New Excitement On Taxes: RegTech

Marc Hoessels and Michael Depner

We’ve just come from listening to the excellent radio episode “New Tax Burdens: Can Technology Rescue Your Business?” The initial discussion was on whether a presumably boring topic like taxes could have the potential to excite Generation Y and Z members.

While the discussion on this radio show was inspiring, the answer to the question is very simple. Benjamin Franklin said it first: “In this world, nothing can be said to be certain, except death and taxes.” This answer is reinforced by the enormous number of startups that combine taxes with the latest technology. This sector is called RegTech, and it is closely related to (and overlaps with) similar sectors, FinTech and TaxTech.

What’s changed?

In this article, we will outline what has changed recently to make taxes become more exciting. We’ll also explore what RegTech is, how it relates to taxes, and most important, why and how it matters to you.

Let’s start with the question: Why should taxes matter to you? Assume for a moment that you are not in a responsible position as a leader in your company, but an ordinary, private individual taxpayer. Three things matter:

  1. That you stay legal. No fines, no penalties.
  1. That you do not pay too much taxes. You want to pay your fair amount, but not overpay, and apply all possible deductions.
  1. That it’s done once and well. Tax calculation and declaration is usually seen as a tedious process that consumes time you could use to do better things.

Now, switch back. You are a responsible company leader, and the matter of taxes is important to you for the very same good reasons. So tax-handling should matter to you. Let’s assume the following:

  1. You have a bulletproof guarantee that you are compliant.
  1. You can save some percentage of tax payments (such as R&D tax credits for your company, but also for your employees).
  1. Tax handling does not consume time you need to focus on your business.

These assumptions have not always been true. Three major changes have taken place in recent years, the first two in the technology sector:

  1. Governments have gone digital. Governments have realized that there is a way to get the last penny from taxpayers: using transparency by leveraging the latest technology. We are seeing a formidable wave of new legislation flooding companies worldwide: SAF-T, SII, GST, X-Rechnung, you name it. Basically, this wave introduces real-time reporting of invoices and taxes using cutting-edge technology. This level of disruption can be channeled and tamed only by using the latest technology.
  1. Availability of the latest technology. Companies can profit from much better solutions leveraging cloud technology in the area of taxes. Financially, this means a rental model with the option to easily change the provider, and technically, it means immediate availability and adoption. One of the cloud’s primary benefits is that it lets you easily add new business jurisdictions, automatically updating the rules and minimizing maintenance costs. In addition, artificial intelligence and blockchain use cases are also starting to open new doors.
  1. Tax laws have become stricter with respect to compliance, so the risk of non-compliance and corresponding penalties has increased considerably. Rigid tax-collection practices can result in tax directors and CFOs being held liable in cases of incorrect information and marketplaces being held liable for incorrect tax calculation by the users of such marketplaces. Tax authorities are broadening their scope; for example, in the United States, the Wayfair companies are due to pay sales taxes even in states where they have no establishment if they pass a certain threshold in business revenue in that state.

It is no surprise that many startups are developing solutions for companies and individuals. They have discovered that the tax sector has become more and more technology-heavy and that the market is huge. Indeed, more conventions and conferences are being held every year on the topic of RegTech.

What’s next?

While a common perception may be that RegTech is dominated by startups, most of the major players in the tax technology sector are not considered part of the RegTech community. Traditional ERP software providers deliver the latest solutions, and traditional consulting companies complete the offering with state-of-the-art business and legal competence.

There are indeed large software providers that offer it all: cloud-based tax calculation, tax declaration, and compliance checks, even enhanced with AI capabilities. Such a global tax solution would represent an end-to-end solution and also serve as a platform to offer enhancements by a community of partners. The solution would be global in nature, meaning it provides for all tax legislation with the same architecture and look and feel, while at the same time addressing the legal need of any specific country. And of course, it would be a cloud solution that adapts when users expand their business to new areas, calculating taxes accurately even when the tax rates or rules change rapidly.

All this goes hand-in-hand with traditional large consulting companies that provide the link between a customer’s business and the technical solution, and in many cases, it also can enhance the technical platform. Many startups’ agile innovations fit perfectly into the platform concept of that tax solution and can enhance the overall offering.

RegTech startups have the agility to introduce cutting-edge technologies like blockchain into taxes, adding new ways to control tax collection and take it to a new, unprecedented level of accuracy while also eliminating administrative work.

This could mean indeed exciting times ahead for companies fulfilling the promise of RegTech.

For more on emerging technology in the financial sector, see Why Corporate Banks Should Embrace AI And Machine Learning.

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Why have AI, machine learning, predictive insights, and digital assistants become the must-have new tools of forward-thinking CFOs to drive business performance? Watch the Nov. 6 webcast.


Marc Hoessels

About Marc Hoessels

Marc Hoessels is a recognized Tax Adviser and Member of the Belgian Institute of Accountants and Tax Advisers and has more than 20 years of experience in Tax Technology. Marc is co-leader of the Belgian Tax-TPC (Technology, Process & Controls) team and Indirect Tax Technology Director at PwC Europe. Marc also closely cooperates with the SAP Globalisation team and other vendors allowing them to keep their technology up-to-date with the challenges tax authorities and clients request (such as real-time reporting, tax determination & calculation, advanced analytics and dashboard solutions). He has managed various international coordination projects for leading MNCs and assisted various clients on how to determine their TAX-IT strategy as well as assisted with the roll-out of many tax technology driven projects in companies and Shared Service Centers.

Michael Depner

About Michael Depner

Michael is Vice President and Head of Globalization Product Management at SAP Globalization Services in Germany, with over twenty-five years of professional experience. He began his career at SAP as a developer and later headed various international teams, being responsible for adapting SAP solutions to different locations and markets. In particular, Michael headed SAP development locations in Germany, India and Brazil, managing organizational growth while ensuring constant high quality of development output. In parallel, he introduced companywide processes to ensure SAP developments follow a so-called Globalization Standard. With this, SAP customers can benefit from SAP solutions globally.