Financial Services Ireland

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Challenges to transforming the tax function with technology

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The challenges should be considered as part of the journey to transform your tax department with technology.

An assessment of the current practices is needed to look strategically at implementing incremental improvements that will realise the operational efficiency of the tax departments operating model.  For example, time reshaping information scraped for other purposes instead of using and developing tax-relevant source data will not work in a real-time compliance world. Lean and robust processes will assist to reflect the tax rules effectively.

The main challenges faced by the tax function to transform are:

  1. The tax authorities increased tax regulation and reporting demands
  2. Impact of finance function transformation or the lack of investment of resources to transform the tax function itself.
  3. Unutilised systems to extract tax relevant data
  4. Poor data quality as a result of human intervention to de-sanitise data
  5. The skillset within the tax team is not robust enough to meet the evolving tax needs or implement automation and technology to streamlines tax processes

Categorise departmental activities 

Tax departments should re-evaluate their current operating model by analysing the tasks they undertake to improve efficiency and utilising all available resources.

They should review the tax life cycle including compliance, provisioning, tax planning, tax policy, risk, opportunities and tax accounting to identify all activities. All activities should be quantified including the time spent manually manipulating data in spreadsheets. This will help them understand what technology and process changes are needed to meet increasingly granular and real-time compliance requirements.

Resourcing approach

Companies need to assess the approach to resourcing for tax transformation. They need to consider what type of resourcing is required to fill the skills gap or bypass the firm’s internal project management to meet tax deadlines.

More companies are outsourcing tax compliance activities and seeking external tax technology expertise to resource the transformation of tax practices.

Here are some findings on how tax departments view their operating models:

  • 45% expected a reduction in labour hours due to technology investment.
  • 93% expect new requirements to increase their workload.
  • 84% agree that the skills required for tax will change in the next 3 years.
  • 80% have identified that they need to actively address current deficiencies:
  • 23% are developing point-based solutions
  • 32% are reengineering their current tax function
  • 25% are considering functional outsourcing

Efficient resourcing can be achieved by sourcing the right resource combinations including leveraging internal teams, upskilling existing team members and using external specialists. Often a mixture of resources is the solution to and re-engineer the tax function.

Embedding tax transformation technology

This culture change requires the development of IT skills and leveraging those skills within the tax department by increasing the consumption of technological abilities. This can be achieved by building closer partnerships with the company’s IT and finance teams or using external expertise to realise a new approach to tax technology and transformation.

Tax departments will need to develop or hire in new skills, use external expertise to understand their data and use technology to transform. Tax departments need to leverage and educate other teams including IT, finance to be aware of tax-sensitive data at source for digitisation from the various systems. The generation of tax-sensitive data helps improve quality at source and helps to automate manual processes, reducing labour-intensive tasks for the team.

All teams will need to work together to explore the all data sources to transform that information into tax relevant data which in turn should minimise redundant tasks.

Tax departments need to focus on tax-sensitive data from systems and create new processes to be able to analyse the data sources and enhance the tax life cycle through technology. They need to consider at the same time that these data sources can be accessed and analysed by the tax authorities too!

Tax technology and transformation endeavours to incorporate data required for existing activities, new tax rules and reporting requirements changes. The implementation of tax technology will allow time saved to focus on tax planning for new regulation for the tax department to assess the impact and requirements of the organisation.

This is just the start of the journey for your organisation to embed tax technology as part of the day to day operations of the tax department with agility and adaptability. If you have a question about any of the above, don’t hesitate to get in touch.

Ellen Bone

FSO leader in Tax Technology and Transformation
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