A Closer Look on Tax Reporting & Tax Compliance
In an attempt to increase overall compliance with tax laws and regulations, governments worldwide are implementing more stringent anti-avoidance measures and regulations. Furthermore, through these measures and regulations more requirements are being placed on entrepreneurs and businesses in order to improve transparency. This development in the tax practice worldwide has accelerated in recent years and is still increasing the demand for overall tax reporting and tax compliance. For instance, in Aruba the government has introduced the ‘National Ordinance for international Tax Assistance’ (in Dutch: ‘Landsverordening internationale bijstandsverlening belastingen’), in which it has committed itself towards foreign countries and the OECD to exchange information concerning taxpayers that is (or might be) of relevance for one or more of those countries. Furthermore, Aruba publically declared its political commitment to implement the common reporting standards (CRS) and should be undertaking the first exchanges by 2018. Additionally, Aruba has embedded transfer pricing reporting obligations in its national corporate income tax law.
As a result of these developments, companies are actually becoming increasingly busy with tax reporting and tax compliance also in small jurisdictions such as Aruba.
The Effects of the Growing Demand for Tax Reporting and Compliance
Nowadays, compliance with ever-changing tax laws and regulations should be on the top of every company’s priority list. The increasingly stringent measures imposed by tax authorities with regard to tax reporting and tax compliance such as the introduction of CRS and documentation requirements, amplifies the demand for tax reporting and tax compliance. This in turn results in a demand for well-functioning tax-control frameworks and modern-day reporting tools that is growing day by day. The ultimate objective of the tax control framework would be for companies to be in compliance with tax laws and reporting requirements as well as being in control of their inherent risks. Additionally, it could help manage and mitigate risks that exceed a company’s risk appetite. As a result of the growing demand for tax reporting and tax compliance, companies are also increasingly inclined to invest in the right technologies in order to make their tax reporting and tax compliance process more efficient and transparent. These technologies can subsequently also be used to assess a company’s overall approach to tax and to determine whether or not all tax compliance obligations are met.
Furthermore, the growing demand for tax reporting and tax compliance also resulted in an increasing role of tax accounting, since stakeholders such as tax authorities nowadays require greater transparency and insight into companies’ tax positions. As a result of this, tax accounting can currently be regarded as one of the indispensable components of an audit.
“Tax reporting and tax compliance is becoming increasingly important worldwide”
The shift from basic spreadsheet tools to modern-day reporting tools
In the past most companies used to rely on basic spreadsheet tools in order to collect, store, and analyze data. These spreadsheets provided only little transparency implying enlarged exposure to non-compliance risks. With time the availability of tax technology has increased, enabling companies to be more compliant with tax reporting and tax compliance obligations. More and more companies are currently investing in software that analyzes and extracts data needed to meet the tax requirements at hand at a set moment in time. By virtue of the available tax technology and data management and analytics, more transparency can be generated within the data of companies resulting in more efficiency with regard to the collection of data for tax accounting and reporting purposes.
Additionally, companies have shifted the way they ‘do tax’ as a result of the growing demand for tax reporting and tax compliance. With the introduction of the tax operating model, companies (and their tax departments) have developed new strategies to organize the tax department’s activities, people, processes, and infrastructure in order to be in compliance with tax laws and regulations while achieving the company’s strategic aims. The tax operating model should be effective, efficient and transparent in order to meet the growing demand for tax reporting and tax compliance and therefore to be successful.
Conclusion
Tax reporting and tax compliance is becoming increasingly important worldwide. Furthermore, governments worldwide are mandatorily promoting transparency. Also smaller jurisdictions such as Aruba are implementing laws and regulations that promote transparency and overall compliance with tax laws and regulations. This growing demand for tax reporting and tax compliance has resulted in an increased demand for well-functioning tax-control frameworks, modern-day reporting tools as well as tax accounting and innovative tax operating models. All these tools are built to help manage and mitigate risks that exceed a company’s risk appetite and meet the growing demand for tax reporting and tax compliance.