Financial services sector

Tax agenda 2013

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Attributes of Leading Tax Functions - Responding to the Changing Financial Environment

The level of both internal and external pressures challenging Australian corporates is at unprecedented highs. Demands on most tax functions are increasing, stretching resources to the limit. Many tax functions are operating within models which are costly, inefficient and ultimately unsustainable. Status quo is no longer a strategic option. Tax functions must be proactive, improve efficiencies and evolve through innovation.

Internal pressure: the finance transformation agenda

As the focus on cost, efficiency and productivity continues across corporate Australia, being part of the broader finance change agenda is crucial for all tax functions. Ultimately tax relies on finance for its data, technology, processes and ‘shadow’ tax team to ensure compliance with its tax obligations. Any changes to finance frameworks have an impact on tax functions, whether directly or indirectly.

Too many times tax is scoped out of finance transformation projects only to find that they are worse off in terms of data quality. Conversely, the ‘shadow’ tax function within finance on which they relied prior to the changes is either moved offshore or no longer with the organisation (removing corporate memory). These impacts are costly, as tax must find funding for separate projects, such as investing in interim technology solutions for tax compliance, GST, fixed asset registers, and other supporting tax compliance systems to help support greater tax sensitisation of data.

Leading organisations involve tax in the initial scoping of finance transformation projects. This includes embedding tax requirements into: finance target operating models; finance process transformations; system enhancements and/or upgrades; shared service centre strategy; and execution of finance functions such as accounts payable, accounts receivable, payroll and other related activities.

External pressure: BEPS, transparency and governance

Global revenue authorities are responding to the political need to increase tax revenues. Across the world there is increasing focus via a number of channels including governments, parliamentary committees, the OECD, investors, the press, not for profit organisations and social media.

As a result, tax authorities across the globe are responding by increasing their tax audit activity. Common trends arising from these tax audits include a lack of supporting documentation and audit trail and poor management of the tax audit process. In many cases, those responsible for the audit within a corporate are forced to be reactive in managing the tax exposures to their organisations whilst also managing existing workloads.

Building a leading tax operating model

The optimal tax operating model to deal with these pressures is not always obvious. Leading organisations are adopting a mixed model incorporating both in-house and third party expertise. This allows the organisation to tailor their tax function to meet their needs with their required strategic skills, corporate knowledge and jurisdictional tax expertise.

Leading organisations are responding to these pressures by:

  • Clearly redefining the role of the tax function within the organisation, with a focus on adding value by better supporting the broader goals and strategic direction of the business. Tax is realigning itself to be an adviser, policy setter and risk manager.
  • Stripping back their focus to core competencies. A move to the outsourcing of non-core competencies including global tax reporting and compliance is at the front of many agendas. The types of deliverables being outsourced include: tax provisioning, corporate income tax compliance, GST/VAT, withholding taxes, statutory accounts preparation, book keeping and payroll taxes.
  • Using finance transformation initiatives as an ideal time to assess and refine the preferred operating model for the tax function. Leading organisations are starting with a “clean sheet of paper” to create a blueprint of how they can best organise themselves to better serve the business. Leading organisations take into account benchmark data including industry and global peer comparison in determining what is ‘fit for purpose’ and then clearly ‘make the case’ to support that model.
  • Holding finance more accountable for the validity of the numbers. Where risks and inaccuracies are identified by tax compliance processes, leading tax functions are pushing back on finance for clear resolution to improve data quality arising from finance transformation initiatives.
  • Implementing tax corporate governance and risk management frameworks, allowing them to identify, assess, report and monitor any risks as they occur. Leading organisations are implementing workflow and document management technology that helps enable these processes.

The average tax function is now operating within a difficult environment of growing expectations and limited resources. Being proactive and adopting a tailored operating model will streamline operations, improve productivity and support the broader business in achieving its strategic goals.