Technology turns tax transparency from compliance task to strategic advantage

Dr. Astrid Bauer EMEA and Global Tax and Legal Regulatory Leader, Partner, PwC Germany 14/07/20

Tech-enabled tools can transform the way companies meet global transparency requirements and reduce reporting complexity.

In the current crisis, corporate leaders are being forced to reconsider everything they do as they strive to keep employees and customers safe from COVID-19 and ensure financial stability. Faced with limited choices, they are turning to technology with unprecedented speed and making changes that would normally take organisations months or even years to adapt to.

Technology has allowed business to carry on by enabling mass remote working and automating processes, and many of the old ways will never come back. Tax may seem like one of the last areas to be touched by this revolution, but even before the COVID-19 crisis, advisors and taxpayers were looking to technology to help them deal with new requirements to be more transparent. Compliance, particularly when it comes to cross-border tax arrangements, now means processing large volumes of increasingly complex information more frequently.

At a time when leaders have so many competing priorities, the temptation can be to view tax transparency as a burden. Instead, technology can turn it into a strategic advantage: analytics allows companies to gain new insights from their tax data, addressing potential risks at an earlier stage. Spreadsheet-based manual processes can be replaced with more accurate and efficient automated ones. Software-based solutions can streamline work processes and make it easier for teams to collaborate across global markets.

Soon, for example, multinationals based or doing business in the EU must report on a wide range of cross-border tax arrangements under the DAC6 directive. Member states have transposed the directive into their national laws in different ways – with some adding extra requirements – meaning companies must know what their obligations are in all the jurisdictions in which they operate. And it is not only tax-paying companies that are affected; intermediaries including financial advisors and law firms face separate reporting obligations.

Adding a further layer of complexity, DAC6 reporting obligations are applied to all arrangements that have been linked to tax avoidance or a lack of transparency in tax reporting (referred to as ‘hallmarks’ in the directive). This covers frequently used instruments such as confidentiality clauses, which in most cases have nothing to do with tax. Close to home, we at PwC have had to look at our use of confidentiality clauses as they relate to the directive because they are a constituent of virtually every contract we draw up, in order to secure the confidentiality of our clients and restrict third-party liability.

Technology alone cannot simplify such issues for companies, but it can streamline the process overall to ensure compliance in a cost-effective way. To aid our own DAC6 compliance, for example, we built a web-based application called DAC6 Compare Tool which sets out the legislation in all member states side by side. Our clients have seen the tool’s potential and begun using it in-house to give them a comprehensive overview of their obligations under DAC6, just as we at PwC do.

We also built a compliance tool called DAC6 Smart Reporting, which enables clients to identify, assess and monitor their cross-border arrangements, identify which party is responsible for reporting them and report to the correct local tax authority. These tools reduce complexity and help our clients avoid sanctions and the reputational risk of failing to comply.

The good news for companies is that digital technology is ideally suited to dealing with large volumes of tax data. Moreover, it makes transparency a strategic driver that improves risk management throughout the business. To stay relevant and compliant, companies should examine their existing strategies carefully and identify what needs to be transformed. The technology is there to help.

If you would like to learn more, please contact Astrid Bauer.