Digital is changing the world of tax compliance

digital tax compliance

26th August 2020

We’ve long highlighted that global authorities are implementing more sophisticated technology, software and artificial intelligence to identify fraudulent activity on an international scale. We’ve seen social media activity monitored to identify discrepancies in reporting and digital tax systems introduced to better monitor transactions and activity.

And Covid-19 has arguably accelerated these technological developments as authorities have faced a need to shift more tax reporting online. In fact, in the middle of the pandemic, the Global Legal Hackathon (GLH), supported by the Financial Times and FT Innovative Lawyers, hosted a global compliance hackathon to find answers to some of the most pressing legal and regulatory concerns across the globe. Some of the ideas that came out of this event certainly provide an indication of the future of digital tax compliance.

Legal digital processes

One particular challenge saw various representatives from legal automation exert, AXDRAFT, collaborate on a project to shift legal documents into a fast and much more efficient digital process. It may seem like a rather simple idea, but more often than not, small steps make a big difference, particularly when it comes to technology.

The idea of this particular solution is to provide global businesses with a number of legal documents supported by expert online guidance to speed up processes without the additional costs. In principal this is certainly a cost and time saving exercise that will allow for more accurate and consistent record keeping at the very least. However, it’s important to add that every individual and every business is different. The nuances in your circumstances could require a bespoke approach (and when it comes to international tax determinations this will certainly be the case) so we’d advise caution when utilising fully digital solutions.

A digital health passport

As many contractors will certainly recognise, the global pandemic has drastically changed how expats operate across the globe. As we’ve mentioned in previous blogs, we’ve long advised contractors to ensure they have appropriate health insurance, but the spread of Covid-19 has certainly made this more critical than ever before. In fact, we’re finding more end-clients are requiring a health insurance recommendation to be built into contracts.

As such, it’s perhaps unsurprising that one of the challenges during the hackathon revolved around digital health passports. The tool – designed as part of a collaboration between the IOTA Foundation (an open-source distributed ledger) and legal experts, Denton – allows individuals to access and build their own online health profile. Crucially, taking this online alleviates the need for paper-based logs, which is certainly beneficial in limiting the spread of coronavirus. It also makes it much easier to monitor any relevant health documentation, with automated systems tracking and storing information, reducing the potential for errors or loss of documents.

The impact of digital on tax and compliance

The above are just a few examples of how technology is impacting how contractors and businesses alike operate across the globe. But there’s so much more happening that it would be impossible to cover everything in one blog. When it comes to digital changes to tax regulations, there’s a lot that contract professionals need to be aware of.

In fact, according to a recent Forbes article, the likes of artificial intelligence (AI) and robotics have the potential to change taxation as we know it. There’s no doubt that global governments have a desire to reduce the number of tax defaulters and collect payments in a timely manner, particularly as they attempt to recover some much-needed funds in a Covid-hit economy. That’s where AI and robotics can really come into play.

AI systems can, for example, swiftly and accurately identify any groups of people who are under-reporting their income and ensure they face the relevant penalties, removing much of the time-impact that you often see with lengthy human investigations and co-operation requests.

Automated systems can also perform the often time-consuming and repetitive tasks that tax professionals manage on a daily basis such as processing documents and a variety of reporting requirement. The use of AI-enabled robots can also be used to fill account numbers or asset ID numbers onto spreadsheets, as well as financial closeouts and reporting. This frees up the time of tax professionals to spend on other tasks and further increases the capacity for global authorities to identify and prosecute fraudulent activity.

Tech driving greater compliance

There’s no doubt that technology can drive efficiency and it will certainly make many processes much easier for individuals and businesses alike. However, it is also empowering global tax authorities to better clampdown on fraudulent behaviour. In many cases it is quite simply impossible to hide from sophisticated technology, whether that’s AI or robotics. Those that have perhaps previously taken advantage of the complexity of international tax regulations will find they are swiftly caught out in a digital world.

For contract professionals who are actively taking steps to be compliant in their overseas assignments, the increasing use of digital in tax processes does also present a risk. A minor reporting or administration error will be much easier to identify where technology is being utilised by tax authorities. As a result, the chances of facing a possible fine or prosecution for a simple error are much greater. And we certainly predict that the use of digital tools will increase in the tax arena as more governments see the potential value it can add to their local economy.

It’s for this reason that we highly recommend that anyone looking for international contract opportunities seek an expert partner to ensure you remain compliant no matter where in the world your next project is. And with more contractors facing the prospect of working from their home country for an overseas assignment as travel restrictions remain in place, the potential risks increase.

At 6CATS International, our team of experts has experience in tax regulations across multiple jurisdictions, so no matter where you’re working, we can help you. All our solutions are fully compliant, offering peace of mind, making you secure in the knowledge that you can prove you are compliant, if asked to do so by your agency, end client or the authorities.

Contact the team today to find out how they can help you.


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