10. Digital transformation journeys

Over the past decade, tax administrations have invested resources in the digitalisation of tax administrations. This has seen tax administrations across the world moving away from paper based, or in person based systems to ones that embrace the digital revolution that has happened in wider society.

In parallel, digital services in the wider economy have transformed the way citizens and business complete transactions, or access services. These wider changes bring both challenges and opportunities for tax administrations, and the future of tax administration is transforming their operating models so they can take full advantage of the opportunities widespread digital technology can offer.

This is digital transformation, and it is the vision of Tax Administration 3.0 (OECD, 2020[1]), the landmark report published by the OECD in 2020. It urges tax administrations to think about how their existing processes can be reformed to become truly digital. Without fulfilling this vision, tax administration will not keep pace with the digital transformation of wider society, will find it harder to reduce burdens, create new policy approaches, and reduce compliance gaps. Tax Administration 3.0 is an ambitious vision and achieving it is an evolutionary journey, where progress will be more rapidly in some areas, and more slowly in others. Over time though this combines to form a more fully digitally transformed tax administration.

Tax Administration 3.0 identifies 6 core building blocks in digital transformation. These building blocks will provide benefits in their own right, but it is the fitting together of the building blocks over time that will achieve the more significant benefits of seamless and frictionless tax administration.

This chapter is not intended to make judgements on individual jurisdictions and the progress they are making as each digital transformation journey is unique and depends on the unique circumstances and priorities of each jurisdiction. Instead, it aims to highlight the trends in the digital transformation journeys that are being undertaken by tax administrations, against those 6 building blocks:

  • Building block 1: Digital Identity

  • Building block 2: Taxpayer touchpoints

  • Building block 3: Data management and standards

  • Building block 4: Tax rule management and application

  • Building block 5: New skill sets

  • Building block 6: Governance frameworks

As well as using examples of leading practice to highlight progress, this chapter draws on data from the Inventory of Tax Technology Initiatives (ITTI) (OECD et al., 2023[2]) which contains data on technology tools and digital solutions implemented by tax administrations globally. Going forward as new ITTI data becomes available, progress on these complex journeys can be revisited.

As tax administrations deliver more and more of their services online, digital security, digital verification and digital identity is becoming the cornerstone of tax administrations’ work. Tax administrations are leveraging their expertise and data sets to not only give taxpayers greater self-service access to tax administration services, but also to third parties and to wider government systems. Common digital identities are critical to these programmes. As Table 10.1 shows below, all administrations now have some sort of digital identity system in place for individuals, and almost all for businesses, laying a good foundation for digital transformation. The growing trend is for these digital identity systems to provide access to services from other parts of government or third parties.

With the digital identity becoming more common place and more useful, Chapter 3 of this report highlights some of the recent work that has been done by tax administrations to add greater security to digital identity systems such as multi factor authentication and biometric information. However, as Table 10.2 shows all administrations use some type of authentication method to verify the digital identity when used online. The type of verification method varies, however, as can be seen in Table 10.2. password-based authentication is used by 87% of administrations, followed by multi-factor authentication and mobile app. A few administrations are also using facial recognition or finger print to authenticate the digital identity of a taxpayer. Half of the administrations reported that their use of different authentication methods is based on the level of security required for certain types of interactions.

Embedding services and processes in the natural systems used by taxpayers in their daily lives and businesses is at the heart of the Tax Administration 3.0 vision. While this helps to improve tax compliance, it also reduces administrative burdens and frees up time that owners can use to grow their businesses.

To drive these collaborations and open up new services, Figure 10.1. shows that the vast majority of tax administrations are now creating Application Programming Interfaces (APIs) and that 75% of them are making the APIs available to third party developers. Further, as part of the process of developing APIs, close to 60% of tax administrations are engaging in co-creation with third parties.

The growth of APIs is facilitating connectivity between systems without providing direct access. The example in Box 10.2 highlights how APIs can be used to transform functions across an administration. Table 10.3 highlights the wide range of uses across tax types, which is expected to grow as the digital transformation journey continues, and Table 10.4 highlights how tax administrations are increasingly connected on a machine-to-machine basis with third parties.

As the services delivered through APIs become more sophisticated, and play a greater role in delivering a quality service to taxpayers, tax administrations are having to invest more in the management and oversight of their APIs. Chapter 5 considers this in more detail, but at the heart of this work is effective collaboration with third parties to ensure that the systems work smoothly, are accurate and secure and continue to deliver for taxpayers.

Furthermore, as the data received from tax administrations is just part of the wider flow of data within the ecosystem that Tax Administration 3.0 envisages, underpinning the digital transformation journey is the utilisation of data sciences techniques and use analytical tools, and this is explored in more detail later in this report. However, it is worth highlighting that tax administrations now routinely:

  • Use of large and integrated data sets. Manipulating and managing data is now a core part of a tax administration’s functions, with the use of analytics tools and techniques being incorporated into all areas of tax administrations. Around 90% of tax administrations report using data science and analytical tools, and this is facilitating the use of data in all aspects of an administration’s work.

  • Use of artificial intelligence and machine learning. As tax administrations become more comfortable with managing large data sets and computing power increases, the use of artificial intelligence and machine learning is opening up new approaches in risk management. Figure 10.3 (see the section on building block 4) highlights that around 50% of tax administrations report that they are already using artificial intelligence in their compliance risk assessment work.

This sophisticated use of data from an increasingly connected system is allowing the development of new platforms and services that can bring significant changes to the operating models of a tax administration as illustrated in Box 10.3.

As this use of data grows, information confidentiality and security is even more essential to the relationship between tax administrations and taxpayers. It also underpins the exchange of information in tax matters between governments, as in a system where sensitive data is moving on an automatic basis, and in real time, all parties need to be confident in the frameworks that ensure data is managed correctly, securely and to the relevant standards.

These frameworks are also essential for defining how the administration manages data most effectively to maximise compliance and minimise burdens. In particular, this concerns the choices around where data is processed for different tax functions (within the administration, within the taxpayers’ natural systems or both), and the requirements for quality, availability and reporting of tax relevant data as well as metadata on the operation of taxpayers’ systems. As Box 10.4 highlights these changes can require structural shifts in the way a tax administration manages its IT systems, but doing so creates a solid foundation for new digital projects and services.

As Table 10.5 illustrates, the implementation of mechanisms to protect and manage data is now commonplace across administrations, and is a critical function of tax administrations. These support wider data governance processes, and in turn help maintain the taxpayer trust in the system as well as meet legal obligations. It is worth noting that as data systems become more connected, so the importance of cyber security is growing, and Box 10.5 shows some of the latest practices from tax administrations in this space.

As Figure 10.2 highlights data management is now evolving towards a “collect once, use many times” across government approach which is part of the Tax Administration 3.0 vision. Tax administrations (together with social security agencies) have a special place within government in this respect since they will often hold up-to-date verified information on identity, will be involved in both receiving and making payments and will receive and send information to third parties (such as financial institutions and employers). This adds a further dimension to the data management and governance given multiple agencies may be involved.

In the Tax Administration 3.0 vision, instead of rules being contained within the tax administration system, and instructions issued to taxpayers through guidance on how to comply through forms, the technical rules and information needed for elements of tax processing are provided so that they can take place within taxpayers’ natural systems. This could be, for example automatic registration and deregistration of the taxpayer at specified points, the incorporation of tax law rules and computations into accounting software or the use of applications to withhold tax or to automatically send information to the administration.

To start on this process Tax administration 3.0 sets out how administrations may wish to consider:

  • Implementing systems-independent tax rule specification for integration into taxpayers’ own business management systems (for example, in regards to digital identification, e-invoicing and reporting or withholding by digital platforms).

  • Piloting the development of tax rule specification, in co-operation with developers, alongside the development of new tax legislation.

  • Piloting the implementation of artificial intelligence in tax administration advisory and assessment processes aimed at minimising tax uncertainty

This is a challenging undertaking. However, there are areas of progress, for example, the Netherlands Tax Administration has been working on a new method of software development, that makes certain elements of law machine readable, and this is also tracked so that when the law changes, the update can be made quickly and easily. These rules are opening up possibilities for automated decision making.

Tax administrations have however been making significant progress on artificial intelligence. As Figure 10.3 highlights, around 50% of administrations are using it for risk assessment and also fraud detection. These services are opening up opportunities for innovative approaches, such as filing through completing a questionnaire or helping to automate taxpayer enquiries. This is making chatbots, which have been a feature of previous editions of this series ‘smart’. See Chapter 5 of this report for more detail.

It is expected that the use of artificial intelligence will be a growing feature of this series. However, as the example in Box 10.6 highlights, the use of this technology also brings governance questions which need to be considered.

Digital transformation brings a fundamental shift to the operating models of tax administration, which means that not only will new staff need to be hired, but the skills of existing staff may need to be developed. HR management, and change processes are a core building block of Tax Administration 3.0. Figures 10.4. and 10.5. highlight how tax administrations are preparing the ground for digital transformation by mapping the skills needed for digital transformation, and investing in staff training to build capability.

As highlighted earlier in this chapter, the digital transformation of tax administrations has wider impacts across the ecosystem. It is for this reason that many tax administrations have invested in the collaborative development of skills as shown in Figure 10.5., reflective of the wide impacts that digital transformation brings, and the need for shared approaches.

In addition to the skills required to deliver digital transformation, tax administrations are also having to consider the mindset shifts that it requires. This ensures the digital needs of taxpayers and other stakeholders are understood and embraced by staff; new services are demand driven, innovative, and created considering potential cross-functional synergies; and projects are managed in an agile fashion. As Table 10.7. highlights, this is an area of work becoming common in tax administrations.

Delivering this mindset shift is no small undertaking, and in parallel, one of the challenges of remote or hybrid working arrangements is maintaining staff training and organisational culture. As a result of all these factors, tax administrations have been reconsidering their approaches to delivering general training. Tax administrations report moving their training programmes into a virtual environment, using live online training sessions or pre-recorded videos/webinars.

While moving to a virtual training environment may have some up-front costs, it may save costs in the longer term as once produced, pre-recorded training material can be viewed at any time, from anywhere. Remote training can reduce travel expenses and can allow staff to learn at their own pace and convenience as well as increasing the number of staff members that can follow a course. New technologies are also helping facilitate the collaborative learning aspects, increasing the quality of the training experience.

Digital transformation has seen tax administrations throughout the world adopt new digital transformation strategies that address the fundamental shifts in operating models that it requires. There is no one size fits all approach to this work, and to support it the Forum on Tax Administration has created a Digital Transformation Maturity Model, which allows self-assessment by tax administrations of the current level of maturity and to facilitate consideration of future strategy, depending on a tax administration's unique circumstances and priorities. (OECD, 2022[3])

As Figure 10.6. shows, the model has been completed by over 50 tax administrations, and the results of this are guiding and supporting those jurisdiction strategies.

As highlighted earlier, the strategy that guides digital transformation is a key building block and Figure 10.7. highlights that already around 75% of administrations have a digital transformation strategy in place. Tax administrations report that these strategies are driving their services to become ‘smarter’, allowing taxpayers to complete increasingly complex tasks digitally, more efficiently and 24/7. This is also helping to bring important improvements in taxpayer compliance.

Central to the Tax Administration 3.0 vision is collaboration and co-creation. This is because as tax systems and processes become embedded in the wider ecosystems of taxpayers, it is therefore essential for an effective strategy that stakeholders have a role in the development of any digital transformation strategy. As a result, and as Figure 10.8. and the example in Box 10.7. highlight, this collaboration is becoming a common feature of strategies.

These stakeholder insights can help provide the qualitative feedback that can complement the data analytics that some tax administrations are using to support their strategy development (see Figure 10.8.) Box 10.8. illustrates how this is done in practice.

The implementation of digital transformation strategies is very resource intensive both from a personnel and financial perspective. Given that it is a multi-year process it requires a solid funding structure, which is ideally ring-fenced, so it is guaranteed that the tax administration can plan and support the transitioning from start to end. Without this certainty of funding, an already difficult process can be made even harder not only for the tax administration but also for taxpayers. As Figure 10.9. highlights, in this respect, only about half of the tax administration have ring-fenced funding to support the transitioning to a digital tax administration.


[3] OECD (2022), Digital Transformation Maturity Model, OECD, Paris, https://www.oecd.org/tax/forum-on-tax-administration/publications-and-products/digital-transformation-maturity-model.htm (accessed on 22 May 2023).

[4] OECD (2021), Tax Administration 2021: Comparative Information on OECD and other Advanced and Emerging Economies, OECD Publishing, Paris, https://doi.org/10.1787/cef472b9-en.

[1] OECD (2020), Tax Administration 3.0: The Digital Transformation of Tax Administration, OECD, Paris, https://www.oecd.org/tax/forum-on-tax-administration/publications-and-products/tax-administration-3-0-the-digital-transformation-of-tax-administration.htm (accessed on 22 May 2023).

[2] OECD et al. (2023), Inventory of Tax Technology Initiatives, https://www.oecd.org/tax/forum-on-tax-administration/tax-technology-tools-and-digital-solutions/ (accessed on 22 May 2023).

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