Feeling good about tax disruption? The ten most frequently asked questions

Christoph Schärer Tax Partner, Chief Digital Officer Tax and Legal, PwC Switzerland 05 Dec 2018

The word ‘disruption’ is used so much these days that it often seems divorced from reality. Not tax disruption. It’s a concrete development that’s already affecting the everyday reality of just about everyone on the planet.

The Cambridge Dictionary gives a good example to illustrate the use of the word ‘disrupt’:

«Heavy snow disrupted travel into the city this morning.»

This sentence evokes emotion. You feel what it’s like to get stuck on the way to work, or even to be skidding uncontrollably in the snow. This kind of disruption is real. But it’s disruption you can plan and prepare for it, by switching on your traction control, fitting snow chains, or taking the train instead.

My point is that tax disruption isn’t just another piece of abstract business jargon. It’s something that will disrupt our lives in very real ways and leave us feeling very bad − and in real danger – unless we respond properly. To help you understand the concrete challenges you’ll face and how you can take firm action to tackle them, I’d like to answer the ten questions most frequently asked about tax disruption. To get an even fuller picture you can check out the videos too.

What is tax disruption?

Tax disruption is the way you feel when tax authorities deploy new technology − basically when they use artificial intelligence (AI) machine learning and know a lot more about you than you do.

How much longer before the taxman can do our tax returns for us?

The taxman can do it already − but maybe not for all taxes all over the world. At the moment they can handle many transactional taxes and taxes in the more developed countries, for example. But in a couple of years the taxman will be able to do our tax returns for us in all jurisdictions and for all taxes. 

But governments are slow with technology, right? Surely it is easy to outpace them?

Think again. Governments put a man on the moon and created the internet. If the incentive is there, they’re as quick as anyone to apply technology. Tax is a no-brainer: it’s a fantastic business case. You get money back. Governments are already investing heavily and recouping their investment. It’s only a matter of time before they put the taxman on the moon.

How should our audience start organise their investments in this space?

The worst thing you can do is just go out and buy technology in the hope that it’ll make the problem go away. It’s ultimately about being on top of your data: understanding what data you have and how you can control it, and how you convey this to the tax authorities. Getting a handle on these things takes time, and there’s no single technology or solution that will get you the results you’re looking for. You need a plan, a strategy: a vision of where you want to go in the next couple of years. And you need to execute on this strategy.

So, a lot of change is going to happen. What should our audience be prioritising over the next 12 - 24 months to start?

Think mindset and strategy. You need the right strategic mindset to be ready for tax disruption in a couple of years’ time. And you need a realistic idea of how quickly your organisation can respond. Basically tax can only move as fast as bare-bones functions within your organisation. So you need to know how your finance functions are going to transform, what core system they’ll be using, where the data will be located, what data you need in addition to the data the normal finance function collects, and so on. You’ll feel more confident once you focus on strategy and sketch out a roadmap for the next five years.

In this new world of tax, can I uninstall Excel?

Certainly not! Whatever its quirks, Excel will be with us for a long time to come, because everyone can use it and it’s an easy hack to get things done quickly. But it’s not the right tool for everything. You need to train tax professionals to use other tools that might be a lot more appropriate in certain situations. The real risk is the reliance on complex Excel macros which no one in the organisation understands. You’ll feel a lot better once you’ve found ways of replacing them with more transparent technology that reduce the risk.

Why should I care about tax disruption?

To be honest, I don’t think you should care about tax disruption. But you should care about its effects – how it impacts you and your everyday life. Like the weather, there’s nothing you can actually do about it. Sometimes the sun will shine, sometimes it’ll rain; sometime it’s hot, sometimes it’s cold. What you should care about is whether you need an umbrella today, or warm clothes, or light clothes to keep you cool. In other words, you should focus on understanding the facts of tax disruption and what capabilities and tools you need to succeed in a tax-disrupted world. 

Why do I have to act know, to be prepared for the impact tax disruption?

Two reasons. First, there’s a big payoff to going on the offensive and getting ready anyway. Being prepared means having a better handle on your data and understanding your organisation better, almost in real time. That’s good, because it gives you new insights and your tax position will be better. But there’s also a more defensive play. What happens if you don’t get ready now? It will take you quite a time to be fully operational, so if you don’t start now and governments are ready to disrupt you in three or four years' time, you’ll be playing catch up for a couple of years. That’s bad. So it makes most sense to start now, from both an offensive and a defensive point of view.

Why should I invest now in tax rather in other areas of my business?

First of all it’s important to realise that tax is going to get even more important in the years to come. It’s already an increasingly significant political factor, used and misused in global conflicts, trade wars and disputes on tariffs – and this will continue. The second point is that when it comes to tax, the investment cycles are long and it’s easier to predict what the future will hold. Unlike many other disrupted areas of business where you don’t really know what’s going on and have to experiment wildly with no guaranteed outcome, when it comes to tax you have something firm to strategize around, and you can plan for a positive return.

So I need to work with IT to get ready for the new world of taxman?

I hear some fear and apprehension in that question. I don’t think we should be fearful, because basically this is a great opportunity for any tax professional to really evolve and grow. Think about our profession. It hasn’t really moved very far in the last hundred years. And now comes this fantastic age of disruption. I believe we’re the generation that will change the way tax works, forever. You should feel good about that. It’s a real opportunity.

How do you feel about tax disruption now

I’ve tried to explain why tax disruption isn’t as vague, abstract or scary as a lot of the disruption out there at the moment. It’s already clear where things are headed: the authorities will have so much real-time information that they can basically do your tax return for you. The good news is that this inevitability makes your response – and the returns on your investment – highly plannable. And by enabling you to get a better handle on your processes and data, your investment will bring tangible benefits across the board. 

Feeling better about tax disruption? Feel free to contact me if you need reassurance.

 

Contact us

Christoph Schärer
Tax Partner, Chief Digital Officer Tax and Legal, PwC Switzerland
Tel: +41 79 745 09 26
Email