Although Base Erosion Profit Shifting (BEPS) is not a new thing, the Two-Pillar Solution developed by the Organisation for Economic Co-operation and Development (OECD)/Inclusive Framework project is trying to address the new challenges of the digital economy and drive reform in international tax rules as we know them today. Tax regulations and tax policies adopted by tax authorities are increasingly influenced by the rules and guidance developed multilateral bodies, such as the OECD. Globalisation is challenging tax authorities to think more broadly and expand multilateral efforts to develop more comprehensive tax policies.

A recent agreement among G20 countries to adopt a 15% minimum corporate tax for large multinationals. If implemented by countries around the world will mean that countries will no longer be able to participate in the competitive “race to the bottom” over corporate tax rates. This will force businesses to change how they think about profits and cost optimizations within their own supply chains and operating structures.

The recent surge in remote work opportunities and the employment of workers from other states or countries has been significantly accelerated due to the COVID-19 pandemic. This trend has opened new opportunities for businesses to hire workers from outside of their tax jurisdiction, where they have tangible or intangible operations, but it has also created a complex web of tax liabilities for both employers and employees.

While self-employment is not a new trend, growing numbers of gig workers and participants in the sharing economy do not fully appreciate how their current work environment may impact their tax liabilities.

While traditional employees are covered supported by their employer with regard to tax liabilities and benefits, gig workers carry their own as a self- employed worker. This creates a reporting burden on individuals as they seek to timely and accurately meet their tax reporting requirements. Hence, regulators are increasingly turning to gig worker enablement platforms in search of accountability and transparency, creating the space and the need for these platforms to help their customers comply with tax regulations by embedding tax reporting solutions directly into their offerings.

By the end of 2019, e-commerce was maturing rapidly, with consumers adopting more digital-centric shopping habits. Bolstered by the pandemic, the global e-commerce market is slated to grow by $10.87 trillion from 2021 to 2025, representing an impressive CAGR of 29%. US e-commerce sales are anticipated to pass the $1 trillion milestone in 2022, previously expected to reach this threshold by 2024. Marketplaces and e-commerce platforms have paved the way for anyone to become an e-commerce seller and transact with customers across the globe. Because the digital economy has enabled e-commerce to seamlessly take place across jurisdictions, sellers need to contend with complex tax liabilities imposed by different tax types, rules, and rates – from sales tax in the US and VAT in Europe and the UK, to international customs and duties. The need to manage this exposure creates a huge demand for TaxTech solutions.

Following a surge in mainstream crypto adoption over the past several years, regulators are now grappling with new frameworks for taxing crypto transactions. Since 2014, US regulators have treated crypto like property, that is, holders owe standard capital gains taxes on the appreciated amount of their assets when and if sold, used, exchanged or transacted. However, these tax rules have given rise to a new challenge: how to ensure the proper reporting of crypto transactions and associated payments of tax.

Outside of the investment management space where some reporting obligations fall on those who manage the accounts of a taxpayer’s investments, the responsibilities for reporting fall on individual investors or users, who may not understand how their crypto transactions create tax obligations. The evolving NFT space, coupled with the emergence of Central Banks Digital Currencies (CBDCs) and Decentralised Finance (DeFi) activities, also have tax implications that authorities will need to address in the future.

Certain segments of the tax industry may be reliant on analog processes and slow to adopt new technology. Better tech-enabled tools that can integrate systems and automate operations to streamline taxes can further help digitize the industry. As this report dives into the technologies that define the age of TaxTech, key requisites for TaxTech solutions are the broad digitization of financial tools, improved automation through machine learning (ML) capabilities, and the ubiquity of cloud-based platforms including cloud-based ERP solutions. In addition, TaxTech leverages transformative capabilities, such as artificial intelligence (AI), natural language processing, (NLP) and blockchain to potentially transform the industry. Although still considered a young ecosystem, TaxTech is already implementing solutions considered science fiction in the past, including real-time reporting and data wrangling.