The World Economic Forum Annual Meeting’s theme for 2018, ‘creating a shared future in a fractured world’, should continue to resonate strongly with tax executives in global companies. It certainly reverberates within senior leadership teams and boards, which have growing expectations regarding the value that tax functions delivered to their organisations.
More tax functions are now undergoing major changes in order to help organisations adjust to technology-driven disruption
Like most other organisational functions, more tax functions are now undergoing major changes in order to help organisations adjust to technology-driven disruption. A highly dynamic and challenging regulatory environment is also driving the need for this transformation. The sector is currently being characterised by sweeping US tax reform, the European Commission’s proposal for a historic overhaul of value-added tax rules, and a rising number of country-specific rules on real-time tax reporting.
Despite a growing need to evolve, new KPMG research indicates that tax functions are still “lagging at transformation”. According to its 2018 study Chief Tax Officer Outlook, 68 percent of the 300 CTOs and senior tax executives surveyed expect their tax functions to remain relatively unchanged three years from now, despite the growing need for transformation.
of tax functions use data analysis to make informed decisions
For an organisation to close this gap, tax leaders, senior executives and the board of directors need to settle on a shared vision of what a transformed tax function looks like. To enable this shared vision, an organisation needs – aside from tax knowledge – skills in leadership, talent management, tax technology and a complete understanding of the tax function’s collaborations with crucial stakeholders. Aligning all aspects of an enterprise on a tax function’s future can kick-start stalled tax transformation efforts. A sound way to begin this process is by understanding how global tax policy disparities and a splintered enterprise technology environment are driving the need for major upgrades.
The most formidable challenges that tax departments currently confront boil down to two demands: the need for more, and the demand to have things sooner. Changes in tax policy and compliance requirements are giving rise to new risks, while also ratcheting up pressure on tax functions to collect, organise and report far more compliance data, all in real time.
These challenges are also commanding the attention of executive leadership teams and boards of directors. Both recognise that the successful management of tax risk now hinges on tax functions having proper access to data, and the right tools at their disposal to manage, analyse and report on that data. All of this supports an organisation’s ability to mount a strong defence of its tax reporting to regulators and enforcement agencies when necessary. CFOs need the tax function’s data management capabilities to be sophisticated enough to effectively manage a company’s tax risks to avoid unexpected impacts. These could include unforeseen changes to a company’s effective tax rate, or the need for an indirect tax reserve. For their part, audit committees understand that tax authorities maintain a zero-tolerance mindset concerning the data management errors that their increasingly rigorous audits pinpoint.
Successfully transforming tax processes and putting the right technology in place can be difficult in organisations with technology standardisation gaps or a tangle of finance and tax software platforms. These conditions exist in many global companies, and they explain why more finance and tax executives are introducing requirements for their companies to standardise and integrate enterprise resource planning (ERP) and major tax management systems across subsidiaries, business units and geographic locations.
The standardisation and integration of finance and tax technology marks an important, yet relatively early step on the tax function’s transformational journey. More progress related to tax technology management, as well as several other areas, is needed. The small but growing number of tax functions that are on track to achieve more dramatic upgrades within the next few years tend to focus on making improvements in several areas.
Bringing it all together
To thrive in the near future, tax leaders will need to continue doing everything they do today while also enhancing both their planning and their approach to technology and talent. Tax leaders must continue to keep a company’s effective tax in line with industry competitors, collaborate effectively with their CFOs and audit committees, manage their staff, and address budget and tax risks, all while delivering strategic value through tax planning. Tax executives will need to become much more technologically adept while also recruiting, retaining and developing a far greater number of tech-savvy professionals than they have in the past.
Infusing the tax function with more technology expertise requires tax leadership to understand the qualities that ‘tax technologists’ possess, as well as what it takes to attract and retain them. Hiring for technology skills does not necessarily mean finding tax experts who are fluent in Java, Python or C++. Instead, skilled tax technologists typically have experience with large ERP systems, including the latest releases of SAP and Oracle. Experience with systems implementation is also important, as is the ability to write simple queries and handle basic coding, while expertise with the offerings of a leading tax technology vendor is also highly beneficial.
As competition for tax technologists becomes fierce, tax leaders should keep in mind that this talent segment prefers not to join tax functions that require them to work with outdated, inadequate legacy applications. Instead, they prefer to join departments already equipped with advanced technology. Given the high cost of acquiring veteran tax technologists, most tax functions choose to develop existing tax staff through experience, training and education programmes.
KPMG’s research indicates that only 33 percent of tax functions currently use data analysis to make informed decisions. This gap is startling, especially given that high-performing tax functions are advancing their analytics capabilities while also assessing the benefits and use of advanced technology. This technology includes robotic process automation and the use of a centralised tax data repository.
Elevating tax functions’ technology management requires a clearly defined strategy. A documented tax technology plan should present a clear vision covering at least three years, a detailed list of the tax department’s IT needs, and a budget for meeting these needs. It should also include an analysis of frequent implementation and execution challenges likely to be encountered. This document should also detail all information systems that feed into the tax data repository. This type of ‘tax technology playbook’ can help tax leaders secure adequate technology funding from their colleagues in corporate finance and accounting.
Strong relationships with at least three internal groups will also be crucial for tax leaders to manage and continually improve. These groups include internal audit (IA), IT and accounting departments. IA departments can help make a compelling and impartial business case for investments in more advanced tax data management technology. As the IA department’s reports go to the audit committee, its recommendations are generally acted upon, especially when a recommendation reduces the risk of a material weakness or points out a significant deficiency.
Tools in place
Tax executives should recognise that leading IT functions now expect internal customers to access the information they need to conduct their own analyses from the organisational data supply. This approach requires more areas of the business to take greater control of their technology tools. For tax functions, this means possessing the systems and technology expertise necessary to access, stage and analyse tax data, both current and historic.
This shift notwithstanding, IT leaders and their teams remain crucial tax function collaborators. IT’s guidance helps ensure that tax technology investments adhere to the company’s IT strategy and the finance function’s IT plan. The IT department is also able to advise on specific technology selection, purchase, implementation, integration and maintenance, as well as vendor management policies and protocols. Effective tax-IT partnerships also help safeguard against cybersecurity lapses.
While a strong relationship between tax functions and finance departments has always been important, it has grown more crucial as both functions undergo significant changes. These transformations and the supporting technology changes they trigger must be aligned, as effective tax management heavily depends on access to data that resides in billing applications, ERP systems and other finance, budgeting and planning technologies. Leading tax functions currently participate in ERP implementations, upgrades and standardisation initiatives. To achieve full integration, tax leaders of the future will call on their close relationships with finance and accounting executives to ensure that tax technology requests feature prominently in budget decision-making.
As global tax leaders strive to advance major changes within their domains, they should keep in mind that the expectations bearing down on their functions will continue to escalate. For instance, tax professionals can expect to take on a more active role in strategy-setting and scenario-planning activities. These growing expectations and expanding workloads make a shared vision for a future tax function even more critical to the success of businesses around the world.