The Emergence of TaxTech – A New Era of FinTech has been saved
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The Emergence of TaxTech – A New Era of FinTech
The intrinsic link between TaxTech and the fintech industry Deloitte Catalyst | Team8
Despite the impact that disruptive technology has had on most industries over the past several decades, the tax space has largely been left untouched. Until now. In a first-of-its-kind report published by Deloitte Catalyst and Team8 , we explore how recent technological and economic trends have ushered in the era of TaxTech and opportunities for innovation in the tax sector.
Disruptive transformations to the tax industry
The field of taxation has always been impacted by business and
regulatory-related changes, with exponential acceleration recently. Due to
technological, cultural, societal (including the impact of COVID-19), and
business dynamics, taxes have undergone remarkable and disruptive
transformations, similar to other fields of fintech. Today, the tax industry
operates within an extremely complex ecosystem where disparities often arise
due to incongruity at the state, national, regional, and global legislation. Technology in combination with professional tax services are necessary to fulfill
taxpayers’ reporting and planning needs.
In this report we aim to surgically unpack these new phenomena, first by
highlighting some of the major macro tax trends and tax implications that
global economies are experiencing, and then by covering and analyzing the
existing landscape of TaxTech solutions. We also assess ways in which we
believe companies and individuals can leverage these technologies and solutions to improve and enhance the tax process. Finally, we explore what we consider to be the next big thing in the Fintech industry – embedded tax.
Macro trends and tax implications
Macro trends in the global economy are fueling the need for an overhaul in the way we manage the complexities of taxation, helping us gain insights into how individuals and businesses can better plan to meet their tax obligations.
Among these macro trends, global tax regulations are evolving to address taxation of international e-commerce transactions, remote work, the gig economy, and the emergence of crypto assets, all of which are fueling cross-border transactions. The COVID-19 pandemic has significantly accelerated the growth of these activities.
The implementation of TaxTech will require much greater digitization of tax tools and will rely upon advanced technologies utilized in fintech solutions, such as AI, ML, NLP, and data-driven analytics.
Solutions with these elements will be embedded in existing fintech tools, potentially providing financial service providers with greater competitive advantage, customer stickiness and loyalty, and granular data to help provide customers with enhanced, personalized service.
The Age of TaxTech
Certain segments of the tax industry, may be reliant on analog processes and slow to adopt new technology. Better tech-enabled tools that can integrate systems and automate operations to streamline taxes can further help digitize the industry. As this report dives into the technologies that define the age of TaxTech, key requisites for TaxTech solutions are the broad digitization of financial tools, improved automation through machine learning (ML) capabilities, and the ubiquity of cloud-based platforms including cloud-based ERP solutions. In addition, TaxTech leverages transformative capabilities, such as artificial intelligence (AI), natural language processing, (NLP) and blockchain to potentially transform the industry. Although still considered a young ecosystem, TaxTech is already implementing solutions considered science fiction in the past, including real-time reporting and data wrangling.
TaxTech is FinTech
The report culminates with an explanation of our realization that TaxTech is part of Fintech. We explain why fintech and taxation are highly connected and how the fintech trend is driving TaxTech innovation. We examine the business model of embedded tax, which is an extension of the embedded finance movement. We also outline how taxes may well be at the forefront of the next wave of embedded finance, as it is a highly appealing proposition to incorporate taxation within digital services. Finally, we provide examples of new TaxTech companies and showcase fintechs that are implementing this strategy.
The TaxTech Map & InvestmentTrends
The TaxTech Map, at the end of the report, outlines different companies focused on developing TaxTech solutions, segmented by their niche offerings and relevant stakeholders. We also analyze the investment trend of the TaxTech vertical.
About Team8
Team8 is a venture group that builds and backs cutting-edge technology companies in the fields of cybersecurity, data and fintech. Team8 rethinks venture to provide entrepreneurs with an unfair advantage, bringing expertise, experience and resources to accelerate success in an increasingly competitive landscape. Its extensive network of global leaders uniquely positions Team8 as the venture partner of choice with a deep understanding of industry-wide challenges. For further information, please visit www.team8.vc.
Authors:
Deloitte Catalyst -
Zachary Aron
Principal,
Deloitte US Consulting Fintech Leader
zaron@deloitte.com
Kenneth Schulhof
Partner, Deloitte Tax LLP
US-Israel Member Firm Combination Tax Leader
kschulhof@deloitte.com
Amit Harel
Partner,
Co-Leader, Head of
Services to MNCs,
Deloitte Catalyst | Tel-Aviv
aharel@deloitte.co.il
Yael Tel Zur
Senior Consultant,
Fintech Specialist
Deloitte Catalyst | Tel-Aviv
ytelzur@deloitte.co.il
Team8 -
Ronen Assia
Managing Partner,
Team8
ronen@team8.vc
Galia Beer Gabel
Partner,
Team8
galia.b@team8.vc
Noga Lakritz
Director
of Strategy & Business Research,
Team8
noga.l@team8.vc
