Tax reform within a digitalised economy: tax, technology and assurance
Abstract
Tax administration within the digitalised economy is currently under scrutiny, globally, due to the
disruption that the digitalisation of the economy caused in traditional tax administration processes
and policies. The Third Industrial Revolution introduced the “Internet” to the world and from there
the Fourth Industrial Revolution introduced various other digital tools and innovations, such as
the Internet-of-Things (IoT) and artificial intelligence (AI) that impacted the economy. One of the most significant changes associated with the Third Industrial Revolution is probably
the fact that it connected the world and eliminated various business and communication
challenges that were previously associated with physical borders. The Internet and the
innovations that followed the introduction of the Internet enabled digital global trade. Traditional
business models soon transformed to take full advantage of the digitalised economy. This
transformation resulted in a global decrease in physical presence and an increased reliance on
intangible assets and users to create value. This is in comparison to physical and tangible assets
and inventory per the traditional business models. Traditional goods or physical inventory also
transformed, in many instances, into digital services. The digital reform had a major impact on the global economy, as businesses suddenly had access
to new global markets that they did not have access to previously. New business models were
also created within the digitalised economy which also created new commodities such as data.
These innovations and transformations, however, also impacted the national and international tax
systems. The digitalisation of the economy enabled businesses to be structured in such a way
that they pay minimal or no taxes within the digitalised economy, while creating significant global
turnovers. The digitalisation of the economy also enabled tax leaks and base erosion and profit
shifting globally. These challenges led to the international tax community questioning the
relevance and effectiveness of current international tax system in the digitalised economy. Although the digitalisation of the economy disrupted the “traditional” international tax system as
well as tax administration systems, it also introduced various opportunities from a tax
administrative perspective. This study evaluates the status quo of tax reform in response to the
digitalisation of the economy by evaluating the international tax system as a holistic unit or
organism. In research article 1 the global tax legislative and policy reform that took place to date in response
to the digitalised economy is evaluated. This evaluation is done from a global perspective, as the
digitalised economy is regarded as a unique environment, therefore it can be argued that the
legislative and policy reform in this regard should also be evaluated from a global and holistic
perspective. Direct and indirect tax types that are impacted the most by digitalisation were
evaluated together with other elements and their tax implications, such as cryptocurrencies and
the gig and shared economy. The research results indicate that the current international tax reform lacks consistency and that
it does not take all aspects of digital business models into consideration. The current tax reform
is still bound to physical country borders and based on “traditional” international tax rules.