the tax profession environment today is one of compliance, not tax planning and it looks as though it will stay that way for the time being. One of the key enablers in this shift has been the notable advances in business intelligence (BI), data mining and data analytics technologies, which have made possible many of the new reporting and analysis requirements.
It has not gone unnoticed by the tax authorities that the major Enterprise Resource Planning (ERP) vendors and the larger technology consultancies have been buying up BI companies. Tax authorities themselves have become more aware of and expert in the technology field and they have invested heavily in understanding both technology and the various industry sectors in which it is applied. They know that software applications are available that will provide them with levels of data and management information that they never had access to in the past and they have been developing their own future plans with this in mind.
In recent times, all of the leading players in the BI field have been snapped, up with SA P having absorbed Business Objects, IBM purchasing Cognos and Oracle acquiring Hyperion. The evidence is that businesses are recognizing the benefits of improved data analytics through adding BI tools to their accounting systems and they are gearing up to take advantage of that opportunity. Of course, the availability of better, more detailed data is not restricted to the company that invests in the technology.
We are already seeing the Organisation for Economic Co-Operation and Development (OECD) — sponsored Standard Audit File — Tax (SA F-T) being taken on board in some European countries and we are confident that the pace of adoption will increase in this area. Many European Union (EU) tax authorities at one level or another are already investigating statistical sampling as the next major step forward in taxpayer management. Both of these audit tools would have been virtually unthinkable a few years ago, as the technology was not sufficiently widely available to produce such information in all businesses. We are also seeing e-file taking some major steps forward with its mandating for many larger businesses and its use by smaller companies as an efficiency measure.
Impact of Technology
Looking at the impact of technology on the daily working lives of tax professionals, one sees that they need only two things to get their jobs done. First, they need a reliable source of tax data. This could be rates, rules, case law, tax authority policy information or even the legislation itself. The second thing they need is the knowledge and skill required to apply this data for the betterment of their clients. It is probable that both the sourcing and delivery of these two elements may change radically over the next five to 10 years due to advances in technology, most of which are already with us today.
The first to change is likely to be data sourcing. We are already seeing the early versions of online social networking groups, whose members are discussing tax issues and swapping data and information among themselves. This concept is sure to proliferate over the next five years and we could start to see a handful of ‘super groups’ emerging from this. Within another five years, this number may be reduced to two or possibly three. What would separate these groups from the rest will be three factors:
It is the third of these factors that could then drive change into the sourcing and delivery of tax-consulting services.
Over the years, the larger consulting firms have many times experimented with online consulting but these efforts have not generally yielded strong results. The problem was not that online consulting has inherent flaws but rather the business community has not embraced it, mainly due to recurrent fears around new technology and processes. This position has, however, started to shift, as evidenced by the widespread adoption of social networking and online purchasing, both of which are indicators to the future growth of further online offerings, including tax consulting.
So which tax services would be appropriate for online delivery? Clearly, the compilation and submission of returns would be one of those, as many companies engage consulting organizations to provide such services today. Additionally, services in the areas of reverse audits; data provision through commoditized databases; basic tax advice (particularly around tax processes); and workflow will be delivered online through standardized templates and other tools. All of these services may be delivered more quickly and cost-effectively than ever before and, for some consulting firms, this might put a severe dent in their revenues and profits.
New Market Opportunities
On the other hand, new market opportunities will arise for those who have acquired the necessary skill sets, whether through recruitment or training. The general theme of these skill sets would be an enhanced level of expertise in the tax technology field, particularly in respect of implementing, migrating or upgrading new tax calculation and reporting systems; advising clients on vendor selection for new tax functionalities; driving online tax communities; and undertaking return-on-investment (ROI) exercises related to technology adoption. For the seriously expert technophiles, there is likely to be a significant supply of tax system implementation and interfacing work to be had.
That said there are some services that are unlikely to be materially affected by the current moves in the technology field. Top of that list would be the most complex tax-planning services, as technologies are generally more comfortable with processes that can be easily mapped or flow-charted.
Complex tax planning rarely falls into that category, although some advanced Withholding Tax planning has been successfully “systemized” over the last few years. In the medium to long term, there is sure to be a place for tax planning, structuring and strategic thinking but it is unlikely that these types of activities will be able to fly beneath the tax authority radar as they did in the past.
It is as true as ever to say that in all fields of human endeavor, technology bears the burden of advancement and the tax world is no different.
As tax calculation and reporting have become more complex in nature and increasingly unmanageable in size and scope, we have turned to ERP systems, tax engines, the Internet and BI tools to lighten the load.
In turn, these technologies are starting to reshape the very nature of the tax consulting profession because they are able to yield data — the lifeblood of any consultancy project or tax audit for that matter — at a level and a granularity never previously possible.
It is worth noting that, although we are arming ourselves with ever-stronger tax and management information systems, we are doing the same thing for the tax authorities so, even though technology investments are absolutely necessary, they are also leveling the playing field for all concerned.
In conclusion, additional compliance measures required by recent legislative developments such as the senior accounting officer certifications in the United Kingdom (U.K.) and the more detailed reporting requirements in the United States (U.S.) around uncertain tax positions have served to complicate the overall international consulting environment.
Moving to Near-full Disclosure
Along with efforts by the OECD and World Trade Organization (WTO) to bring some level of synchronization to the global tax space, it is becoming increasingly difficult for the tax profession to operate in the way it once did. With information becoming more freely available to both taxpayer and tax authority, it looks as though a mix of legislation and technology may be in the early stages of throwing open the doors to near-full disclosure. Once those doors are finally open, it will be impossible to close them again.
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Chris Walsh is chief international indirect tax officer at Vertex comments on the uses for business-networking sites with regards to tax. To read more articles by Chris Walsh and other Vertex Tax Experts, visit the Vertex Web site.
*Note: The content of this article advances the outlook and opinions of the author, Chris Walsh. The author does not advance this article's content to represent in any way the views of the AICPA Corporate Taxation Insider, AICPA or Vertex, Inc.
** This article was previously published by the Tax Journal, a LexisNexis publication.