Tax technology and

transformation
Tax functions ‘go digital’
Foreword
In the EY TaxTech India Survey 2016, we had sought to provide a perspective
on the readiness of the tax functions to embrace and capitalize on the
changes in the tax environment, especially on the tax technology front.

In the past one year, the digital wave has become stronger and the business
case for the adoption of new technologies in the tax function has gained
further momentum. Digital tax administration has emerged as one of the
biggest drivers of tax function transformation in 2017, with GST being
the leading technology-led tax reform necessitating a large-scale business
transformation.

Digital technologies are radically altering business and operating models,

resulting in round-the-clock and border-less value creation for businesses.
Tax authorities worldwide are also introducing newer tax laws to deal with
these digital business models and require greater transparency through
disclosures and seamless exchange of taxpayer information between tax
authorities. Tax functions therefore need to be ready to deal with this
digital disruption wave, which requires them to be closer to their business
stakeholders and data like never before, and address the changing
requirements and expectations of businesses and tax administrations with
greater accuracy and efficiency.

The tax technology landscape is rapidly maturing and is now shared by

multiple solution providers and products. For most tax functions, the
challenge today is determining their requirements, tax technology strategy
and resources to execute the strategy rather than the availability of
solutions. With the advent of cloud-based solutions, the cost of deployment
and maintenance of large applications has come down significantly, cost of
sub-optimal compliance is becoming steeper, transparency and information
sharing between/with tax authorities is becoming paramount and tax
authorities are asking “smart” and “informed” questions.

Building on this theme and focusing on the agenda to help tax functions
be ready for the future, we are pleased to announce our second thought
leadership on tax technology and transformation. This report aims to provide
readers with an understanding of the key global and Indian trends directly
impacting tax functions and the future state of digital tax. It aims to guide
organizations in their digital tax journey to embrace newer technologies such
as automation and analytics, enabling them to effectively respond to the
changing tax landscape.

We expect that these factors, put together, would make a strong business
case for tax functions in corporates to develop and execute a digital tax
strategy.

We hope you find this report both interesting and informative. We would be
happy to interact and understand your feedback on this report.

Garima Pande Rahul Patni

Partner, Tax Technology and Partner, Tax Technology and
Transformation, EY India Transformation, EY India
Contents

Trends impacting tax functions 04

- Digital tax administration: Tax authorities adopting technology 05

- New technologies driving the adoption of digital strategy by businesses 10

- Evolving tax landscape demanding increased transparency 13

Are current tax functions in corporates fit for digital world? 16

Future state of the tax function 19

Technology solutions for digital tax functions 22

Concluding thoughts: Is tax technology a necessity or an opportunity? 25

 1
Trends impacting tax
functions
Multiple disruptions, including regulatory, social, political and technological changes, are posing
newer risks and opportunities for businesses, more so for tax functions, which are at an inflection
point. However, tax law changes are struggling to keep pace with technological changes and new
laws are increasingly being enforced. Not giving tax the attention it deserves on digital issues could
increase the risks for organizations.

Tax-specific technologies may make it possible to answer the mandates of the global digital
economy with changing tax data flows, data analytics and data requirements. The new digital tax
function might evolve at great pace to become a strategic component of enterprise transformation.

Tax authorities are increasingly becoming digital and getting closer to the source data to better
understand taxpayer trends and ensure better compliance. Therefore, enterprise tax functions
cannot continue to remain blindfolded due to lack of access to and visibility on their own source
data and ability to assess trends and issues accessible to tax authorities. Hence, there is a need
for the tax functions to undertake timely and accurate compliance and go digital to be able to
undertake more value-adding functions for the business.

Key trends impacting Tax functions

Digital tax administration - Tax authorities going digital

Technology wave - Emergence of new technologies and businesses adopting digital strategy

Transforming Tax policies - Evolving legislative landscape demanding increased transparency and compliances

4 Tax Technology and Transformation

 Governments across
the world are leveraging
digital platforms to assess
taxpayer data, including
cross-referencing
information at the source,
running it through
increasingly sophisticated
analytics and sharing it
among other agencies.

In India, there are

1.1 significant technology-led
reforms underway both
Digital tax administration: on the direct and the
indirect tax side. There is
Tax authorities adopting increased collaboration
among various
technology government agencies,
resulting in swift exchange
of information using digital
Digitalization and emerging technologies have opened the doors to new opportunities not just
means. This is rapidly
for businesses, but for tax administrators as well to transform their day-to-day operations. changing the manner
Tax authorities are harnessing the power of new technologies such as big data and advanced and quality of audits.
analytics to improve tax administration, counter fraud and facilitate taxpayer compliance. Traditional tax function
operating models need to
Digital tax administration lifecycle and evolution rapidly evolve to face and
As countries move toward digitizing their tax administration, their efforts can often follow a defend these inquiries and
similar pattern, aligning with different levels of digitization. The move to digitization is not audits.
necessarily linear, nor should higher levels of digitization be viewed as the ultimate goal of
either taxpayers or tax authority.

In their journey to adopt digital technologies, most of the tax authorities generally begin with
IT-enabled electronic filing of tax returns and further extend it to submission of source data in
the e-filings. The major shift happens when this data is further matched with data from other
sources (such as banks) in real time, analyzed across taxpayers and jurisdictions to see any
abnormalities, and generate e-audit assessments. The highest degree of digitization is when
government entities use the submitted data to assess tax without the need for tax forms.

Key trends impacting Tax functions

Digital tax Technology Transforming

01 02 03
administration wave tax policies

Tax authorities Emergence of Evolving legislative

going digital new technologies landscape
and businesses demanding
increased
adopting digital
transparency and
strategy compliances

Tax Technology and Transformation 5

 Level 1 Level 2 Level 3 Level 4 Level 5
“E-file” “E-accounting” “E-match” “E-audit” “E-assess”
Use of Submit accounting Submit additional L2 data Government
standardized or other source data accounting and analyzed by entities using
electronic form to support filings source data; government submitted data
for filing tax (e.g., invoices, government entities and to assess tax

Paradigm shift
returns required trial balances) in a accesses additional cross-checked without the need

Disruptive
or optional; other defined electronic data (bank to filings in real- for tax forms;
income data (e.g., format to a defined statements), time to map taxpayers allowed
payroll, financial) timetable; frequent begins to match the geographic a limited time to
filed electronically additions and data across economic audit government-
and matched changes at this level tax types and ecosystem; calculated tax
annually potentially across taxpayers
taxpayers and receiving
jurisdictions in real electronic audit
time assessments
with limited time
to respond

Note: Not all governments collect the same information or treat it the same under this model.
Further, the move to digitization is not necessarily linear.

Current state of digitization level across the globe

Digitization level

Level 1 - E-file Level 2 - E-accounting Level 3 - E-match Level 4 - E-audit Level 5 - E-assess

Source: EY analysis

6 Tax Technology and Transformation

Future state: While 2017 has witnessed various countries adopting digital tax
administrations, many others have announced future plans.

2017 2018 2019 2020

India implemented Norway plans to adopt Malaysia plans to use UK’s HMRC plans to
new GST requirements and implement SAF-T analytics for E-Audits introduce ‘MTD’ for
to submit detailed requirements on payroll tax other taxes besides
transactional level data VAT in 2020.
UK’s HMRC plans Australia’s ATO plans
Spain implemented new Brazil introduced new
to implement ‘MTD’ to further digitize its
requirement to submit obligations for payroll
reporting for VAT in tax administration
daily invoice level detail – (eSocial) and EFD-
April 2019 through extensive use
REINF
Mexico updated layouts of analytics
for invoice data (v3.3) Colombia plans on
Hungary is in the adding e-Invoicing New Zealand is
process of introducing and e-Accounting following suite
Brazil updated layouts
live invoice reporting requirements with Australia in its
for (EFD-Contribuições,
requirements starting move to digital tax
NF-e, ECD and ECF))
July 1, 2018 administration
Italy introduced
B2B e-invoicing and 2020
updated quarterly
VAT obligations with 2019
detailed invoice data

Costa Rica is scheduled 2018

to make e-Invoicing
mandatory for B2B
transactions

2017

Source: EY analysis

Tax Technology and Transformation 7

 The Indian tax
administration scenario
The Tax Administration Reform Commission (TARC), under the chairmanship of Dr. Parthasarathi
Shome, has recommended extensive use of information and communication technology (ICT) in
administration and governance of tax to improve the levels of compliance by taxpayers and help
tax authorities in revenue forecasting.

Current state of technology adoption

The Indian tax authorities have been early adopters of information technology (IT). The IT systems
implemented so far have helped direct taxpayers applying for tax registrations online, e-payment
of taxes, reconciliation and e-viewing of tax credits, e-filing of tax returns, e-processing of returns
and refunds by authorities, etc. E-assessment gives the taxpayer the choice to participate in
tax assessment electronically without visiting the tax office. For indirect tax as well, with the
implementation of the Goods and Services Tax (GST), all compliances, payments and credits
matching are proposed to be administered online. The tax authorities have also used IT systems as
a risk management tool to pick up returns/consignments (in the case of Customs) for scrutiny

The Government is leveraging digital platforms to assess taxpayer data, including cross-
referencing information at the source. Some of the significant initiatives taken by the Indian
Government are as follows:

GST implementation
• With GST, the Government has introduced a uniform indirect tax structure across the country.
Expectations are that it will widen the tax base, do away with the multiplicity of taxes and the
cascading effects, minimize competitive distortions and encourage better compliance.
• The revolutionary IT platform Goods and Services Tax Network (GSTN) provides a common
platform for registration, return filing and e-payment. The objective of the GSTN is to provide a
shared IT infrastructure to all GST stakeholders. It integrates the common GST portal with the
tax administration systems of the Center and states.

Project Insights1
Recognizing the value of data available in electronic form, the Indian tax authorities have set up an
integrated data warehousing and business intelligence (DW&BI) platform, which would help them
detect patterns and plug leakages to improve policy and operational effectiveness. This US$156
million (over INR10 billion) “Project Insight” is the Finance Ministry’s flagship project, aimed at
widening the tax base using technology. The analytics tool will collect data not only from traditional
sources such as banks and financial institutions, but also from social media sites to match spending
patterns with income declarations. The tool will:
• e
nable the capture, linkage and analysis of structured and unstructured data for discovering
non-filers/under-reporting of income.
• u
se a wide range of analytics methods and technologies to understand what happened
(descriptive analytics), why it happened (diagnostic analytics), what will happen (predictive
analytics), and what is required to make it happen (prescriptive analytics).
• use a collaborative approach for information and knowledge sharing.
• pre-process information to free resources for effective analysis and investigatio

8 Tax Technology and Transformation

The Ministry of Corporate Affairs (MCA) and the Central Board
of Direct Taxes (CBDT)
entered into an agreement in September 20172 to share data and information on
companies. They will regularly share information such as tax returns, permanent account
number (PAN) and financial statements. They will also share financial statements filed by
corporate entities with the Registrar of Companies (RoC), returns of allotment of shares
and statement of financial transactions received from banks.

The Income Tax Department is working on a new system of

jurisdiction-free assessment
(pilot underway), where a taxpayer would be assessed by a taxman based in any part of the
country. This would further facilitate easier electronic communication between the Income
Tax department and taxpayers.

In July 2017, the CBDT announced, three categories of

assessments for compulsory selection of returns/cases requiring
scrutiny:
Limited Scrutiny (Computer Aided Scrutiny Selection), Complete Scrutiny (Computer Aided
Scrutiny Selection) and Compulsory Manual Scrutiny. Currently, the selection of cases for
scrutiny is computer-aided but rule-based3.

A Non-filers Monitoring System

has been rolled out for pilot implementation to prioritize action on non-filers with potential
tax liabilities. Data analysis will be carried out to identify non-filers about whom specific
information was available in the annual information return, Central Information Branch and
TDS/TCS returns database.

Expected future state in the short to medium term

• Sharper and more focused risk-based selection of cases for assessment and selection of cases of scrutiny
linked to the profile of taxpayer using business intelligence and without manual interference
• Real-time collaboration among various authorities because of the following:
• MoU between CBDT and RoC
• Mutual access and sharing of information between GSTN and IT Database
• Transformation in the quality of assessments
• Assessing officers to have access to pre-prepared dossiers and profile of taxpayers
• Benchmarking against peers
• Industry and area-based issues and qualitative questions such as effective tax rate
• Pre-prepared returns for individuals (partially pre-populated returns already available)
• New forms for reconciliation with GST, employees’ personal returns etc.
• Concept of “taxpayer as a customer” — measures to facilitate high taxpayers and seek feedback

1 “India’s ‘Project Insight’ could find tax evaders through holiday and shopping snaps,” TechWire Asia, http://techwireasia.com/2017/07/indias-project-insight-find-
tax-evaders-holiday-shopping-snaps/, accessed 27 Sept 2017
2 “MOU between the Ministry of Corporate Affairs and Central Board of Direct Taxes (CBDT) for Automatic and Regular Exchange of Information,” Press Information
Bureau, http://pib.nic.in/newsite/PrintRelease.aspx?relid=170769, accessed 5 Oct 2017
3 “CBDT Guidelines For Selection Of Cases For Scrutiny During FY 2017-18,” http://www.itatonline.org/info/cbdt-guidelines-for-selection-of-cases-for-scrutiny-
during-fy-2017-18/, accessed 5 Oct 2017

Tax Technology and Transformation 9

 Digital technologies are radically
altering business and operating
models. Businesses are continuously
looking to adopt newer technologies
such as Internet of Things (IOT),
robotic process automation (RPA),
blockchain and artificial intelligence
(AI) to stay competitive. These new
ways of doing business are also
resulting in newer tax laws, which deal
with borderless value creation and big
data.

1.2 Therefore, it has become necessary

New technologies driving for the tax function to be ready to deal

with this business transformation.
the adoption of digital
strategy by businesses

Digital has fundamentally transformed the way companies do business. Enabled by data and
technology, digital is a continuous form of disruption to business models, products, services and
experiences. It has radically changed the way people consume content, communicate and access
products and services.

Key trends impacting Tax functions

Digital tax Technology Transforming

01 02 03
administration wave tax policies

Tax authorities Emergence of Evolving legislative

going digital new technologies landscape
and businesses demanding
increased
adopting digital
transparency and
strategy compliances

10 Tax Technology and Transformation

 Organizations are experiencing the following changes due to
digital transformation:
• Augmented traditional business models, such as moving from selling products to
providing solutions
• Emergence of completely new types of business models with the implementation of
robotics, augmented learning and analytics
• Service delivery models growing borderless (multiple-location deliveries)

Businesses are adopting digital technologies to augment their operational models as these
emerging technologies bring in cost efficiencies and make companies move from a CapEx to an
OpEx model, for example, delivery services on cloud and offering pay-per-use model. The concept
of a sharing economy offers on-demand access to goods and services and brings in efficient
utilization of unused inventory of assets across industries. As the adoption of newer technologies
gains pace, enterprises are realizing the need to identify the business functions that may derive the
greatest value.

The EY-CIO Klub Enterprise IT Trends and Investments Survey 2017 suggests that 83% of CIOs
have shown the willingness to invest in new technologies as well as in the discovery of disruptive
technologies that hold immense value.4

While the 2016 EY-CIO Klub Enterprise IT Trends and Investments Survey indicated that CIOs were
leveraging social, mobile, analytics and cloud (SMAC) as a vehicle for enterprise transformation,
the survey responses from 2017 survey indicate the rise of a second wave of digital disruption.
Key trends such as the IOT, RPA, blockchain, AI and virtual reality (VR) are emerging, and it is
increasingly incumbent on businesses to adopt these disruptive technologies to yield better
business outcomes.

4 “Deconstructing disruption: Impact of future technologies, Enterprise IT trends and investments 2017,” EY Report, May 2017

Tax Technology and Transformation 11

 The second wave of digitization:

Cloud Mobile Advanced IoT Robotics AR/VR 3D Artificial

Computing analytics Printing Intelligence

The first was about creating point solutions. Now it is all about integration and connectivity…

The digital wave is disrupting many traditional business models

and therefore traditional tax functions will also need to change
because:
• tax functions will need deep understanding of such technologies and digital businesses in
their current processes.
• requirements of internal stakeholders and expectations from the tax function are
changing, as businesses are now running 24x7 — the expectation from the tax function
to contribute and partner with the business is the highest ever.
• there are new laws that deal with inherent difficulties in determining the jurisdiction in
which value creation occurs — because the value in digital can (and typically is) delivered
from multiple locations.

12 Tax Technology and Transformation

 From country-initiated legislations to
globally initiated frameworks, including
BEPS and the OECD’s common reporting
standards, there is an undeniable trajectory
of tax authorities asking for information
directly from financial systems rather than
waiting for the synthesized information from
the tax function through its traditional filing
process. This real-time, connected, digital
world is enabling governments to get closer
to the source of information, providing

1.3
them entry points and more direct access to
transactions, tax and finance data than ever
before.
Evolving tax landscape
demanding increased In India, tax administrators have introduced
a numbers of changes to tax filings that
transparency will increase transparency and reporting
requirements. Invoice-level filing in GST
is the most notable change; a number of
measures have been undertaken/in the
Globally, economies have witnessed prolonged periods of offing on the direct tax side as well.
timid economic growth and budget deficits. Authorities have
realized that traditional tax laws may not be very relevant in
the new business models of the digital world. The new business
models based on digital technologies and transactions in virtual
marketplaces would need a new tax management system.
Hence, governments are focusing on real-time electronic
transaction reporting to drive compliance and collection.
Governments are looking at digital ways to interact with companies so as to have complete
transparency of their tax, finance and operations data. They are relying on consumption taxes and
improved tax transparency by large global companies.

Tax authorities are harnessing the power of digital to improve tax administration, counter fraud
and facilitate taxpayer compliance. They are demanding near real-time data reporting and

Key trends impacting Tax functions

Digital tax Technology Transforming

01 02 03
administration wave tax policies

Tax authorities Emergence of Evolving legislative

going digital new technologies landscape
and businesses demanding
increased
adopting digital
transparency and
strategy compliances

Tax Technology and Transformation 13

 performing increasingly sophisticated analytics. Digital methods will help tax authorities drive
better enforcement, increase the tax base and plug leakages in both an intrusive and a non-
intrusive manner.

Consequently, tax administrations are quickly adapting to new strategies. For example, the various
reporting requirements under Base Erosion and Profit Shifting (BEPS) Action Plans have been
designed to drive transparency on the part of taxpayers. Information filed as part of three-tiered
transfer pricing (TP) documentation structure — i.e., (i) a master file, (ii) local files and (iii) country-
by-country reporting (CbCR) — is expected to be analyzed by tax administrators using sophisticated
data analytics tools. Likewise, the demand for increased transparency is also reflected in the
agendas and action plans of the G20, the European Union and the United Nations.

On 7 June 2017, 68 jurisdictions signed the Multilateral Convention to Implement Tax Treaty
Related Measures to Prevent BEPS (the MLI) during a signing ceremony hosted by the Organisation
for Economic Co-operation and Development (OECD). Eight other jurisdictions expressed their
intent to sign the MLI in the near future.5

Until 2016, 84 countries had signed the Multilateral Competent Authority Agreement for
Automatic Exchange of Information (AEOI), with 101 countries committing to it. From 2017
onward, 54 countries will start exchanging information automatically. From 2018 onward, another
47 countries are expected to start exchanging information automatically.6

Sharing of tax-related information among countries using digital platforms has become the norm.
India has also been expanding its treaty network by signing new tax treaties and Tax Information
Exchange Agreements (TIEAs) with many jurisdictions to facilitate the exchange of information and
to bring transparency.

5 EY report,
http://www.ey.com/Publication/vwLUAssets/68_jurisdictions_sign_the_Multilateral_Convention_to_Implement_Tax_Treaty_Related_
Measures_to_Prevent_BEPS/$FILE/2017G_03676-171Gbl_68%20jurisdictions%20sign%20the%20Multilateral%20Convention%20
agreement%20to%20Prevent%20BEPS.pdf, accessed 29 Sept 2017
6 EY report,
http://www.ey.com/Publication/vwLUAssets/CBDT_Achievements/$FILE/CBDT_Achievements.pdf, accessed 29 Sept 2017

14 Tax Technology and Transformation

The Indian Tax Authorities
have introduced a numbers of changes to tax filings which will increase transparency and reporting requirements

1. Monthly GST returns with invoice-level information details

2. Reconciliation of GST returns with audited financial statements and potentially

in the future with filings across tax filings, e.g., income tax

3. Increasing levels of disclosures in income tax filing, e.g., disclosure of personal

assets, comprehensive filing for cross-border remittances and Income
Computation Disclosure Standards (ICDS)

4. Mandatory linking of Aadhaar and PAN and quoting of Aadhaar on particular

transactions

5. Annual information return (AIR) replaced by statement of financial transactions

(SFT) and expansion in the scope to include details of high-value cash and other
transactions such as buybacks by listed companies, and purchase and sale of
immovable property

6. Under BEPS section plan, requirement of three-tiered TP documentation, i.e.,

(i) a master file, (ii) local files and (iii) CbCR

7. Expansion in the scope of online filing, e.g., online filing of appeals

Authorities are using analytics on the significant volume of data being

captured to identify potential non-filers who carried out high-value
transactions but did not file a return of income.
• T
he CBDT had identified 6,754,000 potential non-filers with potential tax liabilities for assessment
year 2015-16.7

• T
he CBDT publishes names of willful tax defaulters on public domain for the purpose of tax recovery.
In June 2016, the CBDT further suggested that after a due notice, the PAN of tax defaulters should
be blocked to prevent them from filing their tax returns and availing the benefit of carry forward of
business loss and losses under other heads where filing of tax returns is mandatory.8

7 “Income Tax Department Identifies 67.54 lakh Potential Non-Filers for F.Y. 2014-15,” Press Information Bureau, http://pib.nic.in/
newsite/PrintRelease.aspx?relid=155757, accessed 27 Sept 2017
8 “CBDT’s Central Action Plan 2016-17,” http://www.taxsutra.com/sites/taxsutra.com/files/webform/Central%20action%20plan%20
2016.pdf, accessed 27 Sept 2017

Tax Technology and Transformation 15

 The EY TaxTech India Survey 2016 clearly
highlighted the gap in the current and the
desired state of technology implementation
in tax functions. Additionally, organizations
today are looking at tax functions to operate
at a more strategic level to provide business
insights and help in making informed
business decisions, apart from being able
to cope up with increasing governance by

2
tax/authorities. Having a tax technology
strategy is a must for organizations to thrive
in the digital world.

Are current tax

functions in
corporates fit for
digital world?
According to the EY TaxTech India Survey 20169:

45% 24% 90%

45% of organizations currently 24% use tax software with no Over 90% voted that their tax
use basic infrastructure and integration with ERP systems reporting and compliance system
technology for tax accounting is not automated at all or only
and consolidation partly automated

This clearly shows the gap between the existing and the desired state of use of technology.
Currently, the use of basic software such as Excel or standalone non-integrated tax software is
prevalent. Additionally, the tax departments face a number of challenges due to lack of integration
with other departments and manual ways of working.

9 “Get set for the tax function of the “future” EY TaxTech Survey 2016,” EY report, November 2016

16 Tax Technology and Transformation

Traditional tax department challenges:
• Difficulty managing and locating final versions of critical documents
70%
• Inadequate information-sharing across tax functions and geographic locations voted that more than
half the time is spent
• Redundant and email-intensive data-collection methods
on re-working the data
• Excess time and effort spent on administration and manual tracking
received from finance
• Dealing with multiple data sources and spending valuable time translating them to a common to make it useful for
structure or data definition tax purposes.
• Lack of visibility and oversight of deadlines, deliverable status and resource allocation

The traditional methods used in tax functions may not be capable of answering many questions
raised by tax authorities’ systems, hence the need for robust ERP systems, tools for consolidation,
automation and data analytics.

One of the important to-dos for the tax functions is to have an integrated tax data source. As
data is the foundation of accurate and timely reporting, being able to collect and manage that data
is critical to timely and accurate compliance. Since tax-related data resides everywhere across
the organization, from operations to marketing to finance departments, it is important to have a
seamless, consolidated and integrated view of that data. This will prevent a siloed approach and
facilitate the availability of 360-degree data across departments at all times.

Some of the other tax areas where technology can be

introduced are as follows:
• Document management
• Litigation management
• Management of income and reporting
• Management and group reports
• Data collection
• Process controls and workflow in the tax function
• Data support for TP compliances

7 “Income Tax Department Identifies 67.54 lakh Potential Non-Filers for F.Y. 2014-15,” Press Information Bureau, http://pib.nic.in/
newsite/PrintRelease.aspx?relid=155757, accessed 27 Sept 2017
8 “CBDT’s Central Action Plan 2016-17,” http://www.taxsutra.com/sites/taxsutra.com/files/webform/Central%20action%20plan%20
2016.pdf, accessed 27 Sept 2017

Tax Technology and Transformation 17

 Tax is being viewed by the top management as a critical input
to take informed decisions and to deliver increased value to the 84%
business voted that technology
is the most important
The ability to factor in precise tax cost estimates in business decision making is a competitive factor in improving the
advantage. Effective communication of the tax function to C-suite executives is important effectiveness of the tax
considering the high reputational risk organizations may face on account of tax litigation or social function and
media-initiated challenges. Now, more often than before, tax finds an important place in the
agenda of board meetings. Today, leadership teams are keen to participate in decision making to
minimize tax risks and to invest in making their tax functions more efficient and robust.

The focus is on making tax functions operate at a more strategic level to provide business insights,
over 90%
acknowledged role
but without significant resource addition. Hence, organizations look at technology to improve their of technology as an
business decision making, keeping in view their cost and margins pressures. enabler in various tax
areas.
Appropriate dashboards, based on contemporary data and sound dynamic algorithms, need to be
developed in organizations to enable meaningful communication from their tax functions to their
boards. It is clear that the traditional role of the tax function in managing local compliance-related
matters, submitting data in a tax audit etc. has changed substantially in the evolving business
scenario. To optimize decisions, up-to-date forecasting and precision are needed.

It is critical that tax has a “seat at the table” in discussions on buying, implementing and
configuring new technology systems. The tax function needs to bring senior management,
including the CFO and CIO, on board to treat tax technology as a priority.

Benefits of a tax technology strategy

• Allows tax professionals to better focus their resources on analyzing data and creating strategies to
generate revenue and cut costs, rather than spending valuable time gathering data
• E
nables the tax function to more effectively evaluate current tax processes, identify areas for
improvement, and leverage the most supportive technologies at the right time
• C
an help a company spread out costs associated with investments in licensing and implementation
of technology
• Reduces risks, thereby protecting the reputation of the firm

18 Tax Technology and Transformation

 With the implementation of tax technology
strategy, companies may aim to improve
data quality through maximized automation
of data from multiple source systems and
improved data analysis. The idea will also
be to have improved collaboration, process
control and visibility across all taxes through
workflow and information management. The
end outcome of such a strategy might bring

3
forth to the management clear, concise
and instant dashboard reporting to support
business decisions as well as improved
efficiency and audit-ready documentation

Future state of the for audit defense.

tax function
As discussed in the previous section, in-house tax functions have relatively more manual processes, are
heavily reliant on spreadsheets and are generally under-invested in technology. The volume of reporting
requirements and the ever-increasing complexity of the responsibility of tax demand a more innovative
approach leveraging tax technology.

Digital tax technology: A view on the technology ecosystem of today

The current ERP systems used by companies have limited tax functionalities, hence a lot of work is done by
tax professionals using spreadsheets and version controls of changing financial statements.

The current model involves significant manual effort with limited controls or auditability. There are inherent
risks around inconsistencies, tailored calculations, manipulation of data and data versioning. Additionally,
there are undefined inputs and outputs and unclear roles and responsibilities.

Tax data Tax data Tax data Tax data

capture collating analysis & reporting visualisation

Tax Engine Analytics &

Tax Data Reporting
Repository Solution
Tax dashboard platform
Tablet Internet

Tax Dashboard
Retention Transfer Direct Indirect
& Archiving pricing tax tax
ERP Transfer Direct Tax
Controversy Compliance Entity
Pricing Compliance
management management management
Indirect Tax eFiling
CbCR
Tax Compliance
Source Provision Industry/ Statutory
Systems Solution Regulatory Accounts

Consolidation
system
Tax governance, content management
and collaboration

Tax Technology and Transformation 19

 Digital tax technology: What a future-proof tax technology
stack will look like
Companies can use integrated ERP systems to capture tax-related data from various departments
and collate it at a single source using automated tools. Improved and efficient consolidation of data
will minimize the risk and inefficiencies associated with the use of spreadsheets.

With the use of cloud-based applications, data can be stored and accessed anytime, anywhere.
Enterprises can adopt analytics solutions for real-time informed decision making and embrace
predictive analytics to gain actionable insights from data generated through internal business
processes as well as external market sources.

Companies might be able to standardize and improve visibility throughout the end-to-end
tax lifecycle process and create a better audit trail between source data and consolidated
tax disclosures. Additionally, there can be appropriate controls in place and clear roles and
responsibilities created. An integrated view of tax data may help optimize tax accounting process
and maximize the time spent on data analysis and review.

Tax data Tax data On Premise Applications Tax data Tax data
capture collation analysis & reporting visualisation
Consolidation TP Doc

Tax Tax Provision CBCR

Engine Group Tax
Archiving Excise Tax Dashboard

Transfer Direct
ERP Cloud Applications pricing tax
Controversy Compliance
management management SSC
Source Indirect Direct Stat
Systems Compliance Compliance Accounts VAT / GST Duties
Tax Data
Lake Cash Risk Chat
Analytics Analytics Bot
PDF, Excel,
Email
Others
Continuous Monitoring
Real-Time Data Access

Third Party
Content

Tax governance, content management and collaboration

20 Tax Technology and Transformation

This new model might include these features:

RPA to drive Meeting the Immediate data Instant and Flexible self-
efficient data e-assess transparency, accurate service reporting,
flow across all tax and e-audit including real- dashboard with routine query
processes requirements time reporting management handling (chat
of local tax reporting bot)
authorities

Tax Technology and Transformation 21

 As companies move toward digital adoption
in their tax functions, there are various
technology options for them to choose
from. Correct need assessment and
identification of the desired outcomes can
help them select the best possible solution.
Organizations need to not only correctly
evaluate which technology to deploy
but also make sure that the technology
is flexible to the changing regulatory

4
environment. Newer technologies such as
RPA and analytics have found many use
cases in tax, while technologies such as
blockchain and AI have many emerging

Tax Technology and possibilities.

Transformation Use of technology will fast-forward the

transformation of the tax function,
thereby helping it keep pace with business
expectations, create more efficiencies and
There is no “one size fits all” for a tax technology strategy. Across
manage risks better.
all the stages of the tax life cycle – data capture, collection,
analysis and governance – there are multiple technology solutions Companies can also decide to manage this
providing off-the-shelf solutions and platforms. Companies change in-house or outsource to a managed
can choose from various options for automation, including services provider.
customized solutions such as ERP system sensitization, robotics
and off-the-shelf applications. There are several tools available
that help organizations streamline their internal processes and
generate reports as per tax documentation requirements. Such
tools are also compatible with existing ERP systems. Different
technology solutions can be used to meet the shifting paradigms
of tax reporting and tax transparency requirements imposed
under both the Indian law and the global tax landscape. The
new digital tax function will need to provide real-time global tax
management, data access, analytics and government data feeds.

data reconciliation engine can reconcile data from different sources and to increase the
• A
accuracy and reliability of the data being submitted to the authorities.
workflow and team collaboration application can be implemented to increase the efficiency
• A
of the tax team, along with making it easy to store and retrieve tax data when required even
after several years.
• An entity management system with built-in global tax and regulatory compliances that
provides alerts, reminders and escalations can go a long way in addressing compliance
monitoring.
• For companies operating in multiple jurisdictions, a tax notice and tax controversy
management application will help ensure timely response to authorities

Tax processes that involve high volume, repetitive tasks and recurring deadlines are ideal for RPA.
Some of the automation “hot spots” for tax include e-filing with relevant tax authorities, personal
tax compliances, TDS processes, GST compliances and reconciliations, printing to PDFs/audit-ready
file creation and TP economic analysis.

22 Tax Technology and Transformation

 Processes characteristics to consider for RPA

High, repetitive High manual

transaction volume data entry
Enterprise
resource
Multiple systems Multiple tasks to planning
to perform a task perform the system
process
Offline ledger BOT BOT BOT

Data entry and User interface email

validation navigation
Consolidate Populate XML and
Copy and paste Database data, tax forms e-file tax
operations Automated and worksheets return
formatting and reconcile
systems
Login and logout of
applications/emailing

Activities typically performed by RPA

Case study

A large India-headquartered conglomerate had a significant number of cross-border

remittances. The company implemented RPA technology to automate the process of
preparation as well as filing of prescribed forms (Form 15CA/CB), which included automated
review by the tax team, CA certificate filing and uploading on the required website. This
reduced its resource requirement from six people to two. These two resources now do
technical review of the forms from a tax risk/opportunity assessment perspective.

Data analytics is becoming a valuable enterprise asset, improving visibility and facilitating better-
informed business decisions. There is need to have an integrated view of a comprehensive end-to-
end analytics program in the tax compliance process: from data collection, validation and testing,
to analytics reports.

• T
ax departments can implement analytics around GST, financial reporting and TP (TP
benchmarking) to detect risk, reduce controversy and eliminate unwarranted costs in a variety
of areas.
• Companies can also use data analytics to test all tax-related data to detect outliers and identify
trends to spot areas that may require further investigation. Other areas would be to analyze
related party transactions, ETR analysis, book-to-tax differences and TDS rates.

Tax Technology and Transformation 23

 Case study

A large conglomerate with a significant asset base primarily relied on the classification of fixed assets used for
statutory reporting purposes for income tax determination and reporting. Due to differences in the classification
and definitions for income tax and statutory reporting, the company was not claiming optimal tax depreciation; the
significant volume of data also posed a challenge. This problem was solved using text-mining technique, which helped
to reduce the work of months to days.
Cognitive computing and AI could be even more powerful in this area, making it easier for tax functions to predict where
problems might happen, for example, tax rate determination and responding to tax queries of business personnel (using
chatbots to reply to routine tax queries). This is an evolving field and experiments are underway — it would be interesting to
see what comes out of it.
Blockchain technology has the ability to streamline transfer of any value (data, assets, currency and information) in a
secure and cost-efficient way and in real time. Blockchain administers transactions globally without centralized oversight.
Blockchain has the potential to revolutionize transactions across industries. This is especially true of transactions that
require multiple authentications and verifications, contracts and any type of record verification. Hence, this technology
could be applied to transactional taxes, such as VAT and TP. This technology also makes it easier to detect fraud and errors
by providing clear and transparent information about transactions. In the future, Governments and taxpayers can use
blockchain to exchange information, and the requirements to file returns can be done away with.

Fast emerging managed tax services model

Deploying technology for tax takes investment (cost and effort) and specialization. Further, technology needs to keep
evolving as the tax law and administration evolves. Therefore, there is a level of risk associated for companies investing in
tax technology.
Given the specialized skills required to deploy tax technology coupled with the occasional discomfort around making
investments in tax technology (given the associated risks), companies are increasingly looking to professional firms to
provide “managed services.”
Managed services involve companies outsourcing their entire tax function to professional firms. While some compliances,
litigation, pieces of advice etc. are often outsourced to professional firms, the data management backbone (i.e., collating,
curating and reconciling data) has been largely done by companies in-house, often consuming a significant portion of the
in-house tax function’s time. Piecemeal outsourcing of certain elements of compliance alone leads to even more time spent
on co-ordination between parties, connecting tax with stakeholders, data curation etc. A large portion of tax technology
touches upon these data management and workflow elements.
Such outsourcing can also allow companies to leverage on the professional firm’s specialized knowledge and investment in
people, process and technology without making such specific investments themselves. This also gives companies the time
to focus on their core competencies while tax is managed by professional firms.
Some key advantages and outcomes that companies look for from a “managed services” model are risk managed tax
compliance, access to quality resources, scalability of the tax function and reduced people dependency. While these
advantages do exist, the needs of one company would be quite different from those of another; therefore, it is important
that companies introspect on their specific needs to determine the right outsourcing balance.

24 Tax Technology and Transformation

 With the implementation of tax technology
strategy, companies may aim to improve
data quality through maximized automation
of data from multiple source systems and
improved data analysis. The idea will also
be to have improved collaboration, process
control and visibility across all taxes through
workflow and information management. The
end outcome of such a strategy might bring

5
forth to the management clear, concise
and instant dashboard reporting to support
business decisions as well as improved
efficiency and audit-ready documentation

Concluding for audit defense.

thoughts: Is tax
technology a
necessity or an
opportunity?
While tax technology is a necessity for organizations to thrive in the new digital world, it can also
become an opportunity for early movers who embrace technology into their tax functions to add
more value to business and take informed decisions for the future.

Traditionally, tax functions have functioned in silos and have been technology-deprived. However,
the emergence of new technologies, digitization of the working world, governments going digital
and new transparency requirements are forcing organizations to take immediate actions to
respond to this changing landscape and harness the opportunity to make tax functions more
strategic and responsive to business needs. Lack of preparation, visibility and analytic capabilities
across data sources can leave companies open to the risk of real-time audits, increased tax
penalties, refund delays and reputational risk.

Future tax functions would need to have elements of both

technical and professional skills:
• Technology needs to be adopted to improve how tax is integrated with finance and other
functions to have seamless data extraction, using tax-specific tools and solutions for
automation and analytics.
• Every tax professional needs to have analytical capabilities, at all levels, to help the business
take informed decisions. This might require organizations to rethink their organizational designs
to suit the next-gen workforce.

Tax Technology and Transformation 25

 The professional element
Analysis, insights and advice from data and advanced analytics

Executive Management Semi- Operationalized

insight: insight: operationalized insight:
risk and operational insight: proactive predictive
opportunity analysis assessment analysis
assessment

Data Perform Revise and Automated Integrated

extraction testing amend filing and analytics
calculation compliance

Technical solution
Advanced technologies and a proven platform

Redefining skills and capabilities

required to drive value
This new tax technology paradigm shift will make it important for senior in-house tax employees to be proficient
in the use of technology tools and platforms. Digital natives will be ahead of the game and those with specialists
skills will be much in demand. Tax teams will likely include technology specialists, with programming skills,
and specialists in data analytics. Team members will need to understand new tools, interface with reporting
technology and interpret reports and analysis to be able to answer questions that arise from authorities.

Developing a mobile and digitally skilled workforce requires an organization-wide redesign, change management
and HR transformation in order to embed people strategy with business outcomes.

Skills of today Skills of tomorrow

current workforce workforce of the future

Workforce impacts
• Multiple generations Data Excel
analytics
• New workforce models (digital,
Technical Analytical contingent, etc.)
skills thinking • New skills and competencies Business Process
diplomats automation

Artificial Lean
Business impacts intelligence Six Sigma
• New services (increase in planning and
Team work and and consulting) blockchain
communication
• New business models and pricing Innovative Negotiation
strategies
• New technology

Foundation: tax domain knowledge and expertise

26 Tax Technology and Transformation

How to start a tax
technology and
transformation journey:
To succeed in their tax technology strategy, organizations need to do a thorough assessment of
the current processes followed during the formulation and collection of data, conduct a candid
review of their automation and analytics capability maturity and create a plan for implementing
appropriate IT-enabled processes.

Make it a strategic imperative:

The vision needs to be embedded as part of the overall organization’s strategy, with backing from
the leadership. This can be done in a number of ways, such as setting up of separate centers of
excellence, specific alignments with business units or a distinct centralized unit. The structure may
gradually evolve as per business needs.

Strengthen using a governance model:

Trust in data accuracy and security can be developed by setting up a governance council and
defining enterprise-wide data governance standards. The council typically should comprise
business heads, tax leaders, and IT and analytics leaders.

Identify what value technology will create and review periodically:

There should be clarity in the role technology can play in value creation for the organization.
Development of formal key performance indicators and their period assessments will ensure that
the efforts are focused in the right direction and deliver tangible results.

Train your talent:

Appropriate skill sets are required to gather and analyze data, and create analytics-based business
insights. Hence, there is a need to organize training for the business as well as tax teams to help
them be better consumers of analytics.

The key challenge for most organizations is to drive a cohesive change touching people,
systems and processes without business disruption. One of the approaches for companies to
drive this digital agenda is to go through a 2*4 gradual immersion journey:

2 days of 2 months for 2 years of tax

2 hours
workshop developing transformation
of digital
for digital the digital and change
awareness
immersion strategy management

Tax Technology and Transformation 27

 Questions to ponder upon

What is my “wish list” of outcomes I want to achieve with my tax

function? What are the impediments in achieving them?

What are the expectations of the business from my tax function?

What are the key drivers I need to focus on to add value?

Where are my team and I spending all our time? Is there some
room for efficiency?

How much time do my team and I spend on coordination, data

management etc.?

Am I leveraging technology enough to meet my tax needs?

Is there need to re-visit my tax processes and check for areas that
can be done better with technology?

What kind of insights do I need to play my role better?

Are there any internal data/information points I am not getting

today that can help me make decisions better?

Should I take on the task of building and maintaining an efficient

tax function myself or should I pass it on to tax function outsource
service providers?

28 Tax Technology and Transformation

Notes

Tax Technology and Transformation 29

EY Tax Technology and Transformation
(TTT) India team
In order to help organizations redefine their tax functions and drive transformation for the
digital age, EY has formed Tax Technology and Transformation (TTT), a dedicated group of
more than 1,000 tax technology and performance improvement professionals in member
firms across the globe. Our TTT professionals will be happy to provide you with more
information and guidance around these topics.

Ajay Kumar
Partner, Tax Technology and Transformation, EY India
ajay9.kumar@in.ey.com | +911246714220 | New Delhi

Garima Pande
Partner, Tax Technology and Transformation, EY India
garima.pande@in.ey.com | +911246714943 | New Delhi

Jitesh Bansal
Partner, Tax Technology and Transformation, EY India
jitesh.bansal@in.ey.com | +918067275303 | Bengaluru

Rahul Patni
Partner, Tax Technology and Transformation, EY India
rahul.patni@ey.com | +912261921544 | Mumbai

Sameer Prakash
Partner, Tax Technology and Transformation, EY India
sameer.prakash@in.ey.com | +911244432210 | New Delhi

EY report development team:

Srirupa Saxena
Jayesh Bavle
Jerin Verghese
Neha Goel
Pushpanjali Singh

30 Tax Technology and Transformation

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Tax Technology and Transformation 31

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