Why a tax guy went digital

(00:05):

First of all, I just want to confess, I'm not a professional athlete. I'm not an entertainer. I'm not a rock star. I'm, in the Beatles lingo, I'm a tax man. I've been a tax man since 1991. Second career. I was an auditor first with Arthur Young, for those of you who remember Arthur Young. And then after that went to law school and became a tax man. And I want to talk to you about why a tax guy went digital.

(00:25):

So, back in 2012, '13 I was asked to take on a global role. So, for the past seven years I was traveling globally until I came back here. And as I was traveling, one of the things in this business I was leading is I decided I wanted to go out and meet with the CEOs of seven of the boutique competitors that we've faced.

(00:50):

Now you haven't heard of most of these competitors. You've heard of some of them, but not most of them. And one of them, I'll give you an example, is based in the Netherlands and we went out and had a dinner in the rural Netherlands and it was a company called Pinc Vision. It was Pinc with a C. I think it was called Partners in Compliance and that's how they got to Pinc. But I remember exactly the moment when this tax guy went digital. It was on my flight back from my seventh meeting with CEOs. On that flight back, it all of a sudden hit me. Six of the seven CEOs that I met with had absolutely no tax background. They were software engineers, they were data scientists, before data scientists word was cool, and they had something to do with a technology build.

 (01:39):

One of them told me, “I know nothing about tax, but if we can put a roadmap together, I can program it." And that's what they did. They decided it was rules-based, we can program it and move on.

(01:50):

So, it did not come as any surprise to me then, when we ran our most recent global CEO survey, I think this was the 2018. So not the most recent, but our 2018 survey. It did not come as a surprise to me when this stat came relevant. And we do a lot of surveys and rarely do you get over 60% on something. 82% of CEOs were concerned about the relevancy of their products and services within the next three years. 82%.

(02:27):

That didn't come as a surprise to me based on what I had seen, but I wanted to put some more empirical evidence behind that. So, I went out and I started thinking. At the time I was traveling, I was also going to some of the analyst meetings and one of the ones I went to was the Gartner meeting. And I became familiar with the Gartner Hype Cycle. So just out of curiosity, how many of you know what the Gartner Hype Cycle for emerging technologies? Okay, about a handful, maybe 10, 12.

(02:52):

So, you're not going to be able to read this slide, the next few slides, and I don't want you to. I want to explain the Gartner Hype Cycle to you briefly and then I want to show you something very piercing and meaningful out of the Gartner Hype Cycle.

(03:04):

The Gartner Hype Cycle believes that all technologies follow a similar course. They start with an innovation trigger. Something makes somebody get excited about something. And you've heard about some of these this morning, right? And then from the innovation trigger, you rise to a peak of inflated expectations. And you've heard this before. Everything that comes out, we think it's the best thing since sliced bread until it falls into the trough of disillusionment. And that's the third category. From the trough of disillusionment, Gartner says you move into the slope of enlightenment, and only after enlightenment do you enter the plateau of productivity. So, your five categories that they put things into.

(03:42):

I'm going to show you the 2014 slide. Again, you can't read it, but you'll get the flow of it. Okay? And then I'm going to show you the 2017 slide and then I'm going to make one piercing point from those two slides. Here's 2014. Very busy, lot of topics on there. They've mapped out according to that roller coaster. Here's 2017. Much cleaner, neater. Here's the important part: On those two slides, three years apart, 77 terms, only 13 of them repeat. So, that means either technology is either falling off, in other words, once it hits the trough of disillusionment it just falls off the chart, or it means things are going through into the plateau of productivity much quicker. Or it means that we've got too many things coming in on the front end of that spectrum. This is why, I think that he was right at Davos in 2018, when Justin Trudeau said, "The pace of change has never been this fast, but it will never be this slow again."

(04:45):

And that calls me to have real pause, even within a tax business. So, I sat there looking at this frenetic digital world that we were living in, and then I turned to him and said, "Wow, I wonder what this phonetic digital world is doing to our tax policy landscape." So, I began thinking about that same frenetic world and started thinking more deeply about my academic interest in tax policy.

(05:12):

So, a few interesting facts is as you continue to see my evolution into digital. First, let's go back to year 2000. 21 countries had corporate income tax rates over 30%. Today, that's four. 2000: Average corporate income tax rate around the world, 43%. Today, 23%. These are radical changes, folks. When I was in law school in 1988, '89, '90, '91 and I was going through my tax courses, if the rate were 23%, I fully suspect I would've picked a different profession. That's why I say this: In my lifetime, we have already seen the high water mark for the corporate income tax. Some people get confused by this slide. That's a high water mark at some point on there. And that basin has been emptied quite a bit. The coffers are dry. So, I had to start thinking what are governments refilling those coffers with and why?

(06:20):

So, this slide is a complex slide. If I time phase this slide for you, it's really fun, but it takes up more gigabytes and we can possibly put on this screen right now. If you look at this slide closely, you'll see that before 1970, only eight countries had national level VAT, value added taxes, consumption taxes. If you look at it today, you'll see most of the map is covered. In fact, the parts that are not colored in, really, you've got ... Let's say Somalia, there's North Korea, and there's the United States. That is at the national level.

(07:00):

Now, obviously the United States has a consumption level tax at the state level, but not at the national level. But that sweep is the fastest sweep any type of taxes ever swept the globe. From 1970 until the current date, from eight countries before 1970 to over 170 countries today. Why is that important?

(07:20):

Well, because consumption taxes are transaction level taxes and transaction level taxes permit the use of all of the things you've been hearing about this morning. They become a digital form of taxation.

(07:36):

It really became evident to me in summer of 2016, when the OACD published, not one, not two, not three, not four, but five publications on topics such as technologies for better tax administration, advanced analytics for better tax administration, cooperative tax compliance, building better tax control frameworks, and tax administrations and capacity building.

(08:02):

And by the way, I could go on and on. If we looked at the job postings for tax administrators around the world, guess what they would look like? They would look a lot like the people you've heard talking this morning. They would not look like tax people.

(08:15):

So, a probable conclusion to me from a tax policy standpoint was I think that tax policy in the 21st century will largely be determined by answering this question: Which taxes will be easiest to collect and administer using technology? There may not always be a VAT or a consumption tax as we know it, but some form of taxation where you don't have to go through the complicated measure of figuring out what is income. But you can apply it at a transaction level where all of a sudden you can collect in real time at point sale.

(08:51):

A few examples of that. Here's four. My wife is from London. She still lives there. She's here this week. She'll be coming in later today and you may see her at the reception. She leads our UK tax practice for KPMG and UK tax practice is currently going through making tax digital. That's actually what the HMRC calls their new initiative. They want to make their tax digital.

(09:13):

Spain has a machine to machine filing requirement. Poland has effectively done away with certain tax returns, replacing them with what they call the standard audit file for tax, which some of you are familiar with, and Italy has an E-invoicing mandate, which by the way, E-invoicing will sweep the world and will be required and it will tie into tax collection administration. It's just a matter of time. In fact, let's show you a timeframe of how fast that's happening.

(09:39):

If you look at the middle of this slide, you'll see there aren't many flags on the left side. This is all about making tax digital. But if you see the right side, you'll see all the jurisdictions that have been coming onboard since about 2011 with prospects of making tax digital. Everything from real time reporting to E-invoicing and then the making tax digital effort by the UK firm.

(10:01):

That all leads you to think, "Wow, this is a different world for a tax professional." And we have to think about what does it look like when we see the convergence of tax and technology? So, let me give you four examples, real life examples, of what taxpayers needed. This was starting in 2011. 2011 is a real life example. Client came to us, said, "We need outsourced compliance." Great. We offer that. Perfect.

(10:28):

2014 another client came in and said, "We need outsource compliance. But by the way, we also need data visualization because we've got so much compliance all over the world. We need some way to be able to process that. Some way to be able to think through that, some type of a roadmap or a visualization tool that helps us manage that tax function."

(10:49):

If we look at another client then in 2015, they needed both of those things but they also needed, "Hey, we've got these making tax digital requirements coming in and now we have to comply with those and those are separate and apart from what we were doing before." After that in 2017, client came in and said, "I need all of those things, but I also need regional consistency and by the way, stat accounting is i and the same bailiwick, let's add that to the mix as well.”

(11:18):

And then finally in 2017, we reached the point where clients were telling us, "You know, you really have to help us with data extraction at this point because how quickly we need the data to be available to us is now more and more increasingly becoming real time at the point of sale." So, we have to find a way to do data collection, data extraction, so that we can analyze our tax function before we get analyzed by the tax authorities. Now the next slide I'm going to show you is one that's too busy for you to read, again, and there's a reason for that.

(11:52):

This is a real life, this is publicly available on the internet, it's actually one of our clients and it's their tax technology roadmap, and that's what it looks like. And there are 96 different technologies listed on that page. 96 technologies that they have to use in their tax function. Something tells me that that doesn't last forever.

(12:15):

What it means is that we have to began as tax professionals to rewire our minds, to rethink what the tax function of today should look like, and in fact, we're seeing that over and over and over again today. And we see that now more like this. I think it consists of these four things. Tax function of today is data-driven, it's analytics-enabled, it's technology-powered, and it's value driving. I had to come to that realization, even though as a tax lawyer I wanted to do all the fun things I used to do. I wanted to parse very dense code and regulations and make arguments. But what I've realized is we're moving into a world very, very quickly that's going to be all about digital. And that is why this tax guy went digital.

Thank you.