5 minutes on top-of-mind trends faced by tax leaders in banking

In the second edition of ‘5 minutes with…,’ we spoke to Robin Walduck, Global Head of Tax & Legal, Banking & Capital Markets, KPMG and Partner, KPMG in the UK, to discuss how tax leaders can efficiently work with the C-suite, while effectively staying on top of current tax trends experienced by businesses globally.

I see tax departments around the world focused on a number of key areas. First is the evolution of operating models within financial institutions. We see customers increasingly managing their finances online, with digital banking operations becoming more common. And banks are taking the opportunity to offer their infrastructure and technology as a service to other financial services providers. We also see a growing number of partnerships and collaborations with fintech organizations. This drives a considerable amount of complexity from a tax perspective.

Second is governance. Banks, like other organizations, have seen an increased number of tax audits around the world. We've moved into a world of complex compliance, so it’s important that tax and others business leaders grapple with that, sooner rather than later, to make sure they're confident they can produce the right data in order to effectively respond to these ongoing audits.

Connected to this is the challenge of integrating technology into tax departments to improve efficiency. Whether technology is implemented for workflow, analytics or reporting, it’s important that tax departments choose technology that drives real value and doesn’t just add more processing to an already overstretched tax department.

The fourth area is the emerging ‘work from anywhere’ model, which has developed rapidly through the COVID-19 pandemic. This has brought into focus how and where individuals in organizations want to undertake their jobs going forward, while also requiring organizations to appropriately manage the tax implications and risks associated with this change. 

Environmental, social and corporate governance (ESG) is an emerging theme, and tax departments are grappling with what they need to do to contribute. That potentially breaks down into

• the tax implications of any changes to the supply chain of the bank;
• obligations in relation to transparency demands and the associated reporting; and
• the tax implications of any ESG-related products the bank intends to release to the market.

The last key area is the emergence of more transaction-based taxes, such as financial transaction taxes. The challenge of the tax department here is how to effectively deal with those transactions from both an operational and technical perspective as they get launched around the world.

On the operating model changes, the challenge is making sure that the tax department is involved in the conversation right from the start, when a change to the operating model is first being considered. This is extremely important as it creates the opportunity to ensure efficiency and reduce unnecessary risks along the way. This becomes particularly important when an organization’s operating model changes on a cross-border basis. 

When looking at the combination of governance and technology, there's quite a number of businesses re-evaluating what the optimal operating model of the tax department actually is and how technology can play a part in that. It’s important that tax departments don’t put technology in place just for the sake of it – technology needs to be implemented only if it adds value from a processing or analytical point of view, and only if people are interacting with the technology in the right way; ultimately, the outputs of the technology are only as good as the inputs.

In terms of working from anywhere, it’s important to govern what people can and cannot do in order to manage risk appropriately, but at the same time, it’s important to accommodate the evolving demands of the business. Getting that balancing act right is crucial because, whether we like it or not, there's a lot more drive towards a more fluid workforce. Banks have arguably had mobile workforces for decades, but there should be a focus on making sure that the tax department interacts with the human resources department to ensure that they're managing that risk appropriately.

On the ESG front, there's a need to make sure that the tax function is involved in the overall chain of events from the supply chain through to the product offering. In particular, it's important that tax is involved when banks are thinking about what new products and services to take to the market, specifically with an ESG lens in mind. There’s no doubt that this area will continue to evolve, both within organizations, and from a tax policy perspective.

Lastly, transaction taxes. I think that comes down to making sure there's real clarity of ownership and accountability in relation to transaction-based taxes. Tax functions often say that if something has ‘tax’ on it, even if it's not their explicit responsibility, it often ends up in their inbox. It’s important to make sure that within the organization there is clarity of responsibility for transaction taxes, requiring a degree of engagement with the business and with operations teams to make the adoption of those emerging taxes as effective as possible. The new taxes are coming in thick and fast, so it's important that there's a proper process and agreement in place across those groups to make implementation as efficient as possible.

Business partnering is key, whether that's in the back office with finance teams, control teams, and/or compliance teams, or in the front office with the market-facing business. 

If you think about the themes I mentioned earlier, you've got changes to the business operating model, changes to the way that people work, changes to what your product setup looks like from an ESG perspective, and changes to how the products might be taxed in the future. All these changes require real integration with business and with the back office, so having effective business partnerships is vital.

Visibility is also key to better engagement with the C-suite. At the end of the day, tax is a critical component to business and financial performance, so ensuring the visibility of tax with senior management is crucial. It’s important that senior management understand the importance of key tax issues and take this into account as they're planning for business ventures or new macroeconomic changes. A component of this is also making sure that there is some sort of system in place for consistent reporting, dashboarding, and visibility into the main challenges and risks in order to ensure there are no surprises for the C-suite. This is true whether it is an audit challenge coming from a tax authority, a rapid change in policy, or even a longer-term policy change.

With the increased complexity in compliance, the variety of different taxes being announced by governments around the world, and the increased investment in technology, it’s important that leaders think about their teams both now and into the future. Thinking about what your tax department needs to do in the face of these changes is crucial and should be an area of focus for all tax leaders. Having an idea of your longer-term plan in order to anticipate the design of the future tax function is key.