Tax planning and compliance and the working world of tax professionals will see a dramatic change in the next few years as a result of Artificial Intelligence, a paper issued by KPMG concludes.
Machine learning will start to impact on tax writing and structuring, with tax knowledge and technical expertise diminishing in importance compared to complex machine thinking.
The offshoring of recent years will be reversed with re-shoring, predicts the report Tax Technology: Embracing ‘the now’ and thinking ‘the future’.
And tax professionals will become free agents, possibly assisting companies on an ‘as needs’ basis depending on the specific skills required. They may become part of the human cloud.
David Linke, KPMG National Managing Partner, Tax, said: “The Fourth Industrial Revolution will transform the practice of tax, with compliance including routine use of algorithms to calculate tax liabilities.
“Some of this may be mechanistic, such as a thin capitalisation calculation. But some transactions may see, for example, the IBM Watsons artificial intelligence technology – which KPMG is already embracing in our audit thinking – being used to distinguish between an expense which constitutes a deductible repair and one that is a non-deductible improvement by “learning” how to draw the distinction and applying that to specific data.
“We can also foresee legal research being impacted – drawing on massive data involving machine learning and on letter writing for structural advice. We can imagine a computer considering the optimal tax structure for an investment in the future.”
The report argues that while tax is already experiencing a dramatic change in the way things are done, this will accelerate, with corporate Chief Tax Officers looking for increasingly automated solutions for greater efficiency, reliability and to provide superior insights.
Grant Wardell-Johnson, report author, and KPMG Tax Partner said: “Tax has traditionally been a look-back phenomena, but this is changing – partly due to the increasing role of Revenue administrations dealing with reviews in real time and partially because Tax is being viewed in a new way: not merely as a compliance function, but as an area that can contribute to a deeper understanding of the business.
“We believe the identity of the tax professional will fundamentally change – they are more likely to be free agents, possibly assisting companies on an as needs basis depending on the specific skills required. They may become part of the human cloud. In companies, professionals may rotate through the Tax Department in a different way from the past as complex thinking becomes more important and technical knowledge less so. Boundaries between functions will start to break down and corporate services will become less siloed.
“If there has been a trend in Tax for offshoring, that trend may be reversed with “re-shoring”. In a technological environment, generally involving low marginal costs, the cost of employment becomes a diminished factor in determining where activities are carried out.”
He added: “Those who predict a wholesale takeover by robots may be jumping the gun . There is still a significant role for judgement in tax. That role has been enhanced given the complexity of dealing with a greater number of stakeholders and the reputational risk involved in tax moving into the domain of corporate social responsibility.
“It is inevitable that we will see large-scale cybercrime on taxation in the future.”
The report observes that the advent of the Internet of Things throws up some surprising tax consequences, which may well be ‘back of mind’ for tech developers.
David Linke said: “The classification of revenue into goods, services, royalties, digital services or telecommunications can have different tax effects in different locations. When your lawn mower measures the height of your grass, lets itself out of the garage and mows your lawn while you’re at work, has the lawn mower manufacturer shifted into the realm of a providing a garden service? Similarly, when your fridge monitors its own contents, logs onto supermarket online shopping and orders next week’s groceries for home delivery, the line between product and service becomes blurred.
The classification of revenue can alter its tax treatment, both across borders, and across tax types. Businesses would be foolish to ignore such future tax implications that may have a serious effect on the bottom line. The tax position needs to be evaluated up front, before the technological and business structures are cemented in place.”
