Finding your glow: optimizing the tax function

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Welcome to EY’s 2017 Tax Risk and Controversy Survey Series, where we collect and analyze input from taxpayers on what they are seeing in practice in a variety of aspects across the tax lifecycle of planning, provision, compliance and reporting. EY surveyed 901 tax and finance executives representing more than 17 industries in 69 jurisdictions. In part 4 of the series, Finding your glow, we explore how businesses are meeting the challenges of managing risk in a rapidly evolving and digitalized tax environment.

Challenges facing today’s tax function

Managing tax risk used to be a straightforward matter of getting the numbers right. Now, the stakes are much higher – the precision of today’s targeted enforcement and the sheer volume of issues and authorities involved have amplified the pressure on tax functions to have the right resources to keep up with requests and the right technology to supply the answers. Having ineffective tax processes and controls can have profound consequences for businesses in terms of financial penalties or reputational damage from noncompliance.

EY - Top areas of tax operations

Reflecting this concern, our survey respondents ranked the effectiveness and efficiency of global tax compliance and reporting (GCR) as their top area of operations and controls focus in the next two years. However, our survey results also revealed that many businesses aren’t taking full advantage of the tools, technology and personnel that will enable their tax functions to run more efficiently and become a strategic business partner and value creator.

“For many years, managing an effective tax rate [ETR] was the number one priority for a tax director. In this year’s survey, managing ETR ranked fourth….This shows that businesses are focusing more on the essential elements of tax control management, rather than on how tax affects their bottom line."
— Rob Hanson, EY Global Tax Controversy Leader

Steps to take

  • 1. Close the digital gap

    The digital gap is increasing risks exponentially for tax functions that don’t invest in new technology. There is a wide range of digital tools that can be customized to suit businesses’ needs. These tools, including robotic process automation, artificial intelligence, blockchain, cloud solutions, data lake development and business intelligence innovation, have applications well beyond meeting tax filing obligations and can use tax function data to deliver insights and improvements to the entire business.

  • 2. Deliver best in class and best in cost

    Building a modern tax function is not just about making technical improvements; businesses must focus on putting the right people with the right skills in the right places. To accomplish this, companies need to first evaluate their current tax function and then determine their ideal target operating model. As part of this analysis, businesses must decide which activities should be treated as best in class and which should be best in cost. Companies should explore functional outsourcing as a way to become more effective and efficient in managing their tax function.

  • 3. Prevent/manage/resolve tax disputes in an efficient and cost-effective manner

    In today’s fast-moving tax environment, it is critical that businesses adopt a proactive and globally-coordinated approach to managing tax that enables them to timely identify potential areas of dispute and resolve – or at least narrow the scope of – the issue as quickly as possible.

    To minimize the impact of exams and audits, businesses should evaluate their current processes and controls to identify, and develop a plan for ameliorating, any weaknesses. Further, businesses should invest in the right technology and digital tools so they can improve the accuracy and consistency of data as much as possible.

Keep up with technology

As anyone with an outdated device knows, keeping up with technology is a never-ending and sometimes costly task. It is nonetheless essential, particularly when being up-to-date is critical to avoiding disruption in business. Tax departments’ struggles to catch up with tax authorities in the digital space has been a perennial theme of the EY Tax Risk and Controversy Survey. But the emphasis in the 2017 rendition on compliance shows that the technology gap is now an acute concern. Businesses must make digitalization a priority if they intend to mitigate tax risk in the years to come.