KPMG report: Future of the indirect tax return

Historically, the relationship between the state and taxpayers has followed a certain social contract: the state imposes taxes, taxpayers self-assess these taxes, and the state verifies the accuracy of the self-assessments. This approach has been practical, because taxpayers are in the best position to identify and report their tax-related activities (sales, purchases, withdrawals of inventories, fringe benefits) and self-assess the tax. Consequently, the tax return serves as a statement that defines the scope of each business’s and individual’s tax liabilities while providing the state with the necessary information to perform verification.

However, the increasing complexity of national and international tax systems and advancements in technology are gradually changing this social contract. Now, the state is more likely to levy taxes, assess these taxes, and allow the taxpayer to perform post-assessment controls (if any). This shift has been most evident in the realm of indirect levies, particularly value added tax (VAT) systems. Over the past 20 years, and more prominently in the last five years, tax authorities have heavily invested in new tools and introduced continuous transaction control (CTC) mandates—a form of transaction-based reporting or clearance, either based on the actual invoice or a subset of the invoice.

Read a December 2023 report* [PDF 520 KB] prepared by KPMG LLP tax professionals that explores the future of indirect taxation and the indirect tax return, explaining how technology will play a major role in the development of future tax reporting regimes.

* This article originally appeared in Tax Notes International (18 December 2023) and is provided with permission.