As the world moves closer to recovery, lots of uncertainties remain for tax functions, but one thing seems clear: The new reality should include a forward-looking approach to managing tax risk and compliance, and the business case for investing in tax technology and transformation is quite strong.
Amid rising international tax competition, trade tension and changing social attitudes toward tax, the rapid digitization of the tax authorities is one the biggest factors compelling tax functions to change. Tax regulators in an increasing number of jurisdictions — including Australia, Brazil, China, and Spain — are adopting intrusive approaches to compliance by collecting and scrutinizing detailed tax transactional data in real time.
Tax teams no longer have weeks or months to ensure the quality of their tax data before the regulators have access to it. This can make it critical to have systems in place to get tax data right the first time — now and even more so in the future when we expect tax authorities may take an even harder line with taxpayers to help restore pandemic-depleted government finances.
Internally, tax teams are under more demands to improve their efficiency while contributing more value. Again, tax data can be a stumbling block. Many tax teams need to rely on data that is housed in multiple systems, many of them owned by other departments such as finance, procurement or HR. This can lead to the all-too-common situation where tax professionals spend much of their time dealing with data — finding it, verifying it and converting it into the right format for compliance — when they could be devoting the same time to turning that data into a source of strategic value.
The pandemic highlighted the deficiencies in tax data management for many companies, as tax teams suddenly working from home struggled even harder to access and verify tax data from many different, far-flung sources.
For these reasons, we believe that data management is now one of the leading factors to the success of the tax function and is likely to become even more crucial as time goes on.
Thorough approaches for tax data management
More than ever, tax teams should to be able to access and aggregate shared data from multiple sources, bring it into a central system and transform it so it’s ready for use in all of the tax compliance and reporting processes that it’s needed for — and for use in more forward-looking, value-adding ways.
Many of the international companies we work with are solving these problems by investing in systems designed in cooperation with finance, IT and other functions to satisfy a variety of data needs, including those of the tax function. By building standardized, automated tax data processes and controls into company-wide, end-to-end data management frameworks — often leveraging broader finance transformation investments — tax teams can get the right tax data in the right format when they need it, with little need for calculations, corrections, reconciliations or manual intervention.
These data management frameworks should align with and help drive the company’s overall strategy for tax, opening opportunities across the tax function to help improve business operations and processes, sourcing models and performance management.
Five categories of tax technology solutions
What types of technologies should tax leaders consider in building their tax data management system? There are essentially five categories of digitalized solutions being employed in some of the more forward-thinking tax functions today:
Workpaper automation: These solutions help tax teams make better use of traditional Excel functions by making them easier to use and improving the presentation of information. Some of these tools expand Excel’s functionality, giving users powerful new options for manipulating reports and spreadsheets.
System integration:Since much of a company’s ERPs and other upstream systems are not owned by tax, system integration solutions can help ensure tax requirements are covered in these systems. These technologies can bridge multiple ERP systems so that transaction data can be automatically processed and consolidated in connected workpapers, allowing tax teams to review that data in real time. Ideally, when substantial ERP upgrades are being planned, tax leaders should be involved to help ensure the new system is designed to meet downstream tax information needs with no adjustments needed.
Robotic process automation (RPA): These tactical software tools are designed to automate simple, repetitive tasks based on a users’ cursor movements and mouse clicks. These tools have vastly improved in the past few years, becoming exponentially smarter and cheaper as time goes on.
Process automation: In the past year, audio, video and chat collaboration tools have provided a lifeline for businesses with remotely working employees. As these platforms mature and are enhanced to meet new needs, many tax teams can benefit from additional features, including document and data collaboration, application libraries, and tools for integrating workflow, process, task and calendar management. Process automation tools can also be configured to do smart review and analytics, with dashboards that can allow you to drill down to detailed information, share insights and facilitate conversations, all within integrated software that can be accessed by desktop, tablet or smartphone.
Cognitive automation: This promising area has seen tremendous innovation in the past few years. Unlike RPAs and other software-based on sets of rules, these systems are designed to learn how to do a process by itself. For example, based on an analysis of previous transactions, legislation and other internal or external data, the system could teach itself how to distinguish between items that are tax-deductible and non-deductible in multiple jurisdictions. While these systems have not yet reached their potential, their capabilities could be increasingly valuable as tax transaction volumes far exceed the ability of human beings to deal with individually.
Some of these tools may be already available within your organization but not yet fully utilized, allowing the tax function to leverage existing investments. Tax leaders should collaborate with IT, finance and other functions to share costs, as well as know-how on how to help maximize a technology’s benefits.
A single source of information
As part of these solutions, the combination of blockchain, artificial intelligence and cloud technologies helps enable vast improvements in data management. These technologies can allow companies to open channels across all their siloed data systems operated by various functions, enhancing their data’s accuracy, accessibility and uniformity and providing it through one route for use by tax and all other functions.
Even better, blockchain can help ensure that data can be updated in real time, and just once for every purpose that it’s used for. After information has been pulled from the system for, say, a report or scenario modeling, the information can be updated automatically for any changes or corrections made to those data points at a later date. Given the huge amounts of time tax teams traditionally spend tracking down data and verifying its ongoing accuracy, this capability can lead to tremendous gains in efficiency.
More efficiencies can arise as companies expand the range of stakeholders having direct access to their data. Starting with tax, finance, HR, procurement, sales and other internal functions, access can then be broadened to a widening circle, from external suppliers and external service providers to customers or clients, and finally to tax and regulatory authorities — all connected to a single, up-to-the-minute source of information about the company.
Supporting the broader tax plan
Of course, technology should not drive the tax function’s operations. It’s important to have well-defined goals based on the tax function’s plan in support of the business’s broader objectives. Tax leaders can then determine the best mix of people, processes and technologies for realizing that plan.
A first step is to evaluate the skills and capabilities you may need across the tax organization. Where new technology is concerned, many tax teams may need access to the skills and knowledge required to understand what it can deliver, evaluate alternatives, collaborate with vendors and lead the change management efforts that can be vital to the success of any new technology implementations.
We believe it’s now critical for tax functions to include professionals with the right skills for:
- understanding IT and ERP functionality
- reviewing big data and managing large volumes of information
- enabling a multidisciplinary approach to identifying and managing tax risk globally (i.e. among interconnected areas such as income tax transfer pricing and customs)
- managing large international projects (e.g. ERP updates)
- effectively using collaborative tools (e.g. SharePoint)
- communication and change management
A next step is to determine the internal and external resources needed to support tax operations. Factors driving this determination can include the amount of flexibility required in the amount of resources based on internal and external requirements, the complexity of the business and the degree of internal knowledge required for specific tax process. Tax leaders should also decide whether technology tools can improve their tax compliance, whether they have the knowledge internally to harness those tools and, if not, whether they have the ability to monitor the performance of third-party vendors.
Based on these factors, the tax function can determine the right number of people to carry out required tasks, whether to locate people onshore versus offshore, and whether to invest in shared service centers and/or outsourcing arrangements with third parties.
A further step in reimagining the tax plan is defining what success looks like for the tax function. This means identifying the key performance indicators for measuring the tax team’s performance. These measures can be valuable in building the business case for investments in tax function transformation and communicating the potential benefits to business leaders and other stakeholders across the business.
Better compliance, more strategic value
We believe the success of future tax functions will increasingly depend on the strength of their company’s tax data management systems. With tax regulators demanding unmediated access to accounting and transactional data, tax teams may need centralized systems that provide a single source of structured tax data to support wide-ranging tax compliance. Along with better compliance efficiency and reduced risks, reimagined tax operations can give internal tax teams more scope to transform tax data into strategic insights and contribute more value to the business.
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