We all face new challenges arising from changes in the global tax environment to incorporate new tax requirements within our tax functions.
Tax professionals have to consider how they operate and reimagine their current tax practices to cope with the new demands to satisfy their boards, the tax authorities and all tax stakeholders.
The question is: how will tax functions begin this journey to manage their tax practices more effectively to meet their growing tax reporting needs?
Firstly, tax functions need to understand what is driving the need for tax departments to proactively focus on transformation. The challenge then is to figure out what type of resources your teams need to embed new tax reporting processes and streamline existing processes.
The challenges below are the main drivers for tax functions to embrace tax technology solutions.
Regulation has enabled tax authorities to acquire data digitally via direct system access or through mandated reporting resulting from regulation and legislation (locally and globally).
The tax department is more reliant on external parties to project manage the information flows and a longer lead time is required to formulate the data in a reportable format.
The main areas of regulation driving transparency are the Multilateral Instrument (MLI), the EU Anti-Tax Avoidance Directive (ATAD), the EU Mandatory Disclosure Rules (MDR) OECD BEPS, US tax reform, Brexit and local tax developments.
Tax functions need to review these tax rules to determine what needs to be embedded into their existing activities and identify their resource pressure points for implementation.
Tax functions are increasingly dependent on internal teams and service providers to achieve transformation and meet deadlines.
95% of finance functions are under pressure to reduce costs, add value and manage time through finance transformation. Some tax departments are part of this transition or are left fend for themselves to drive change at a slower pace or not at all!
In-house software systems are typically not utilising the tax modules or rules and often have inadequate reports that include relevant tax data. This is typically due to the lack of investment to overhaul system reporting or a low prioritisation in the project management pipeline.
Understanding your companies data and how to improve its quality at source should help to reduce the impact of human intervention that de-sanitises relevant tax data. De-sanitised data increases the risk of error resulting in adverse tax consequences.
Numerous staff hours are needlessly spent reformatting data repetitively instead of using automation capabilities to complete these tasks and increase the quality of the data.
Typically, tax departments do not have IT or business knowledge to ascertain what can be automated or if there are other technology solutions to remove human error, save time or create new data for further tax analytics and reporting.
The management of data quality is key to improving the operational efficiency of the tax function. The importance of understanding the data should help tax departments to transform by:
If tax authorities can do analytics, then companies can too!
However, tax functions lack the tools, software or skill sets to implement analytics or embed lean processes. More companies at board-level are using internal analytics to plan strategies and make decisions on their approach to tax leakage, governance, transparency and tax risk.
69% of tax functions do not have resources to evaluate and respond to digital tax or new legislation. Tax departments are notoriously isolated and lack skillsets such as analytics, IT and project management.
84% of tax functions agree that the skills will change in the next three years.
Tax departments need to develop or acquire technological skillsets to create tax solutions or outsource to fill the skills gap. Currently, 96% of tax functions struggle to attract and retain employees with the right skillsets.
The right skills will help to develop lean processes and data streams from source systems to meet the tax digital requirements.
Tax departments face obstacles like disconnected systems, disconnected stakeholders, redundant tasks, repetition, and human error from manual manipulation when reformatting data.
These are no longer sustainable characteristics to assess the potential tax exposure the company will face if they get it wrong. Now is the time to transform!