Transforming the Tax Function: unlocking strategic value through transformation

More complex legislation

Tax departments today are facing a multitude of challenges. Not only are they facing more complex legislation and regulations, such as Pillar II, which states that multinational companies with global consolidated revenue exceeding 750 million EUR must pay a minimum level of profit taxes, but they are also caught in the midst of the war for talent. In fact, EY’s Tax and Finance Operations survey has shown that almost 90% of companies see the tax function as an area to cut costs, resulting in a situation where fewer people are handling a greater workload. As a result, the department, out of necessity, is increasingly relying on technology, automation, standardization and digitization. The shift presents both a challenge and an opportunity. By automating repetitive tasks, more time is freed up to generate the expected added value and to contribute to the strategic vision. As far as budgets allow, technology and digital transformation will assume a more important role within the tax department. Moreover, with the enormous volume of data to be collected as part of the reporting requirements within that new legislation, the increased demand for transparency and the intensifying targeted and high-performance audits by tax authorities, technology will play an even more crucial role.

In order to adapt to the evolving landscape, this requires that employees within tax and finance departments will have to retrain and upskill themselves to stay technologically proficient. The implementation of automation and standardization, big data and digitization are becoming increasingly vital. Recognizing the importance of these transformations to businesses, EY offers support to its clients in designing and implementing an effective operating model, supported by appropriate technology, enabling organizations to effectively navigate the rapidly changing legislative environment across various countries.

Looking at end-to-end processes

EY's annual survey with Tax & Finance functions within international companies worldwide found that 96% of those companies are looking to transform their tax and finance operating model in the near future. Within that operational transformation, co-sourcing in particular, will play a significant role where certain activities will be taken in-house by the tax and finance teams while other activities, such as financial statement preparation, preparation of tax returns or tax audit assistance, will be outsourced. Tax departments look at their end-to-end process and identify certain - often routine - activities they want to outsource. By doing so, they can save time and free up resources, allowing the tax & finance function to focus more on activities that comprise strategic value for the company. Moreover, co-sourcing is often a way to reduce costs within the department, which, as mentioned, is demanded by stakeholders. Technology, automation and standardization also play a crucial role in co-sourcing.

Tax and sustainability

The rising need for transparency introduces numerous new guidelines and initiatives, such as ESG, commonly associated with environmental sustainability and circularity. With the Global Reporting Initiative (GRI) providing sustainable reporting standards, for example on tax in recognizing the vital role tax contributions have on sustainable development. ESG is getting an increasingly important role, also when it comes to tax. Within co-sourcing, there is a rising demand for ESG reporting in the direction of tax contributions. This shift will only further increase in the coming years. Tax and sustainability are not often mentioned in the same breath, but they are effectively interconnected.

Tax Control Framework

The increasing demand for transparency is also reflected in the establishment of a Tax Control Framework, which is gaining importance among stakeholders such as Management and tax administrations. We see that not only in Belgium, but also in other countries, tax administrations want to gain more insight into the internal processes of a tax department. The Tax Control Framework should ensure that a company's tax risks are known and also controlled through appropriate implementation of measures. It helps companies to implement their tax strategy in a manageable and controllable way. In Belgium, the importance of a Tax Control Framework has increased with the introduction of the Co-operative Tax Compliance Program by the Belgian government in 2019: if you want to be able to participate in it as a company, you must have - among a number of other criteria - a solid Tax Control Framework in place.