Offshore tax reporting

Since the inception of the BEPS initiative in 2015, the concepts of fairness and transparency have underpinned many of the developments in tax policy and regulation that have followed.

The consistent theme since then has been the volume, frequency and cross-over of data being reported.

Increasing societal and political pressure, which has been accelerating post-COVID and in the current turbulent geopolitical environment, means governments expect tax authorities and regulators to enforce new, robust measures. All to ensure that taxpayers – particularly multinational businesses and HNWI – pay their ‘fair’ share.

What is considered ‘fair’ is open for debate, and interpretations can vary depending on political perspective and the state of public finances.

The pace of change and the speed of implementation can result in a lack of alignment across different reporting regimes, and it can often feel like efforts are duplicated both on a domestic and international level.

This has meant increasing demands are placed on businesses and their tax functions to provide regular reporting of data that is extracted from multiple systems. And often it is not easily extractable in a consistent and efficient way.

HMRC’s “Making Tax Digital” campaign in the UK is a great example of the direction of travel over the past 10 years. They are not alone, as many jurisdictions are moving to real-time reporting and using increasingly sophisticated technology to assist in that.

In an offshore environment, the situation feels somewhat different. While the sentiment remains true – and many regulatory changes have been directed at offshore jurisdictions (i.e. substance reporting and Pillar 2) – the ability of national governments and tax authorities to leverage digital capabilities to facilitate this transition to a more real-time, digital approach to tax reporting has moved much slower. Naturally, so has the response from industry.

However, developments such as AEOI reporting (FATCA/CRS/CbCR), Economic Substance and now Pillar 2, means the information gathering capabilities and powers of revenue authorities have significantly ramped up. And this theme is set to continue.

The implication of these developments – especially in the offshore market – is the additional burden placed on tax and finance functions to keep pace with reporting demands. All whilst  struggling for human resource.

It is imperative, then, that the market responds with suitable investment in tackling these increasing demands for data with smart digital solutions.

Tax and tax reporting is at the forefront of international, government and agency agendas – and that within this, offshore jurisdictions are in the spotlight. The businesses that operate in this market must adapt and explore how digital solutions can be implemented, to transform the way they deal with the ever-increasing administrative burden of tax reporting.

Considering that offshore jurisdictions have historically had simple and low risk tax reporting environments, it is understandable that investment in digital solutions has been slower than in mainland jurisdictions – it simply hasn’t been a requirement. However, that has all changed, and businesses must now adapt to the new environment.

At KPMG, we are unique in the offshore environment in that we operate as an Islands Group – including the Crown Dependencies, Cayman, Bermuda and Malta. KPMG Islands Group operates within the wider KPMG Global network.

This has enabled us to leverage expertise in the offshore market and to access technology from the wider global network, while strategically applying local expertise and infrastructure to develop digital solutions that are tailored to offshore requirements.

We understand that each jurisdiction can have its own nuances, which makes developing digital solutions across operating jurisdictions challenging and expensive. We continue to invest in changing our approach to tax reporting to ensure it delivers what is important to clients and enables them to comply in a cost-effective and efficient way.

If you are interested in exploring how KPMG can work with you to transform your approach to tax reporting, please get in touch by emailing matthewthomas@kpmg.com.