Did you happen to miss our webinar last month on the trends in taxation and technology?
If so, do not despair.
The full transcript is now finally available for your perusal.
A special thank you to Thomas Jacobsen, Managing Director, Papilios Service Limited, Malta and Dr. William H. Byrnes, Executive Professor of Law & Associate Dean for Special Projects, School of Law, Texas A&M University, USA, for talking to us about how technology will impact the world of taxation.
If you have any follow-up questions for our panelists, please make sure to submit them below.
ANY FOLLOW-UP QUESTIONS?
For now, here are some of the event’s main highlights!
Considering all the new reports that have to be generated for compliance purposes, there is certainly a role for technology in this specific sector. How do you see this developing forward?
Dr. William H. Byrnes: “I pulled three examples of governments using tax technology and the coolest is the UK’s. They call it their innovative Connect analytical software and the UK has been able in four years to pull 4 billion extra pounds from taxpayers using this system.”
“So what does Connect do? First, it takes all the required statutory data of the UK and uses sophisticated nexus systems to connect the data across disparate amounts. To bring it down to reality, you can take individual returns, match it with partnership returns and match that with corporate returns that would get matched with transactional VAT returns.”
“Second, and this is the most interesting to me, it actually combs the Internet and it matches the data that is produced in phase one with blogs, social and business media like Facebook and LinkedIn, and newspapers articles searching Lexis Nexis for all the news out there. This is like the auditor sitting in his office and he takes a drive down to the taxpayer in the old days and sees a fancy painting on the wall and he goes “Ah, they might not be reporting income!” This is that at a totally new level; the entire UK taxpayer base could be searched in a matter of days against the publically available information.”
“Third, it can now find relationships between parties that are definitely not apparent on the filings. Now those relationships may have culminated from social media or it may be from different filings and matching filings, it may be similarities in address or something like that. And this machine learning will start to develop flags and it takes human intervention to go in and teach the machine, so it’s not really machine learning, it’s humans teaching the machine what to look for and write better rules, and the machine over time may be able to take over that function. But we’re not really there today with the technology but, over time, the humans will keep validating and revalidating, knocking out the red herrings until we reach a point where the new relationships humans would not have found because we cannot process data that quickly and certainly cannot process the amount of data, that’s where I see technology on a government side.”
How do you see blockchain technology being incorporated into the field of international taxation? Can it help with, say, data protection?
Thomas Jacobsen: “I think blockchain has a number of uses and I can see compliance as one of those uses. For example, in the indirect taxation field and VAT, I can very much see a role for real-time reporting when it comes to using blockchain technology. I can foresee a future where the inland revenue or VAT department would like to plug in directly into the blockchain and collect taxes in real time on transactions, which would obviously help the practitioners and the economic operators, in the sense that you would save on compliance costs because it’s an automated process.”
“If you look at the advantages of the blockchain, the fact that you have real time transactions that are immutable, in the sense that they cannot be change, that are decentralized, so it’s difficult to hack into them, trusted and transparent. In a way, it’s like a wet dream for the administration that is occupied with transparency and anti-tax avoidance methods. If you find a way to plug directly into the blockchain, you’re done. You cut out all the intermediary work for us who are involved in helping people with compliance, for example. It’s just done automatically.”
“If you use it, for example, in direct taxation to record all expenses and transactions and then you give real-time access to the tax authorities, they will calculate and enforce tax in real time and nothing is better than that. Instead of collecting provisional tax and then having a tax return and calculations made and then collecting tax at a later stage, it’s already done when the transaction happens.”
Can technology help tax authorities in the battle against tax avoidance, tax evasion and fraud?
Thomas Jacobsen: “Short answer, yes. I think that tax authorities will be able to process more data for less cost and that can only be good for them. I had a conversation with a Maltese revenue official a couple of years ago when this automatic exchange of information was starting to raise its head. And he told me, ‘I don’t know what we’re going to do with all this data, we have no resources to deal with this data, it’s just going to sit somewhere, what’s the purpose of it? We don't have the manpower to go through it, so it’s in a way a useless thing.’ Move along a couple of years and it’s no longer the case. Now you will have machines doing that work, analyzing the data, spitting out reports that may or may not provide guidance with regards to actions that need to be taken. I can definitely see a big help for tax administrations.”
How should tax practitioners be responding to these developments - maybe re-schooling as software programmers, or do you see other options?
Dr. William H. Byrnes: “I’m at a law school and the lawyers are like, “Oh my God, Excel is so hard.” And I’m like, “By the way, tax functions, they are getting away from Excel. Excel is a dinosaur.” If you talk to Chief Tax Officers at the large companies, because I go to all these conferences and listen to the pain, they still have tax department people who are still trying to use Excel, whereas the Corporate Board and the CFO expect a central repository where all the data is assimilated and so it’s not separate tax data from the management books data, from what’s going to be the public books data, it’s one data source and all the departments have to function on that one data source and be able to pull it into forms that have been created for their purpose, like you still have to file your tax compliance with the government. But you’re not going to take Excel and then run an Excel and then send your Excel back to the CFO and the CFO has to interpret the Excel. Those days are disappearing and that’s where—I hate to use the word AI because we’re not there—the software and the automation over time is going to help us kill redundancies. It’s about redundancies because redoing Excels, if you have ever done a complex tax credit formula for the US back when we used to have eleven baskets, I think it was, certainly nine baskets, and you had twenty worksheets open. I worked at Coopers and Lybrand and Excel was a big deal in the early 1990s. Twenty worksheets and you had all these internal formulas, if something went wrong, you had to start again, or something got corrupt, you had to start again. That’s all gone, that redundancy, no more.”
“Humans, we’re not going to get replaced. I don’t see less people being hired in tax, I see more but the skillsets they need are more integrated to the business operations and the business operations are more integrated to the technology. Retooling, indeed. But loss of jobs or less income, not a chance.”