How Digital Transformation is Affecting Compliance for Multinationals

It’s fair to say the past 250 years have seen their share of process and workplace revolutions. First, moving from agriculture to manufacturing, then to technology that changed the way we communicate, travel, and innovate. Finally, from the 1960s to the 1970s, we arrived at the third phase of the Industrial Revolution – the Digital Revolution – where electronics, computers, and telecommunications automated large parts of our everyday lives. Now, we’ve taken the term digital to a new level, defined by the ubiquitous use of the internet, application of artificial intelligence, and greater reliance on the cloud, the internet of things (IoT), and big data. This digital transformation has big implications for both governments and multinational corporations.

These changes take us into a Social Revolution, where information and commerce are communicated socially and exchanged individually. In addition, these technologies are used to personalize customer experiences while minimizing time and resources and increasing profit margins. While these digital technologies have reinvented the business world, they’re also influencing how governments operate. Authorities worldwide are using digital tools to improve their efficiency and make better-informed decisions. In fact, nearly 75 percent of government official respondents to a Deloitte survey acknowledged that the pandemic has accelerated their governments’ digital transformation timeline, presenting a substantial challenge for IT teams at multinational organizations.

The Catalyst of Government Digital Transformation

Over the past two decades, governments have evolved from manual, paper-based processes to adopting significant digital advancements to address front-end services, such as paying taxes, renewing driving licenses, and applying for benefits. These changes address constituents' expectations, which have become accustomed to e-commerce, online communications, and reliance on mobile technology in their everyday lives. Yet, at the same time, governments have postponed bigger, more extensive overhauls that would streamline operations and systems and enable them to be more efficient and effective in their jobs.

Response to the COVID-19 pandemic exposed governments’ internal operational shortfalls, raising even more general questions about their performance, ability to adjust to rapidly-changing circumstances, and the oversight of their decision-making. While many governments had to deal with the immediate needs spurred by COVID-19, some have taken the opportunity to use it as a catalyst for digital transformation that will benefit both the government and its citizens for years to come.

For example, the Portuguese government created an Office for Digital Response to the Pandemic through which they assessed and implemented digital measures to ensure a coordinated response involving public and private organizations. In Singapore, a hospital developed a dedicated emergency response healthcare center that used AI and big data to predict demand for services so organizations could collaborate to meet needs quickly.

If one positive has come from the pandemic, it is that governments now comprehend how digital transformation and sound data policies are fundamental to enabling agile responses and effective solutions.

A Taxing Problem

Digital transformation's increased digitization in government will add significant pressure on multinational organizations, specifically as it relates to tax administration. Governments are now integrating themselves into organizations' data stacks to get real-time insights into business-to-business transactions – from accounts payable and accounts receivable to procure-to-pay, supply chain logistics, and everything in between. The mandates are not global in scope; rather regulations in Mexico are different from those in the United Kingdom, and those diverge from Spain's and other countries' tax reporting as well.

As part of this government integration into organizations' data, tax agencies are now applying machine learning to identify potential fraud characteristics. This sophisticated automation can help the agencies quickly find subtle clues hidden in mounds of data that auditors who have previously relied on more manual processes could miss or overlook. But, this presents a challenge for multinational organizations. Since tax rules are complex and can vary from region to region, these organizations must constantly adapt to remain compliant.

Continued Transformation

Given the success of early technology implementations to improve back-end processes, governments will only get more sophisticated over time. These changes will make it difficult for companies that conduct business around the globe, requiring constant vigilance to adapt to a variety of continually changing regulations. To succeed and guard against penalties during this time of digital transformation, multinational corporations must follow governments' playbooks and leverage machine learning. Tax reporting solutions that enable organizations to track regulatory changes from country to country and automatically implement the correct processes within reporting structures will ensure that multinational corporations do not run astray from government compliance. In addition, these solutions can be proactive in responding to government regulations today and in the future.