Taxing Technology has been saved
Technology has forever changed the world we live in. We are online all day long. Our phones and social media footprint have become reflections of our personalities, our interests, and our identities. Business has more data than it knows what do with. The amount of data we generate every day is astounding. Over the last two years alone 90% of the data in the world was generated.
Tax professionals and Revenue feel this too. We see evidence of Revenue continuing to invest in technology and data analytics. Buried within the budget documents issued last year was a report from the Revenue Commissioners “Evaluation of Budget 2017 Compliance Measures”. Within that contained a very interesting set of numbers on the estimated yield from ICT enhancements with Revenue.
Of the €492 million yielded from Revenue audits in 2017, they noted that “most, if not all, of these interventions make at least some use of data or analytics. An assessment of the projects undertaken in 2017 suggests that €164 million yield arose from projects with very direct usage of, or heavily influenced by, ICT systems and data analytics or advanced analytics”. Indeed in last year’s budget, Revenue estimated a yield of €50 million from PAYE modernisation alone. The trend towards technology is clear to see.
Tax has never had so much attention, whether it is from the CFO, the Board, customers, Governments or other stakeholders. Tax authority audits are starting to ask for large amounts of data. This requires management to look at all data in detail in advance of the tax authority receiving it, resulting in a significant increase on management time invested.
Tax departments today often face significant resource constraints, requiring an increased focus on efficiency and effective use of technology to streamline their compliance and reporting processes. Overreliance on spreadsheets, outdated technology, and a lack of integration between tax and finance systems can hamper a tax departments’ ability to obtain and analyse the data needed for timely and accurate tax compliance and reporting.
Technology has impacted on a grander scale too. It has transformed business models, and tax laws have been under intense scrutiny particularly within the traditional technology sector.
The efforts at OECD level to examine how we tax technology is at one level understandable, but arguably flawed and, at best, complex. Because my view is that nearly every business is a technology business, or if it’s not now, it will be disrupted by it. It is not possible to ring-fence “tech companies” like they are a standalone thing. We see the convergence and influence of technology across all sectors, creating new economies like Fintech, Medtech, Agritech. Blockchain, a deep technology that was initially poorly understood, is now being used by high end designer handbag companies to prove the veracity of their goods.
Tax is a social contract. We pay tax in return for government services, and to support those in most need. Where tax revenues are eroded, where innovation dwindles, where employment decreases, that contract is disrupted. We must guard our tax base appropriately.
We do not advocate that Ireland should make any unilateral moves against technology enabled business. Our view is that we should work within the OECD framework to achieve international consensus given the complex global way in which companies operate.
Irish based companies will have enough to grapple with. We expect changes to transfer pricing, interest limitation rules, CFC, hybrids and DAC 6 over the next few years. Let’s not layer on anything else – these are fundamental changes to our tax laws and the economic impact of these measures will need to be carefully considered in the years ahead.
We should remember that tax has been part of our economic policy for decades and has allowed us to prosper and grow – a competitive open transparent regime is crucially important for foreign direct investment flows. Our stable 12.5% rate has been the cornerstone of our economic policy – and should remain so. We should continue to enhance our R&D tax credit regime to encourage a truly innovation led ecosystem.
In the budget, I expect to see increased allocations of funds to the Revenue Commissioners to continue to invest in technology. But this needs to be matched by people resources within Revenue to help Irish tax payers navigate this new tax world and to ensure that Ireland protects its tax base and tax revenues appropriately. Increased resources will be required in transfer pricing, MAP claims, APAs etc.
I expect a strong commitment to the 12.5% rate and that Ireland will work with the OECD towards unanimous consensus on taxation rather than advocate unilateral measures.
At a macro level, we expect to see increasing trends around tax technology automation tools, robotics and AI as the tax world collides and eventually integrates with technology.
Finally, with all the technology in the world, as a society we need to have our basic human needs met. So I hope to see some fresh radical thinking towards increasing our housing supply to support our expanding economy.