Digital Tax Administration: The Future of Tax Reporting & Transparency

Many business owners recognize a recent shift towards more transparency of data related to tax compliance and new approach to digital tax administration. This is a result of many issues including frequently changing tax policies, digital tools that allow for real-time reporting and the ability of tax authorities to execute more aggressive enforcement approaches. The futuristic concerns though are that there will be jurisdictions applying advanced analytics and AI to scrutinize enterprises in search of evidence that can be used to levy higher assessments.

The power of digitalization is evident on both sides – the tax authorities as well as inside business organizations. Tax authorities are increasingly relying on digital methods to collect taxpayer data , analyze the data and ensure compliance with tax codes. The massive collection of this data will give tax authorities an unprecedented look at various business operations and profits. You can see why tax authorities are upgrading their digital efforts in order to gain this informative transparency.

Businesses with out-of-date technology and processes can be exposed to more tax controversy for failing to meet requirements and expectations, especially businesses subject to multiple tax jurisdictions. Companies may need to tweak or even overhaul their invoicing, payment, enterprise resource planning (ERP) or other financial systems.

To stay ahead (and away from tax controversies) in this new era of digital tax administration, business owners should:

Develop a Tax Planning Policy

Each business must decide how transparent it wants to be in terms of disclosing the amount of taxes paid in each jurisdiction and they must develop a clear plan to communicate it to those involved with the business (investors, shareholders, employees, etc.).

Make Technology Updates

Businesses need to enhance their digital capabilities so they can meet the demands of this new world of digital tax administration. To do this, they need a clear understanding of the tax authority’s (i.e. IRS or NCDOR) data requirements and have all tools in place to prepare digital tax submissions. Businesses should also consider developing a method for real-time data compilation for audit defense and to avoid tax controversy issues.

Evaluate Tax Risk Management

With tax authorities using more sophisticated data analytics, businesses should focus on strategies for tax risk management. Perform analytics on data before filing taxes and have a method for archiving digital files in case of an audit. Evaluate the types of tax controversy resolutions available with an experienced tax controversy attorney.

If faced with a tax controversy, working with an experienced tax attorney to determine which resolution is best allows for a faster conclusion to the controversy so your business can resume focusing on its business operations. At Murray Moyer, PLLC, we work with all types of business owners, as well as individuals, to resolve issues involving back taxes and noncompliance.

As digitalization grows in the field of tax administration, we help business owners understand reporting requirements and the technology needed to best stay in compliance. Contact us for a consultation on any of your tax-related issues.

Written by Justin Moyer on October 22, 2019.