The sudden move to remote work because of the coronavirus (COVID-19) pandemic has been one of the biggest shifts for the world’s tax authorities—including those from the United Kingdom, United States, and Australia and that have been successfully operating with most staff working from home.
The same appears to be true for other tax authorities that have previously digitalized aspects of their tax systems. However, tax authorities in some developing countries like India and Indonesia face greater challenges in implementing a remote workforce.
From an audit perspective, tax authorities have responded differently. With companies in “survival mode” and physical interactions like onsite visits and in-person meetings not possible, some tax authorities (such as Brazil’s) have temporarily suspended audit, enforcement, and collections activity. The U.S. Internal Revenue Service has continued those examinations which had started, but is not beginning new audits until at least mid-July 2020, although pre-audit case development is proceeding. The Australian Tax Office gave large corporate taxpayers the option to put ongoing audits on hold, yet the majority of companies opted to proceed which may suggest that companies do not want to delay the audits, as they seek to gain tax certainty. By contrast, regular audit activity continues for tax authorities in Mexico, Chile, and Peru.
From the taxpayers’ perspective, dealings with tax authorities whose professionals are working remotely seem to remain effective. KPMG polled over 425 tax and business leaders during a webcast, and 56% of those in the midst of a tax authority examination responded that “the matter is proceeding well.” Only 22% reported “difficulty contacting or communicating with agents.” About the same number reported “problems getting information to respond to information requests.”
Many of the efficiencies gained from working remotely could endure. While in-person meetings will likely remain a feature of future tax authority examinations and negotiations, many jurisdictions are amending their processes to eliminate formal hard-copy document requirements, though it is unclear which of these new processes will become permanent. The OECD’s Forum on Tax Administration (FTA) has played a key role in allowing the revenue authorities to “meet” and leverage each other's experiences, as tax authorities work through this difficult environment. The FTA’s Mutual Agreement Procedure (MAP) Forum, which is devoted to improving MAPs globally, is collecting and sharing such new leading practices through virtual FTA meetings and a centralized database of program improvements accessible to all FTA members.
The current situation may be speeding up the evolving use of data in tax policy making. In the KPMG webcast, Jeremy Hirschhorn, Second Commissioner of the Australian Tax Office’s (ATO) Client Engagement Group, described how the use of data in the tax world has evolved through three phases, and how the quick work of governments in designing and rolling out stimulus measures might get to the next stage faster.
In the initial pre-data stage, it was impossible for tax authorities to access data at scale, so taxpayers were required to provide their own dataset on income tax returns.
The second stage saw tax authorities crossmatch information provided by taxpayers against other verifiable data sources.
In the third stage—which the ATO calls “datafication”—tax policy measures are developed around the data itself. Instead of designing systems and then scrounging for the data to support them, tax policy is set based on what the available data can provide.
This third approach was used with success to develop many of Australia’s COVID-19 stimulus measures. For example, Australia’s wage subsidy for small businesses was designed so that companies would only have to file their usual tax information, supported by Australia’s one-touch payroll tax reporting system. The subsidy was then automatically generated with no human intervention in almost all cases.
For more information, contact the head of KPMG’s Global Tax Dispute Resolution & Controversy:
Sharon Katz-Pearlman | firstname.lastname@example.org
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