Cloud tech and taxes: Outsourcing complex tax processes to the cloud

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  Quantumrun Foresight
• December 5, 2022

Insight summary

The cloud has become an increasingly popular operating platform option for businesses of all sizes and industries, offering flexibility, scalability, and cost-effectiveness. And as the trend toward cloud adoption continues to grow, tax authorities are following suit, shifting to cloud operations and re-hauling outdated and clunky legacy systems. The long-term implications of this shift could include specialized cloud tax jobs and governments requiring all businesses to transfer to cloud-based tax systems.

Cloud tech and taxes context

During the COVID-19 crisis, the need for cloud-based, digitized, and automated systems and procedures became more apparent than ever. Many tax executives struggled to ensure that their tax experts had access to the required systems, tools, and data during the lockdowns because they lacked timely access to critical documents. These tax and audit executives now recognize the shift to cloud-based ERP (enterprise resource planning) systems as a straightforward route for them to become the real-time, forward-looking strategic advisers their respective companies demand.

In addition, cloud solutions free up management time to focus on more valuable tasks. They also remove the need for overly large IT (information technology) departments to handle on-premises implementations, which are difficult to plan for from a resourcing viewpoint. The use of cloud computing to decrease technology expenses, manage workflow, and enhance organizational efficiency is becoming increasingly common among large corporations. Meanwhile, smaller organizations use cloud computing for these same purposes and to gain access to the IT knowledge and capabilities of indirect tax (taxes on goods and services) software providers–particularly those who own the data centers in question. 

Previously, tax departments did not often ask for IT budgets, and tax authorities were doubtful about adding yet another installation to their already complex systems. The problem isn’t that they were complacent; traditionally, IT and tax departments typically don’t understand each other, have different goals, and face different issues. However, for tax authorities to evolve with the increasing disruptions in the e-commerce and labor industries, they must digitize.

Disruptive impact

Cloud-based technologies can help tax authorities and companies manage their workflows better by increasing efficiency and productivity. Cloud-based systems allow tax authorities to manage their data more effectively, leading to faster and more accurate tax filings. In addition, the cloud makes it easier for tax authorities to share data with other agencies domestically and internationally to identify potential fraud or tax evasion.

Another key benefit of the cloud is that it allows tax authorities to keep up with evolving technology and digital infrastructure trends. The cloud is constantly evolving, so tax authorities can utilize innovations and updates as they become available. These efforts can help them stay ahead of the curve when it comes to taxation and keep up with the latest compliance requirements, which can vary from one territory to the next. In particular, many countries are digitizing their taxation systems, like the UK’s Making Tax Digital Initiative.

Finally, transitioning to the cloud can help tax authorities save money. Cloud-based systems are often more cost-effective than on-premises systems. In addition, they require less maintenance and administration, which can help tax authorities reduce their overall IT costs and lessen downtimes. However, there are also some challenges to transitioning to the cloud.

One difficulty is ensuring the transition is done in a phased approach that allows for careful planning and execution, especially for sensitive information like tax returns. Another challenge is ensuring that the cloud infrastructure can handle the load of all the data required for tax purposes (which are significant). And finally, tax authorities need to ensure they have the necessary personnel or training programs to manage and operate a cloud-based system.

Implications of cloud tech and taxes

Wider implications of cloud tech integration with taxes may include: 

• More companies and tax authorities partnering with software-as-a-service and platform-as-a-service businesses to automate their tax filing.
• An increased number of cloud software that caters specifically to the tax industry. This development can lead to an overhaul in how tax professionals are trained.
• Tax procedures that are self-service and convenient, leading to increased tax filing and reduced instances of tax evasion.
• Governments incentivizing (and in some cases, mandating) independent contractors and freelancers to file taxes by using cloud-based apps that can be downloaded on smartphones.
• More countries digitizing their tax systems, leading to more centralized public service systems, which can result in increased public tax revenues.
• Enhanced cybersecurity measures within cloud-based tax platforms, ensuring data integrity and building user confidence in digital tax transactions.
• Shifts in job roles and skills demand in the tax sector, with a greater emphasis on digital literacy and cloud technology expertise.
• Development of AI-driven analytics in cloud tax systems, allowing for real-time financial insights and more efficient government budget planning.

Questions to consider

• If you work for the tax industry, what cloud-based technologies are you using?
• How else do you think digitization will encourage people to pay their taxes?