Transparency is king: How the tax compliance culture is evolving in the data analytics era

Posted by Beth Mueller on April 13, 2017

Talk about a full-court press. Tax authorities, tax fairness activists, and to some extent, a discontented public have driven tax law changes and new standards for financial reporting for tax purposes in the years since the 2008 financial crisis. They seek greater certainty that companies are paying their fair share of taxes. A new tax compliance culture—on both sides of the tax reporting equation—is the result, and data and analytics are at the heart of that change.

As we explain in our 2017 Tax Analytics Trends report, tax authorities now have the ability to glean insights from the increasing amount of financial and tax data that taxpayers are required to provide. Two initiatives by the Organization for Economic Cooperation and Development (OECD)—one that’s been around awhile and another relatively recent—are paving the way. The Standard Audit File for Tax (SAF-T) is an international standard for transmitting taxpayer accounting data to tax authorities. It is especially useful for indirect tax compliance, such as VAT, GST, and US sales taxes. Such submissions provide useful data to which tax authorities can apply data analytics. A growing number of countries are requiring use of SAF-T.

The other initiative is the OECD’s Base Erosion and Profit-Shifting project, the final guidance for which OECD issued in October 2015. That guidance, in part, urges tax authorities around the world to require multinational businesses to provide Country-by-Country Reporting (CbCR) of their transfer pricing-related data. Such requirements induce transparency through information sharing among countries and, like SAF-T, are highly data driven.

The result? Between evolving reporting standards and increased data sharing, the veil may be lifting on tax compliance. This might seem to put corporations and individuals at a disadvantage and, perhaps, tip the scales in favor of tax authorities—but not necessarily so. Forward-thinking taxpayers—both corporate and individual—can get in front of this trend by applying their own data analytics capabilities to analyze how their tax data stands up to scrutiny before regulators may review it. As an added benefit, if they apply those tax analytics capabilities appropriately, they may be able to generate insights leading to improvements in tax department efficiency and tax planning across the enterprise.

What do you think? Is your organization’s compliance culture changing in the face of these forces? I’d like to hear from you.


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