SYSTEMIC DRIVERS OF CHANGE - A foresight report into the next decade for taxation
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SYSTEMIC DRIVERS OF CHANGE A foresight report into the next decade for taxation In late 2013 and early 2014, the ATO undertook a research study with thought-leaders and practitioners in both the tax/superannuation industry and the tax administration. The research sought to understand strategic drivers that will lead to important and sometimes fundamental shifts in the taxation environment. A number of themes emerged that, if they are realised as expected, will affect all parts of the taxation ecosystem. The Australian Tax Office (ATO), business, and the tax profession will need to respond to new these challenges and opportunities, and these responses will need a mix of evolved approaches and sometimes entirely new thinking to optimise compliance and ensure a healthy, effective taxation regime that delivers a fair revenue outcome.
Section 1
Key drivers affecting taxation
in the next decade
A more complex world
Multi- A changing An
COMPLEXITY Disruptive
= country + technology + professional + engaged
and a more sophisticated business capability public
administration
“The end of geography” “Everything is digital” “Evolve or die” “The amplified conversation”
The trend towards business The next decade will be The tax profession will Public expectations on both
that is unrestricted by borders characterised by continuing undergo fundamental shifts the tax system and corporate
Complexity /kəmˈplɛksəti/ noun The number of
will continue to intensify, innovation on conventional in both its business model contribution will continue to
variables that have to be dealt with in a given time in a
presenting new challenges approaches as result of and its workforce, resulting evolve, with an engaged public
situation, the clarity and precision with which they can
that typically go beyond the disruptive technology and the in a changing professional voice becoming increasingly
be identified, and their rate of change (Jaques, 1996)
boundaries of country and exponential growth of data, capability in Australia. enabled and amplified by new
Tax is a complex system. It is part of a network of region. integration and technology- channels, information sources
global social and economic systems that are inter- enabled business models and modes for formal and
connected, non-linear, interdependent, and evolving. informal community-driven
Over the next decade, this complexity is set to campaigns.
intensify, affected by four major drivers of change that
will create new tensions, opportunities and balance
points.
Some of these drivers are already emerging, others are
strongly indicated by current trends and forecasts. By
understanding how they converge and the shifts they
will set in motion, we can gain a more sophisticated
understanding of the future landscape of taxation.The next decade promises a tax
environment of increasing The pursuit of
consistent Greater
synchronisation
complexity for all players. treatments
across borders of law regionally
Increased
surveillance
Innovative
approaches to
compliance
This complexity will be driven by shifts right
across the taxation ecosystem. Some of these
shifts are already emerging, others are strongly
Increasingly globalised
indicated by current trends and forecasts. regulation (BEPS)
Supply and Big data
demand of New
Business in the
intangibles methods
cloud
Multi- of avoiding
national/multi- tax
company
supply chains Pre-filling
Increasing
transparency Increased
obligations business and tax
Global and software
regional tax Disruptive integration
policy
cooperation Multi-country technology
business Low-burden
report
generation
Global
trend
towards Increasing Macro shift from
indirect tax mobility digital migrants
Growing need
for international A more complex world to digital natives
know-how
COMPLEXITY
and a more sophisticated
administration Changing
Growth of Activist & expectations
online empowered
education communities
Offshoring work
New An Shifting
political Harnessing new
models of
compliance A changing engaged priorities channels and the
media to drive
Key regulation professional public compliance
behaviour
Broadening of
advisory beyond
capability
tax Tax vs. goodwill
The size of each circle contribution
Driver reflects the impact of Diminished
Leakage of Economic Build and
the driver/response, knowledge
entry
uncertainty support
Tax workforce public value
and the certainty/ model
and
experience Generation of tax
frequency with which innovation change
it was identified Focus shift to
Possible ethics & corporate
response governanceThe end of geography:
multi-country business
The trend towards multi-country business will
continue to intensify, presenting new challenges that
typically go beyond the boundaries of country and
region.
The pursuit of
Greater
This trend will drive a range of challenges for tax administrations consistent
synchronisation of
treatments
needing to tax increasingly globalised value chains and market across borders law regionally
offerings. At the same time, new expertise will be needed to navigate
the complexity of sophisticated international arrangements and the
ongoing rise of intangible, Intellectual Property based goods and
services.
Increasingly globalised
Supply and Big data
regulation (BEPS)
demand of
intangibles
Multi-national
supply chains
Increasing
transparency
obligations
Global and
regional tax policy Disru
cooperation
Multi-country techn
Key questions
business
• How will we respond to an interconnected world to ensure that we
Global trend
collect our fair share of revenue and assure compliant behaviour in towards
complex circumstances? indirect tax Increasing
mobility
Growing need for
international A more complex world
• How do we fairly tax new and emerging forms of value – from hosted know-how
services to IP-based goods and from globally distributed COMPLEXITY
manufacturing to global chains of supply? and a more sophisticated
administration
• Where will we get or grow the expertise and relationships we need to Growth of
mange our response? online
education Offshoring work
New
models ofMulti-country business
Readily available technology and a globalised economy means that countries will be more
interconnected than ever over the next decade.
Having to deal with global, in addition to local, competition stimulates businesses to globalise,
both mobilising resources and providing goods and services across borders. Additionally,
companies have sought to exploit opportunities to minimise their tax obligations by structuring
themselves across often fragmented regulatory regimes. These trends have and will continue to
grow as a significant force in shaping the tax system and policy/administrative priorities over the
next decade.
Growing need for international know-how
Businesses with global subsidiaries, suppliers or customers will increasingly need a mixture local and foreign tax
and business advisory services to navigate the complexity of multiple revenue systems. They will seek to minimise
their cost of compliance and optimise their tax bill. In order to stay competitive, tax practitioners will increase their
capability with both local and foreign tax systems, and with general (e.g. labour) or specialist (e.g. agriculture)
business arrangements.
Supply and demand of intangibles
Technological innovation and the increasing ease of accessing new digitally-delivered services from cloud data
hosting to 3D printing will fuel the demand for intangibles and present novel challenges for tax reporting,
The pursuit
administration and policy. of consistent
treatments
Multi-national supply chains across Greater
In
Foreign outsourcing and multi-national subsidiary arrangements have already and will increasingly emerge as a borders synchronisatio
su
staple business process. Value chains and transactions that span countries challenges the ability for countries to n of law
regionally
capture a fair amount of tax over the course of the value adding process that results in a good or service.
Global and regional tax policy cooperation
Governments will increasingly rely on global and regional solutions to taxation to reduce the opportunity for Increasingly
companies to use multi-country supply chains and digital delivery to avoid paying tax. This may include new treaties, globalised
regulation (BEPS) Big data
harmonised policies, increased data sharing and other approaches driven by initiatives such as Base Erosion and Supply and
Profit Shifting (BEPS). This will require new knowledge and skillsets within the tax industry and the ATO, and will demand of Multi-
Increasing
trigger market responses as businesses reshape their compliance and their tax strategies. transparency intangibles national
obligations supply
Increased mobility chains
As it becomes easier for individuals to move across borders, taxation will become increasingly complex to manage. Global and
Australians travelling overseas who earn a salary or business revenue will need to navigate multiple tax systems. regional tax Disru
policy
Foreigners in Australia who own foreign businesses but use Australian tax-funded public services may not make a
cooperation
techn
contribution. To deal with these complexities and disparities, governments will need to develop strategies to respond Global
trend
Multi-
appropriately (for example, by increasingly applying indirect taxation). towards country
indirect
tax business
Increasin A more complex world
g mobility
Growing need
for COMPLEXITY
international and a more sophisticated
know-how administration
Growth of
onlineGlobal and
regional tax policy
Evolve or die: cooperation
Multi-country Dis
tech
business
a changing professional
capability Global trend
towards Increased
indirect tax mobility
Growing need for
The tax profession will undergo fundamental shifts international A more complex world
know-how
in both its business model and its workforce, COMPLEXITY
resulting in a changing professional capability in and a more sophisticated
administration
Australia.
Growth of
online
These will be driven by a range of trends that include cross-border education Offshoring
work
outsourcing for both routine and, ultimately, more complex tax work,
and generational shifts that will greatly change the industry’s profile. New A
This creates an uncertain future position for the profession that will models of
compliance A changing enga
affect not just the industry but the tax administration that relies on it regulation pub
as a trusted intermediary. professional
Broadening of capability
advisory beyond
tax
Diminished
Leakage of Economic
entry
knowledge uncertainty
Tax workforce and
model experience Generation
innovation change
Key questions
• How can we effect a meaningful compliance regime in an increasingly
globalised tax preparation and advisory supply chain?
• What is the appropriate administrative response to a potentially
diminishing professional tax capability in Australia?Global and
regional tax Multi-
policy
country D
cooperation
business t
Global
trend
A changing professional capability towards Increase
A more complex world
Growing
The tax profession is undergoing considerable change at all levels. The median demographic of a
indirect tax d need for COMPLEXITY
mobility international and a more sophisticated
tax practitioner is set to lower at the same time that globalised business, offshore advisory sourcing know-how administration
and digital innovation challenge existing approaches. The shifts in the tax profession in turn will
have an effect on the ATO, which relies on Australia’s intermediary population as a compliance
strategy.
Growth of Offshoring
online New work
Offshoring work education models of en
There is currently a trend for tax practitioners to offshore low level routine tax processing work. Though this is an complianc A changing
effective cost reduction method, it creates uncertainties in the long term as new tax practitioners will lack the experience p
e professiona
of basic tax work. It also drives the declining entry into the profession as employer demand for graduates slows. regulation
Increasingly, driven by costs and the multi-country nature of business, it is expected that Australia will also see l capability
offshoring of higher-order advisory services as well, particularly if other drivers such as generational change and
diminished entry make it difficult to source appropriate skills locally. Economi
Broadening of Leakage of Diminished uncertain
New models of compliance regulation advisory knowledge entry
beyond tax and
There will likely be continuing and escalating expectations for Government agencies to reduce budgets, deliver Generation
Tax experience
efficiency dividends and further reduce regulatory burden. This will encourage regulators like ATO to explore and change
workforce
ultimately implement new models to reduce barriers to compliance and reduce regulatory cost. For the tax profession,
model
this could see an increased use of trusted intermediary services to effectively outsource certain regulatory functions into innovation
the private sector, where this is a low risk proposition, stimulating the industry that services larger business segments. It
could also place new impetus on the use of data and technology make tax regulation more efficient, requiring the
industry to become competent at supporting changing reporting obligations and mitigate risk for their clients.
Leakage of knowledge and experience
A large cohort of older generation tax practitioners and government administrators will leave the workforce over the next
decade, taking with them knowledge that may not have been transferred adequately to the younger generation. This
includes in depth understanding of tax policies and historical rationales for certain practices. This has potential impacts
to the effectiveness and quality of some intermediary services and some administrative decision-making, if it is not dealt
with systemically.
Generational change
The tax industry is seeing and will continue to see a generational shift, with a significant amount of experienced
practitioners retiring or otherwise leaving the industry, and a new generation, with new sets of values, native digital
competency and new career expectations, entering. This will drive cultural and practice shifts in the industry, and also
significant more movement of people across organisations and also into and out of the tax profession as employees
become more “portable”.
Diminished entry
A reduced demand for tax advisory services in Australia will force tax practitioners to diversify their services beyond tax
verticals. Tax practices will hire less graduates for tax, feeding the issue of declining entry into the profession.
Additionally, tax is perceived as difficult work and a difficult career to advance in, and so may be less attractive to
prospective students than other areas of financial specialisation. This may cause a scarcity of available resources in
Australia and potentially see other financial disciplines widening to include (rather than specialise in) taxation to make
up the gap.Everything is digital:
Disruptive technology
The next decade will be characterised by continuing
innovation on conventional approaches as result of
disruptive technology and the exponential growth of
data, integration and technology-enabled business
Increased
surveillance
Innovative
models
approaches to
compliance
New technologies are a catalyst and enabler for all other trends –
including the viability of multi-country business, offshoring of tax work
and the empowering of Australian communities. They also carry a
potential positive effect from a cost-of-compliance perspective on
both sides of the regulatory boundary. The availability of Big Data and
ply and Big data
and of New growing sophistication of analytics makes possible new levels of
Business in the
ngibles cloud
methods of transparency and risk mining that Australia may choose to harness to
avoiding
tax
achieve its administrative outcomes more effectively and better
Multi-national/
inform policy-making process.
multi-company
Pre-filling
supply chains
Increased
business and tax
software
Disruptive integration
ountry technology
ness Low-burden
report
generation Key questions
Macro shift from • How can we harness technology to reduce our footprint on
digital migrants to
digital natives business, and what risks will we need to manage?
A more complex world
COMPLEXITY • What capability will we need to run compliance in a rapidly
and a more sophisticated administration
evolving technology environment?
Changing
Activist & expectations • How do we influence or integrate with the technology market to
empowered support our strategic directions?
communities
An Shifting
political Harnessing new
engagedDisruptive technology
Technology is disrupting current models of business and taxation. As our world becomes
more connected, tasks more automated, data handling more sophisticated, business-to-
business/government/consumer channels more diverse and software more integrated,
flow on effects to every aspect of the business ecosystem will not simply continue but
intensify. Both businesses and Government will be continuingly responding to new
developments – both opportunities and challenges – that emerge from the accelerating
pace of technological disruption.
Big Data
With increasing amounts and availability of information and the lowered cost of storage, the use of big data
will become more prevalent both for and between businesses and the ATO. However, managing the vast
amount of data, and creating actionable insight and meaning from it, is a complex process requiring
investment and the development of new skill sets across the tax sphere.
Business in the cloud
Businesses are increasingly breaking the link between their physical location and services they offer and
consume by exploiting the internet and other digital channels. Businesses outside Australia are transacting
with Australia at every level of the economy without maintaining a presence here. This has implications for
Innovative taxation, and is a trend that is increasing and will continue to increase over time.
Increased
surveillance approaches
to New methods of avoiding tax
compliance Rapid innovation and the availability of new technologies mean that some segments of the individual or
corporate sector may develop new and unforseen ways of lower their tax bill at the fringes of or outside of
the ATO’s compliance boundaries. Responses to these may need to be imaginative and novel, particularly
given lead times for policy and treaty change.
upply and New
emand of Increased business and tax software integration
Big data Business in methods
ntangibles Multi- The development of Government digital services and taxonomies, and the recognition of the value of data
the cloud of
national/ avoiding supply chains within and across business, will stimulate business and tax software to better integrate with
multi- tax other software, provide sophisticated analysis, and supply lower-overhead reporting as standard. This will
company in turn have effects on the tax profession, and also increase the amount of data that the ATO could feasibly
supply Pre-filling and usefully expect to receive.
chains Increased
business and Macro shift from digital migrants to digital natives
ountry tax software As generational change drives a shift in demographics, we will see a higher proportion of “digital natives”
integration moving into decision making roles in both the tax administration and the tax profession.
ness Disruptive
technology Low-
burden
report
generation
Macro shift
from digital
A more complex world migrants to
digital natives
COMPLEXITY
and a more sophisticated
administration Changing
Activist &
empowered expectationDisruptive
ountry technology
ess Low-burden
report
generation
Macro shift from
The amplified conversation:
digital migrants to
digital natives An engaged public
A more complex world
COMPLEXITY Public expectations on both the tax system and
and a more sophisticated administration
Changing corporate contribution will continue to evolve, with
Activist & expectations
empowered
an engaged public voice becoming increasingly
communities enabled and amplified by new channels, information
Shifting
sources and modes for formal and informal
An
engaged
political Harnessing new community-driven campaigns.
nging priorities channels and the
media to drive
sional public compliance A public that is informed, values driven and willing to act now has the
behaviour
bility tools to be an effective force in shaping corporate and tax industry
Tax vs goodwill culture. In the future, public awareness and its effect on market
contribution demand has the potential to slow revenue erosion. This is particularly
the case when seen in the context of other strategic drivers (e.g.
Diminished
Economic Build and transparency emerging from disruptive technology, and the notion of
entry
uncertainty support
public value
revenue fairness in multi-country business taxation).
ional of tax
ge
Focus shift to
ethics & corporate
governance
Key questions
• What values drive the public with respect to corporate tax compliance and
fairness?
• What strategies could the ATO consider to harness public perceptions and
values to support a fair taxation outcome for Australia?Disruptive
technology
ntry
s
Macro shift
A more complex world
from digital
migrants to
COMPLEXITY digital natives An engaged public
and a more sophisticated administration
The level of public participation promises to increase such that tax as an issue moves beyond
Activist & one’s tax bill to influence consumer market behaviours, shape perception, and contribute
empowere Changing
d expectatio social pressure to the compliance landscape.
communiti ns
An es Activist and empowered public
Shifting There is currently a surge of engagement and activism from the public about the perception of large business
engaged political and high-wealth individuals not contributing fairly to Australia’s revenue, enabled by social media and a growth
anging public priorities Harnessing of new news and opinion sources. This creates an less predictable policy and economic environment, and a
new channels
ssional and the media
stronger opportunity for the public to participate influentially in the national conversation and as consumers, in
bility to drive the market.
Tax vs compliance
behaviour
Shifting political priorities
goodwill
Economic Both global and national trends, and the electoral cycle, will continue to drive frequent and unpredictable change
contribution
Diminished uncertainty in the business environment and the tax system. Policy outcomes delivered through significant tax instruments
entry such as the carbon price, mining tax, business tax incentives etc. will be created, redesigned or halted, causing
Build and
support
periodic and potentially costly adjustments for tax regulators and intermediaries.
rational public
ange value of tax
Economic uncertainty
Focus shift to Although Australia performed strongly in the credit crisis, the changing face of Australian industry and the
ethics & impacts of growth or decline in some influential industries, and the strong linkage of the health of the Australian
corporate economy to regional and global trends will create ongoing uncertainty for businesses and consumers, in turn
governance having an effect on revenue and tax compliance behaviours.
Changing expectations
There is currently a revival of the importance of ethics and corporate citizenship in discussions relating to tax. In
part driven by public digital participation, and in part driven by global effort to manage imbalances and
weaknesses in global taxation (e.g. the Base Erosion and Profit Shifting initiative), corporate citizenship
including revenue contributions promises to be an increasingly common discussion point at the board table.
Tax vs goodwill contribution
Tax will continue to compete with other forms of contribution in the mind of the public. For example, business
(particularly large business) will argue that the benefits they provide in terms of economic injection and goodwill
contribution should be recognised by Government in the form of lower business taxation. Public opinion will be a
key factor in the level of influence this point of view has on tax policy.You can also read
