Managing compliance in tough times Managing compliance in tough times

Many companies invested heavily in the building blocks of more digitalized tax operating models in the past few years, and current events have certainly put tax technology systems and processes to the test. Overall, tax technology seems to have served these companies well in recent weeks, generally working as expected to help manage tax compliance and risk during these unprecedented times.

But the extreme pressure on tax functions has also highlighted gaps and opportunities for leveraging tax technology further. Based on questions KPMG professionals are getting from international companies, I expect there may be even more interest and investment in digital transformation in the months ahead.

As the situation has unfolded, I have seen many companies focus on their approach to tax technology through three distinct waves.

The first wave saw many companies scramble to keep their businesses running amid sudden workplace closures and other social distancing measures by executing the technology component of their business continuity plans. Often this first involved working through the practical details of enabling people to work from home. Focus then usually shifted to collaborative platforms and processes to ensure connectivity not only within tax functions but also across finance and the broader organization.

Once people could do their jobs remotely, a second wave of technology-related activity focused on tax-related data — how to access it from the company’s systems across location and jurisdictions, and how to move it where it needs to go. During this wave, the companies in the best position were often those that had already invested in their ability to move data across their companies and tax workforces, going paperless and setting up electronic documentation that could be accessed remotely from the third-party platforms or shared drives.

But interestingly, even companies with leading-edge, paperless data strategies had to scramble to manage paper notices and other remnants of the analogue world, for example, arriving daily in their mailrooms. This led to a push toward optical character recognition and scanning solutions, as well as process and technology reviews that could drive these companies even further into the digital world.

Data is a key to maintaining tax compliance, as an increasing number of indirect and direct tax authorities around the world expect increasingly electronic relationships with their taxpayers. As part of the second wave, many tax teams devoted attention to e-filing health checks to ensure they can stay connected with tax authorities in the current environment.

More recently, I’ve seen a third wave begin to rise that centers on financial and scenario modelling. Government responses to help protect their economies have included a vast array of tax breaks and incentives for businesses. The tax teams of many international companies are turning their attention to modelling the impacts of this new tax legislation on tax provisions, reserves and filing positions, as well as financial forecasts.

Given the pace and volume of new tax measures in so many jurisdictions at once, the ability to filter and analyze data to surface opportunities to release cash can offer a huge advantage for international companies.

For the most part, it looks like many companies have been satisfied with the outcomes of their tax technology use through these three waves. When KPMG professionals informally polled over 300 tax and business leaders during a webcast, 70 percent said that the tax technology they use is sufficient to support their business and tax department during this time.

That said, the recent events have certainly challenged many tax technology, systems and processes — especially when it comes to continuity planning, collaborating to chase liquidity, forecasting and managing financial and reputational risk. When the current situation resolves, many companies can be expected to revisit and strengthen their tax operating models overall and their tax technology in particular.

So where will this take us? I believe a fourth wave of tax technology effort is coming in the near term that will see even more reliance on it as companies ask what more it can do to boost their tax operating model.

From what we hear from many KPMG member firm clients, this fourth wave will focus on three key areas of digital transformation:
 

• Data convergence: Looking ahead, many companies may no longer have an ad hoc data gathering or siloed management of data for discrete purposes. I think many companies may move to more systemic data gathering and management processes and more attention to interactions of these processes with tax analysis and filing systems.
  
  
• Application program interface (API) driven integration: I expect we may probably see more interest in APIs that allow separate applications to “talk” to one another, promoting better end-to-end process integration. This may also mean moving to more openness with your external stakeholders and advisers in moving information among applications, as well as improving your company’s integration with tax authority systems that increasingly permit low or no touch interactions.
  
  
• Human-in-the-loop: More holistic tax data management may allow automation of much of a company’s mundane forensic work involving tax data, allowing tax teams to focus on more value-adding tax data analytics and strategic planning.

In these times, tax technology has shone for many companies. Previous investments have allowed tax teams to bring more value amid uncertainty by identifying opportunities to enrich cash flow and better manage tax risk. As we enter the recovery period, it seems likely that these successes may drive companies to invest even more in tax technology to advance the digital transformation of their tax functions.