The latest insights in tax transformation

Jay: It’s no secret that tax functions are grappling with new challenges and opportunities unlike ever before. What I'm seeing is companies trying to balance staying compliant with a forward-looking risk and effectiveness focus. They are doing this while facing external disruption from a number of sources. Firstly, digital capability of the tax authorities. Regulators, and countries like Brazil and Spain and Italy are good examples, are changing the traditional approach to tax returns. More information is requested upfront. In some cases, real-time access to data has also been requested. This, in turn, is raising the bar on the level of confidence companies need to have on their data. You cannot clean up your data retrospectively. You need to get it right first time. Another big focus I'm seeing is around operating model change. More and more companies are moving to global models, shared service center solutions, and tax is being asked to move, and move quickly. All of these changes are making heads of tax and CFOs want to act more quickly on their tax agenda.

Susie: The considerations Jay has just mentioned are a great summary of some of the drivers that we're seeing in the marketplace globally. I think the key area that is currently driving a lot of change and need for transformation are regulatory perspectives. What are the regulators doing? How are they using our data? How are they forcing additional compliance responsibilities? 

As such, they're seeking ways of transforming and leveraging automation and technology as a part of the solution.

Susie: There's a huge range of options for transformation that can help clients respond to these regulatory changes, and the one (or ones) that are going to be best fit for each client is different, depending on what they're trying to achieve and where they're trying to head to. If we think about the potential for transformation across the holistic tax operating model, we think about: governance (which would include vision, strategy and risk management); the people and resources (including both those directly within the tax team, external to the tax team within the organization, and external to the organization), that can help; the processes that these resources are doing; and of course, the technology and data. In each of these different areas of a tax transformation, there are initiatives and activities that can help. You really need to think about the process that you're going to automate before you go down that path to really make sure that you are effectively and efficiently moving in the right direction.

If we think about it from a technology and data perspective, the spectrum of potential options and solutions covers a variety of different areas. Both professional services firms and technology software providers, have invested (and continue to invest) in developing tools – both existing tools and new tools that they're looking at building in response to specific items and regulations. When thinking about transformation, it is important to realize the fact that technology is an enabler – it is not the only answer. When we look at technology and data solutions, we also need to think about the broader impacts these solutions will have on governance, people, and process. With a move towards technology and in-house automation, the skill-sets needed will vary and change. For example, if you've built a beautiful data wrangling solution, who's going to keep that up to date, where are those skill-sets residing, and how are you going to call upon them when you need them. One critical discussion point when I speak to my clients, is that while technology and automation is great, if you automate a broken process, then all you're going to do is replicate that same process year-on-year. 

Jay: When we started, our Tax Reimagined approach and journey, we took the view that our approach was all about taking a more holistic approach to transforming or reimagining a company's tax function by developing the right future state target operating model for them. So, in simple terms, this is a model which helps companies reduce their cost, improve quality, and perhaps most importantly, unlock value for the wider organization. In my view, it has to start with strategy. More and more companies are finding that the only way they can manage tax effectively is by doing this globally, and therefore, tax functions need to step back and rethink their operating model to meet this change in the tax environment. There are three key pillars to this. Firstly, what's the right sourcing model? Should the work be done in-house? Should it be outsourced? Is it a combination of the two? Secondly, companies need to think about how they operationalize change through better process and technology. This is really important as companies look to skill themselves up for the future. Lastly, it's about how companies assess their performance or the performance of the tax function, and to me, this is critical, because it's about its contribution to the business, not about core, basic KPIs.

Jay: That’s a good question because taking a consistent approach (which builds on experience we have) with the need to customize on a company-by-company basis can be a difficult balance to strike. For me, it translates into a process technology transformation project, and/or looking at tax managed services, but the point, to me, though, is the journey can start from either end, or from a different perspective as well. If I give you a real example, more recently, I worked with a company who wanted to start a transformation program very quickly, and ultimately, wanted to achieve a certain level of automation across three of their core tax processes within a 9-12 month period. Another company I worked with were finding some regulatory changes more and more challenging to deal with because they were spread across 75 countries. They wanted to move quickly to a bound service approach, and then use the next two years to transform the way they manage their in-house and external provider tax processes. The flexibility is around how we adapt to, how a company adapts to its immediate priorities and circumstances, but the methodology and the approach taken can be very similar, because what we should not lose sight of is the ultimate objective, which is developing the right operating model for the company. 

Susie: There's such a wide array of available technology and digital tools that any organization of any size can leverage, whether that's robotics, Artificial Intelligence, off-the-shelf tools to respond to specific activities, such as KPMG’s Digital Gateway, or even a combination of various different solutions brought together under one roof.

It's such a confusing environment for anybody to navigate, that frequently, what I actually see is companies trying to figure out where to even start, how to even take a step forward in the right direction. The first questions that I generally hear include: Where do I start? Where am I going? How do I get there? 

Increasingly, I'm seeing projects and initiatives focused on answering those questions, a roadmap exercise, to help really see where transformation and a transition to the world of technology could actually lead to a brighter future for everyone involved. Once that roadmap is identified, there are a few core areas around technology and automation that are really playing a huge driving factor in why clients are taking that step in the first place. If we think of the regulators and their need for global transparency and organizational needs to be able to see exactly what's going on at any given moment, in any jurisdiction in the world, and even the interaction with ESG requirements that so many organizations now have, tools like KPMG Digital Gateway, can help organizations really get an understanding of that as well as how Heads of Tax and the tax teams that they work with can really make sure that nothing is falling off-side at any point in time. 

Susie: It's a serious struggle. For too long, tax teams have been seen as the consolidators and de-consolidators of data, and in many organizations across the world, have taken on roles and responsibilities that should really, based on what was actually being done, be done outside of tax, but tax are the only ones that need the information in that particular format so, tax has to do it.

My clients are looking at each element along the end-to-end data journey, to really see ways of integrating all the tax requirements and other informational requirements into the operational processes that create the data, transform the data and use the data. Tax is more and more seeking to be integrated in the source systems, to ensure that the necessary data is available to start with. There are many instances of data across the organization and reconciling the different information in different formats, or even just obtaining it in the first place, is really hard. I'm seeing tax teams look for ways to manage this centrally. How and where the data is stored is also an important consideration. In some cases, we are seeing tax-specific data lakes or data warehouses being established to really pull everything together, automate what can be automated across the entire end-to-end process of data collection, management, and storage. These can be set up as part of broader organizational transformation initiatives that tax needs to get involved in to be part of those data considerations from the very outset.

Jay:  I did a review for a company in the technology sector a short while ago. We focused the review on two pilot countries and each of their three key regions, and from a data technology perspective the company took a two-phase approach. The focus, initially, was on timely and accurate compliance. They looked to automate their tax reporting process, which was critical to them and managed to get to about 70 or 80 percent of that process being automated. That was phase one. Phase two was very much then moving on to ensuring that they had better analytics to drive value and risk mitigation. This took the form of better analytics to make decisions around R&D incentives, being better prepared for tax audits, and lastly, starting an exercise with their wider tax function and treasury function around how they can leverage this data to create greater insights to drive forecasting and decision-making for the future. This was a really good example of a company starting with an isolated challenge, addressing it, but using that as a platform or a springboard to look at how they can use technology better within the tax function.

Jay: For me, the critical first step here is very much around the building the business case. My view is tax functions deserve much more corporate investment in tax infrastructure. Being frank, historically, tax hasn't been great at building a compelling business case for investment in this area. 

Susie: There really is only one way anyone wins, and that's if the tax team, the finance team, the technology team, and broader to the operational teams, all have to work together to get to the right answer. No single party, on their own can deliver the ultimate value that a holistic digitalization or transformation can achieve. If this collaboration between all of these different groups can be developed, then the transformation will not only be more effective and adopted across the organization, but it'll be done in a more efficient manner and cost less. 

Jay: This is a really exciting time for a tax professional. CEOs, CFOs are no longer just looking for leaders of tax. They're looking for leaders of businesses, and to me, this has been evidenced by the number of Heads of Tax taking on controllership roles in large organization. The CEO, the CFO want a tax leader to talk to risk, scale, complexity, not just tax technical, and tax is increasingly being invited to the boardroom. So, to answer your question on kind of what advice would I give a tax function, it's very much about thinking about the case for change, and then clearly articulating that in a vision and in a transformation plan. I think the really successful companies and the really successful tax functions are doing this. 

Susie: I agree with Jay there. Start at the beginning of your journey. Build that vision. Build that articulated business case. Build that roadmap, so that you can start traveling in your desired direction, and then actually make a start moving in that direction. I think the only thing I would add to Jay's comments is don't put all of your focus on a very precise, exact end-goal, but on the journey you're taking and the transformation that you're making on the way there.

Listen to the audio version of this interview below: