The digitization of tax is an enormous topic that means different things to many people. But from any angle, digitization has been changing all aspects of taxation for some time – from tax collections and compliance down to the tax base itself. There are rich areas to explore in regards to the digitization of tax.
- The digitization of tax collection – Sometimes we use the term to denote the digitization of tax administrations as they invest heavily in technology. These investments are vastly improving their ability to gather more tax information and gain more insights into the tax and financial positions of taxpayers. As tax administrations transform, the requirements they are imposing are altering the shape of digitization for taxpayers, advisers and everyone involved in the operation of tax systems.
- The digitization of the tax function – We also talk about the digitization of tax functions. Companies are embracing tax technology, in part to comply with new electronic reporting requirements but more importantly to leverage automation to make their tax functions operate more accurately and efficiently.
- The digital economy – A key area of focus within the theme of digitization is that digitalization makes it increasingly possible for businesses to reach markets in jurisdictions in which they may have relatively little physical presence, which under existing international tax rules that allocate taxing rights on business profits on the basis of physical presence, this can mean that it is possible for a company that is resident in one state (Residence State) to generate significant revenues in another state (Source State) without paying a significant amount of corporation tax in Source State.
While each of these aspects of digitization is distinct, all of them are coming together to impact the world of tax professionals in a profound way.