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Fiona Bond Journalist specialising business, fi nance and personal fi nance, she is the former commodities editor at Interactive Investor. Tim Cooper Award-winning fi nancial journalist, he has written for publications including The Spectator, London Evening Standard, Guardian Weekly and Weekly Telegraph. Ian Fraser Financial journalist and author of Shredded: Inside RBS, The Bank That Broke Britain, he was business editor at The Sunday Times Scotland. Clare Gascoigne Formerly on the staff of the Financial Times, she is now a journalist specialising in City and financial features. Charles Orton-Jones Award-winning journalist, he was editor-at-large of LondonlovesBusiness.com and editor of EuroBusiness magazine. Sam Shaw Freelance journalist, she has worked with Asset.tv, Financial Times Business, Investment Week and Money Marketing. Distributed in Publishing manager Rob Birch Digital content executive Fran Cassidy Head of production Justyna O'Connell Design Joanna Bird Grant Chapman Sara Gelfgren Kellie Jerrard Harry Lewis-Irlam Celina Lucey Colm McDermott Samuele Motta Head of design Tim Whitlock Managing editor Benjamin Chiou Associate editor Peter Archer Published in association with Although this publication is funded through advertising and sponsorship, all editorial is without bias and sponsored features are clearly labelled. For an upcoming schedule, partnership inquiries or feedback, please call +44 (0)20 8616 7400 or e-mail info@raconteur.net. Raconteur is a leading publisher of special-interest content and research. Its pub- lications and articles cover a wide range of topics, including business, fi nance, sustainability, healthcare, lifestyle and technology. Raconteur special reports are published exclu- sively in The Times and The Sunday Times as well as online at raconteur.net. The information contained in this publication has been obtained from sources the Proprietors believe to be correct. However, no legal liability can be accepted for any errors. No part of this publication may be reproduced with- out the prior consent of the Publisher. © Raconteur Media /tax-accounting-2019 @raconteur /raconteur.net @raconteur_london raconteur.net Contributors I N D E P E N D E N T P U B L I C A T I O N B Y 2 3 / 0 6 / 2 0 1 9 # 0 6 0 0 R A C O N T E U R . N E T E X P L O R I N G T H E D I G I T A L T A X L A N D S C A P E T R A N S F O R M I N G T H E T A X R E T U R N T H E T R U E C O S T O F B E I N G A R E S P O N S I B L E T A X P A Y E R How prepared are UK companies for transformational regulation? Five nations shaking up tax return rules Exploring the reputational risk for companies minimising tax liabilities as much as possible 03 05 07 Overcoming challenges of digital tax reform 'Making Tax Digital' will transform corporate accounting for the majority of small businesses, but the impact of digitalisation on large enterprises in particular presents with some major hurdles M A K I N G T A X D I G I T A L while the European Union has declared war on profit-shifting with its anti-ta x avoidance directive. But the change is also driving an increase in complexity; more than two years ago, the combined weight of the Chartered Institute of Ta xation (CIOT), the Institute for Government and the Institute for Fiscal Studies called for a commitment to a single principal annual fiscal event in a bid to cut down on the proliferation of UK Budget measures. " This is a rea l burden on business," says A nita Monteith, technica l lead and senior policy adviser in the ta x faculty at the Institute of Char tered Accountants in England and Wa les (ICA EW). "It is about changing the way business record-keep- ing happens. We're not against MTD or digita l accounting systems; it's the right way to go. But businesses are a lready under pressure because of issues such as Brexit; they should be able to choose when the time is right." The time frame is a key component of the pain felt by larger businesses. T y pi- ca lly a multinationa l business will plan its IT over a period of, say, f ive years, but ta x jurisdictions are bringing in reforms that demand change within one or two years. Companies are hav- ing to adjust within a much shor ter cycle, which inevitably affects cor- porate investment, or asking the ta x depar tment to do more, yet with the same resources, at least in the shor t term. Either way, digita lisation is soa k- ing up a lot of company resources. But the issue is about more than the filing of ta x returns, according to Dee Houchen, senior marketing director at software company Oracle. "That is only a tiny proportion of the liability a com- pany has," she says. "Digitalisation is about having the confidence that the data behind the submission is correct and transparent, and can support the fil- ing you have made. And ta x is the func- tion that has the largest data collection behind it." he future is digital. Whatever issues ta x professionals have to wrestle with, digitalisation is here to stay. Making Ta x Digital (MTD), the UK gov- ernment's initiative to transform the ta x system, has been causing headaches for smaller and medium-sized companies throughout Britain. But how does the pro- gramme play out for larger organisations? And how are ta x jurisdictions other than the UK changing the interaction between company and government? "The digitalisation of the tax system has been a long time coming and this will be a spur to investment in digitalisation," says Annie Gascoyne, director of economic pol- icy at the Confederation of British Indus- try. "There are some sound reasons for companies to do that. But this is a legal necessity driven by regulatory change." Given that no investment in regulatory change will help boost corporate profi ta- bility, some companies are being dragged unwillingly into digitalisation. Larger companies with sophisticated systems and more employees may not be suff ering in the same way as their smaller counter- parts, which are typically having to engage with a whole new process of working. But systems or staff are not enough to stop the pain when you are working across national borders. "A comment that comes up time and time again is the pace of change, not only in the UK, but around the world," says Ms Gascoyne. The ta x industry is changing faster than ever before. Change is not solely the pre- serve of the UK; reform has been under- way in the United States for some time, Of course, in one sense companies are simply having to do what they have always done; coming up with the right numbers is nothing new. But, says Ms Houchen, tech- nology has changed expectations of the speed of the process. "We are still doing the same thing we have always done, but now electronically. That change in technology creates the expecta- tion that we can do it more quickly or we are being asked to prove it more quickly. A lot of systems haven't caught up with that and companies are realising they don't have the ability or a proper process to prove the num- bers," she says. Moreover, expectations are constantly rising. Ms Houchen points out: "What we thought wasn't possible a few years ago is now possible. We will end up fi ling more frequently; accounts used to be done with a monthly close, but now work on a continu- ous close. Why should tax be any diff erent?" MTD in the UK is currently only com- pulsory for VAT, but David Westgate of the CIOT says organisations should be prepar- ing for the next hurdle. "Corporate ta x is coming in 2021; it's crucial to be invest- ing now in the software and skills you will need," he says. Unfortunately both can be difficult to find. There is a clear skills shortage in the industry; even technology companies are struggling to find the right people, says Ms Gascoyne. But multinationals trying to stitch together a patchwork of systems across a network of countries, each with different demands, face a heav y burden. "There's no silver bullet out there," says Jun Miyake, principal in ta x technology at Ryan. "There's so much going on it's dif- ficult for the software to keep up and the pace of change is such that it is preventing software companies from finding solu- tions that work for everyone." Third-party information suppliers and software vendors are "crucial to building a system that is effi cient and provides good value", according to the ICAEW's report Digitalisation of Tax: International Perspec- tives. There are some signs that countries are groping towards a standardisation for the electronic exchange of information. But even where standards have been developed, such as the international SAF-T or Standard Audit File for Ta x, which was defined by the Organisation for Economic Co-operation and Develop- ment, they are implemented differently by different countries. One ray of light, despite the need for country-by-country reporting, is the global push towards digitalisation may bring a new need for centralisation, with shared service centres that can serve mul- tiple jurisdictions and ensure filing is consistent across all parts of the company. Ultimately, companies may be able to cen- tralise the ta x function in one location, staffed with a smaller number of high- value employees whose expertise lies as much in data analytics as ta x. For many multinationals, however, such a conclusion is a long way off. "In the longer term, digitalisation will create efficiencies," Mr Westgate concludes. "But there is still short-term pain." Clare Gascoigne T UK TA X G AP HAS S TAYED S T UBBORNLY HIGH Difference between the amount of tax that should be paid to HMRC and what is actually paid In the longer term, digitalisation will create efficiencies. But there is still short-term pain FUTURE OF TAX & ACCOUNTING 7.3 (%) 6.6 6.1 6.5 6.1 5.9 5.6 6.3 6.6 6 5.7 5.7 26 27 28 29 30 31 32 33 34 Share of total tax liabilities (%) Tax gap (£bn) 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 TOP RE ASONS FOR THE TA X G AP UK taxpayer behaviours behind unpaid tax in 2016-17; value and share of total unpaid tax Failure to take reasonable care Criminal activity Evasion 18% 16% 16% £5.9bn £5.4bn £5.3bn HMRC 2018 35 Commissioning editor Georgie Cauthery Joe McGrath Journalist and editorial director of Rhotic Media, he has written for Bloomberg, Financial Times and Dow Jones, and is the former asset management editor at Financial News. T R A N S F O R M I N G T H E T A X R E T U R N T H E T R U E C O S T O F B E I N G A R E S P O N S I B L E T A X P A Y E R Five nations shaking up tax return rules Exploring the reputational risk for companies minimising tax liabilities as much as possible 05 07 Overcoming challenges of digital tax reform 'Making Tax Digital' will transform corporate accounting for the majority of small businesses, but the impact of digitalisation on large enterprises in particular presents with some major hurdles while the European Union has declared war on profit-shifting with its anti-ta x But the change is also driving an increase in complexity; more than two years ago, the combined weight of the Chartered Institute of Ta xation (CIOT), the Institute for Government and the Institute for Fiscal Studies called for a commitment to a single principal annual fiscal event in a bid to cut down on the proliferation of UK Budget measures. " This is a rea l burden on business," says A nita Monteith, technica l lead and senior policy adviser in the ta x faculty at the Institute of Char tered Accountants the Institute of Char tered Accountants in England and Wa les (ICA EW). in England and Wa les (ICA EW). "It is about changing the way "It is about changing the way business record-keep- ing happens. We're not ing happens. We're not against MTD or digita l against MTD or digita l accounting systems; issues such as Brexit; they should be able term. Either way, digita lisation is soa k- Of course, in one sense companies are

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