The profession of tax advisors is dead (in a few years)! - This statement can be frequently found in the (specialist) literature. Fromour point of view, though, it is based on an absolutely false assumption, i.e. the assumption that humans will become superfluous or can be completely replaced by introducing a sufficiently high degree of automation in the tax area - which is not the case. However, one thing cannot be dismissed: The profession of tax advisors is currently undergoing a profound and structural change, which must be accompanied actively and with a positive will to shape it. Before we turn to the current developments and enter the discussion about the future of the tax consultancy profession, though, we should first take a look at the developments that have led to the current discussion points.
Turnover tax as a blueprint for developments
In the following, we will initially confine ourselves to a consideration of turnover tax. This is because turnover tax, as one of the most important and prominent instruments of the taxation of goods and services, has undergone a remarkable transformation during the last 100 years. The introduction of VAT dates back to the beginning of the 20th century, when states began to tax consumer goods in order to diversify their sources of revenue. In Germany, the first iterations of this tax were introduced in 1918. In the beginning, however, the sales tax was still limited to a rudimentary structure – but this changed rather quickly.
Over the following decades, the complexity of turnover tax systems increased exponentially. The differentiation of tax rates according to the value and social significance of products and services led to a complex web of tax rates and exemptions. The internationalisation of VAT, particularly in the European Union in the 1960s, marked a turning point in the global spread of this tax concept, which culminated in the first implementation of the VAT Directive in 1993.
With the increasing globalisation of the economy, the challenge arose to effectively tax the newly emerging online trade and the ever-increasing cross-border trade. The associated topics of internationalisation and globalisation are the core areas today that are driving the change in taxation and the associated professional fields, because effective, efficient, and complete taxation of globalised trade cannot be done by using just paper.
A paper world
With regard to digitalisation, the entire tax sector, like many other sectors, is facing enormous challenges. Even though the field of digitalisation solutions has developed rapidly in recent years, the many documents in Germany are still filed as written papers. This is already in stark contrast to the increasingly digitalised accounting system. It is therefore not surprising that the media discontinuity between an increasingly digitalised accounting system and a still very paper-based document world is a source of a multitude of problems.
The media discontinuity leads to the main problem of this hybrid way of working: double data entry. This is necessary in order to transfer physical documents into digital accounting systems. Due to the manual input, this process is not only very error-prone, but also time-consuming. In recent years, a number of digitisation solutions have been established in this area, which transfer the receipts at least semi-automatically into the digital accounting system. The original problem – between the issuing of a voucher and its entry into the digital accounting system, a further (error-prone) intermediate step is still necessary - remains.
A paper-centric receipt world brings its own problems. One example is the lack of transparency. When receipts are only available in physical form, access to relevant accounting data is hampered, which can lead to delays in reporting or decision-making. The physical storage of paper receipts also takes up considerable space and can lead toadditional costs in terms of paper procurement and storage.
A paper document world - a no-go for VAT
The complexity of VAT and the ever-increasing compliance requirements make it difficult to manage paper documents. The complexity of regulations and tax requirements will continue to increase in the future as the tax authorities demand deeper insights into accounting and billing behaviour; a task that will become increasingly difficult - if not impossible - with a paper-based voucher world. Motivating these trends is VAT fraud. The estimated loss of VAT revenue for EU member states in 2020 is €93 billion. This amount refers to the VAT gap, which is the difference between expected and actual VAT revenues. Besides tax fraud and evasion, a variety of other factors, such as miscalculations and administrative errors, are responsible for this gap.
Paper-based receipt accounting can facilitate VAT fraud in many ways, as it is more susceptible to manipulation and more difficult to control. In addition to the points already mentioned, paper-based receipts are not only difficult to trace, but also pose numerous auditability problems.
The e-bill - the ultimate digitalisation of taxation
In order to counteract this development, Italy, as a pioneer in the introduction of e-invoicing, has already introduced uniform electronic invoicing as of 1 January 2019. This applies to all B2B, B2G and B2C invoices. Since then, all invoices must be created in the uniform XML format "FatturaPA". All invoices follow a standardised data set, which makes it possible to fully automate subsequent processes such as invoice verification, booking processes, etc. - which has massively increased the degree of digital maturity and addressed many triggers of the VAT gap at the same time.
Without going into the complex process model in more detail, it is probably more important to mention here that this step has a significant impact on the fight against tax crime.
This exemplary development in Italy brings us back to the beginning of this text at this point. For it is precisely in this complete digitalisation and also in the complete standardisation that many sense the death of the profession. This is because such a development is already underway in Germany as well.
The development of e-billing in Germany
As early as 2011, electronic invoices (e-invoices) were treated the same as paper invoices for VAT purposes, and with the introduction of e-invoicing in public administration, a further significant step towards the digitalisation of administration was taken. From the end of 2019, the federal administration is obliged to receive and process e-bills. In addition, as of 27 November 2020, all billers will also be obliged to transmit electronic invoices to the federal government's contracting authorities. In future, all companies in Germany are to issue only electronic invoices to each other. The federal government is planning for 1 January 2025 to be the starting date for the e-invoice obligation. From this date onwards, according to the plans, all companies should be able to receive electronic invoices.Businesses will be given one additionalyear to create and send e-invoices, so that they will only have to send their own invoices electronically by 1 January 2026 at the latest.
The economic potential of e-billing
The further introduction or expansion of e-billing holds enormous potential in many respects, not only by positively reshaping the tax advisor's professional field, but also by bringing about a multitude of improvements from an economic perspective.
After all, the widespread introduction of e-billing will bring about one thing above all: Tax revenues will increase, without a single tax increase. For simply by avoiding tax fraud or even accounting errors or the like, the VAT gap will become smaller and smaller. This alone will only bring further advantages to all businesses that comply with the applicable tax laws anyway. And overall, the resulting additional revenue will have a positive impact on the economy and society as a whole.
IT competence must increase
Beyond that, however, the question naturally arises as to how work will be done in the tax field in the future and to what extent the profession will be affected by these changes. To come straight to the point: The profession will change fundamentally. For the better. The profession of tax advisors is currently still characterised by a multitude of repetitive activities that not only take up a lot of time – which could be better used for giving advice. Because advice should be the focus of the work in this professional field.
Counselling brings added value and makes people so valuable
Future-oriented counselling with many years of expertise, which, in addition to solving complex problems, also includes human aspects such as empathy and sensitivity, is so incredibly valuable that we can all be happy when progressive automation creates more space for precisely this.
In order to be able to use this potential and the possible room for manoeuvre in the future, it is of decisive importance that, on the one hand, training is adapted to these changed conditions and, on the other hand, that those already in the profession also deal with this topic and continue their training accordingly. Even though tax advisors already deal with data in many ways today, tax training must be linked to a strong IT focus in the future. And herein lies the great opportunity to free the profession from its dusty image and to make the entire field of work more attractive, especially in times of a shortage of skilled workers.
But it is not only the people who have to adapt to the changed conditions. The corresponding software solutions - also called tax technology - must also adapt to the expected degree of standardisation. The focus here is on the seamless integration of tax data into financial systems in order to optimise the entire business process without media discontinuity and to minimise errors in tax reporting.
Overall, tax technology will play an increasingly important role in the tax world, as companies will not only be intrinsically motivated to increase their efficiency and thus minimise costs, but it will also become increasingly important to ensure tax compliance and minimise tax risks.
Companies should therefore address the human resources and technological challenges of the future now at the latest and realise one thing: There is much to gain and nothing to lose. Those who courageously go ahead and thus help shape the system will benefit the most. So: Courageous pioneers and pioneers ahead!