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.