In the shadow of Corcovado Mountain and the world-famous Christ the Redeemer statue, the sprawling modern metropolis of Rio de Janeiro is home to the natural beauty of some of the world’s most beautiful beaches, as well as technical marvels such as the Museum of Tomorrow. It was in this setting that roughly 1,000 dignitaries and taxation experts from around the globe gathered for the 71st Congress of the International Fiscal Association at the end of August.
During the conference, attendees were treated to a program that explored topics such as the G20/OECD Base Erosion and Profit Shifting (BEPS) initiative and the future of transfer pricing. To take advantage of the opportunity that such a strong collection of the best and brightest of the global tax and accounting profession presented, Thomson Reuters hosted a special thought leadership discussion and dinner during the Congress on the disruptive trends that will have implications for years to come.
Thomson Reuters Tax & Accounting President Brian Peccarelli hosted the dinner, with Axel Threlfall, editor at large with Reuters News leading the invited guests to examine a variety of emerging disruptions (technological, regulatory and human talent) being faced by corporations, governments and regulators across the globe. Topics that the guests tackled over the course of the meal included Brexit and impending US tax reform; big data, information disclosure and data privacy; and the digital economy.
On the question of what excites (or worries) attendees the most about disruption in business, the topic of Brexit quickly came to the fore. According to Jeremy Cape, Tax and Public Policy Partner with Squire Patton Boggs, “In the UK the focus is on trying to understand what we are going to achieve with such a disruption as the Brexit. We should study the various options of what it means. The Home Office background and interpretation affect all the subsequent views on the matter. In many ways, it is not only about the decision to leave the European Union (EU). There is this big debate right now: ‘What should the UK be in the years to come?’ In terms of broader interpretation, because of the social issues related to globalization, it is going to be very hard. We will need a profound debate.”
Regarding Brexit and the impact of its relationship to the EU, Pascal Saint-Amans, director of the Center for Tax Policy and Administration of the OECD said, “From a tax perspective, once the UK is out, the other countries will have to redesign Europe. If the countries do what they have to do, you will have an important regional group in the international arena that will be able to speak on equal terms with the US. I foresee that Europe will take the lead. That may be positive.”
In today’s digitized world, technological innovations are equipping regulatory bodies with greater resources to insist on more robust reporting.
As a result, global corporations have to be better situated to provide data, but with the ever-evolving landscape of the digital economy it begs the question, can regulation effectively keep pace with technology?
“I think one of the biggest disruptions we’re currently seeing in the market is digital taxation,” said Tatiana Falcão, an economic policy advisor formerly with the United Nations Committee of Experts in International Tax Cooperation. “Countries will focus their attention on taxes and revenues, and they will look for investments that are capable of generating good revenues, such as environmental taxation. For instance, all of the Nordic countries have strong experience on environmental taxation and they have sophisticated tax revenues. They invest in new resources. The digitized economy will affect the traditional ways of doing business going forward, and we’ll just have to rethink traditional business in light of those developments.”
Commenting on how mercurial the digital taxation landscape has become, Brian Peccarelli shared, “20 years ago, it would have been difficult for companies to comply with so many new laws and regulations. Technology has changed that completely. There is much more room for global regulators to drive transparency. When it comes to the digital landscape, regulators are at the forefront of looking at issues of fairness, but the discussion is only beginning on how to tax explosive growth. It’s a very complex issue.”
“Different countries will find different ways of dealing with their tax administration and there is going to be friction,” added Cape. “We still have to find some common ground solutions. But there is also room for opportunity. So disruption does create opportunity, in my opinion.”
Intimately tied to the digital economy, data privacy (and its implications) was a key discussion topic for the group.
According to Saint-Amans, “What we are not discussing enough is privacy. We are giving up the data to the companies. They use it to improve services, but it might bounce back. The fundamental idea was that democracies were built to protect privacy, and that has changed. What do the countries do? Where do companies store the data? I think there is going to be a privacy and data crisis soon.”
“Collection of data is key to the future,” added Cape. “One issue is if everyone is forced to collect data and store it. There are potential applications elsewhere.”
A challenge with data privacy is the problem of keeping it secure. As Falcão noted, “It would not necessarily be about the collection of data, but where do you store it? You are producing substantial economic activity, but there are sovereignty issues and tax issues to be taken into account.”
From these and other topics discussed at the dinner (as well as at the IFA Congress in general), it is clear that like so many other professions, disruptive change is quickly becoming the new norm for tax and accounting. The smart practitioners are taking steps now to learn and adapt to new technology to stay in step with regulators and stay ahead of the competition.
For further insights and commentary on disruptive trends, please enjoy these other readings from Thomson Reuters: