3 February 2021: The digitalisation of tax systems is going to have a fundamental impact on the role of tax advisers and will see a shift in focus to assurance and systems-based work, predicts Jane McCormick, former Global Head of Tax at KPMG.

In the extensive debates on how digital technologies will reshape taxation the focus is often on systems and outputs. How digital technologies can reduce the administrative burden, improve the reliability of reporting systems and close the tax gap, for example.

However, the knowledge and experience of the tax profession will be key to the success of such developments, argues Jane McCormick, and in a future where automated systems draw on sensitive and complex datasets, tax advisers will always have a crucial role to play.

The challenges: development and data

In her Hardman lecture on the digitalisation of tax on 2 February, KPMG’s former Global Head of Tax, suggested that technology itself is not likely to be a limiting factor in the shift to digital tax systems.

“If you're absolutely clear on what you want to do and you have access to the data you need, technology can do pretty much anything you want. As long as you don't mind how long it takes, or how much it costs,” she says.

This can lead to the first significant hurdle for digital initiatives, in that there is often an underestimation of complexity and costs, says McCormick. “Digitalisation programmes need to have a realistic view of the cost of government, and must take into account the ability of taxpayers, especially businesses, to implement in a reasonable timeframe and cost.”

However, McCormick believes that the biggest challenge faced by governments in designing digital tax systems is data management; how to ensure standardisation around data capture, data privacy and data security.

“In the ‘compliance-by-design’ world, tax authorities would obtain data from third parties, without verification by the taxpayer,” explains McCormick. “What happens if this data is incorrect? Who owes a duty to whom in this situation? Also, the tax authority has access to data that the taxpayer doesn't have. Do they have a duty to disclose?”

She also suggests that when taxpayers are presented with a digital assessment of tax liability or pre-populated tax returns, there is a de facto reversal of the burden of proof. The evidential burden seems to fall on the taxpayer to prove the figures are incorrect.

McCormick cites research conducted in the UK that found taxpayers are likely to accept a tax authority pre-populated return even if they know it to be incorrect. This was true regardless of whether the error overestimated or underestimated the tax liability.

The vital role of the tax practitioner

The challenges of digitalisation demonstrate where the tax profession will be needed in future, even if this isn’t always acknowledged. In her presentation, McCormick highlighted the OECD’s latest paper on the digitalisation of tax: Tax Administration 3.0. “It's interesting that the report envisions a world where tax systems and tax administration systems work seamlessly with businesses, and tax just happens…There is no mention of the role of accountants and tax.”

She maintains that tax advisers will always have a critical role in the proper functioning of the tax system. “They sit between the taxpayer and the tax authority, ensuring that their respective obligations are fulfilled, and their rights protected.”

While it is possible to imagine a tax system in which there are no grey areas, no causes for disagreement and no errors, it is unlikely to materialise anytime soon.

“Digitalisation can make systems more reliable, but we've learned the hard way, that the systems are not infallible. And that the rules that they operate on are designed by humans,” says McCormick.

This is where she sees the greatest shift in the role and practices of tax authorities and tax professionals. Integrating tax compliance into underlying systems, will mean that tax authorities and tax advisers will also have to move upstream; becoming involved in the development configuration, maintenance and review of these systems.

“I used to refer to the Global Head of Technology at KPMG, the wonderful Brad Brown, as a unicorn, a mythical beast that has a deep expert understanding not just of tax, but also of accounting and technology,” says McCormick. “We're going to need a lot of unicorns to build these systems. And once the systems are up and running it will be about checking that the system is correctly configured to generate the right answer.”

McCormick acknowledges that this shift will mean a very different skillset to the one that she gained when she started her tax career 30 years ago. Alongside incorporating technology and processes into professional education, she argues that tax profession can learn from the audit sector, which has moved from substantive checking to assurance of systems and processes.

“In future, the tax profession could be providing assurance over systems and processes that must be reviewed by the tax authorities, perhaps as agreed upon procedures,” she suggests. “This means the tax professionals should learn the lessons from our audit colleagues about competence, independence, transparency, and trust.”

While she believes digitalisation of tax systems means a fundamental rethinking of tax roles, McCormick is confident that the profession can rise to this challenge and is positive for the future. She says: “Just as those reforming tax administration are thinking about tax administration 3.0. It is time for us to think about the tax profession 3.0.”