On 8 December 2020 the OECD’s Forum on Tax Administration (FTA) released a paper entitled Tax Administration 3.0: The Digital Transformation of Tax Administration outlining a concept for digital development of tax administrations that leads over time to a seamless process within the administration. The paper is intended to encourage discussion of the vision for a digital transformation, to assist tax administrations to consider how this vision can be taken forward. The next step will be the development of a roadmap to highlight priorities for future work in the FTA.

Tax Administration 3.0

Whereas Tax Administration 1.0 was a manual paper-based process, the introduction of opportunities for tax administrations to use digital data and analytical tools and chances to join up with government departments, the private sector and internationally has led to efficiency improvements that could be termed Tax Administration 2.0 or e-administration.

The paper outlines a digital transformation to achieve Tax Administration 3.0 allowing taxation processes to be built into the systems used by taxpayers to run their businesses, undertake transactions or communicate. The taxation process would therefore be closer to the taxable events thereby removing the compliance burden resulting from the need to use different processes to deal with tax reporting. This would help to overcome the limitations of tax administration that currently result in tax gaps, uncollected tax debt and growing compliance costs.

Building blocks

The process of digital transformation requires a period of years to put into place as the processes link up with other parts of government, private sector actors and across borders. Some benefits may however be accessed as the digital processes are built up. The individual building blocks of the digital transformation can each improve the flexibility of tax administrations in response to future crises. The building blocks identified in the report include digital identity, taxpayer touchpoints (e.g. access to real-time support), data management and standards, tax rule management and application, new skill sets and governance frameworks.

Digital identity

This involves support for secure identification of taxpayers.

Taxpayer touchpoints

These allow better engagement of taxpayers with tax administration processes, for example by accessing real-time support, and inclusion of tax processes into taxpayers’ own systems.

Data management and standards

These standards would guide the tax administration in managing data effectively to maximise tax compliance and reduce compliance costs. Data related to tax functions could be processed within the tax administration, within the taxpayers’ systems or in both, to facilitate tax reporting.

Tax rule management and application

This could involve distribution of tax laws in administrable formats to allow taxpayers to integrate tax rules within their own systems.

New skill sets

New skills are needed for the development of digital tax administration systems, which will increasingly be supported by artificial intelligence rather than human interventions.

Governance frameworks

Governance frameworks will be needed to guide the implementation of the building blocks within the tax administration and to direct the connectivity with other domestic and international parties.