Tax is at a turning point. As the asset management industry continues to grow, and assets under management reach new heights, the industry will attract increased focus from the tax authorities. The tax functions of companies are seeing huge change, and technology is key to supporting those changes.
Tax authorities are using technology to embed themselves directly within tax payers’ core transaction processes. They are implementing new data submission and electronic auditing requirements. We are seeing increasing collaboration among national tax authorities. With BEPS moving into national implementation, and with global tracking and monitoring, digital is a focal point for tax authorities.
Reporting to the tax authorities is coming to an end. Tax authorities will receive the information they need from asset managers, either on investors or investments, through direct access to their IT systems.
In-house asset management tax teams may face perpetual audits, engaging with tax authorities to influence policy and help guide the implementation of tax rules.
The way an organisation chooses to handle tax risks can present opportunity. It could be the key differentiator in attracting business. The quality of an organisation’s tax infrastructure should be seen as an alpha characteristic and key enabler of growth. Technology will enable asset managers to make responsive, tax-informed investment decisions, providing investors and tax authorities with the transparency and reporting they demand. Technology will enable tax teams to better manage tax leakage. In some cases, this could increase return in excess of a benchmark index.
The management of tax risk is increasingly linked to reputation. When it comes to tax, investors only want to work with partners that are doing the right thing, and being seen to do the right thing. They want to avoid being tainted by association with inefficient, and potentially inaccurate, tax reporting. Investors will have no tolerance for organisations that can’t deal with the demands of taxation authorities.
Yet getting the balance right between over managing and not managing tax risk will be a challenge. Technology is key.
At EY Financial Services, tax and technology are intertwined. We are shaping the new digital tax age in a number of ways:
This is just the start of the journey. Tax technology change will only accelerate, and your organisation must adapt to keep pace. The time to act is now.