8 minute read 21 Feb. 2022
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Five areas of focus for tax teams as they look to a post-COVID future

EY Canada
By EY Canada

Multidisciplinary professional services organization

8 minute read 21 Feb. 2022
Related topics Tax
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The tax landscape has been upended by the pandemic and ongoing policy change. Now tax leaders have to navigate the best way forward.

In brief
  • Prior to COVID-19, tax teams were already having to adapt to a fast-moving tax landscape that was putting pressures on existing tax operational models.
  • The pandemic created a whole array of tax-related challenges that couldn’t have been predicted, both for the tax function and the broader business.
  • While the world is still dealing with COVID-19, tax teams have to weigh up the effects of the pandemic and broader tax policy change and chart a way forward.

If the impact of the COVID-19 pandemic on an unsuspecting world was swift and forceful, any sense of recovery or closure is proving far more drawn out. Countries are now emerging from the upheaval of lockdowns and restrictions, but it’s happening in fits and starts – and at different rates.

And the Omicron variant, which brought the return of lockdowns in some jurisdictions, signals there may yet be some backward steps before the world truly moves beyond the pandemic.

By now, tax functions will understand they shouldn’t expect a clean and simple return to “normality” either. But exactly how can they plan for the months and years ahead, and what challenges will they face?

The pandemic forced rapid changes to tax policy and brought disruption and tax risk exposure to many aspects of business. It also acted as a catalyst on processes that were already underway. In a shifting sea of other broad pressures and further tax policy change, it’s clear that every tax function now must paddle even harder.

Many of those pressures have been obvious and immediate. Early in the pandemic, tax teams found themselves juggling an unpredictable workload while rapidly adjusting to remote working. And as people scattered across the globe to reunite with loved ones, a wave of new tax risks was triggered, with some employees creating a taxable presence in new locations.

Tax and finance “leniency” caused problems too, with grace periods disrupting the peaks and troughs of regular cycles. Now, the day-to-day tax workload – already mounting as activity recovers – is being further complicated by bottlenecks.

That tax workload itself is changing, too. Governments, desperate to recoup the billions they have spent during the upheaval, are busy doing everything they can to close loopholes, curb tax planning, and harness digital technology to bolster revenue collection across all revenue sources including direct, indirect, employee and operational taxes.

Many of those same governments were, until recently, competing with each other to offer the lowest corporate tax rates. Now, a minimum global rate of at least 15% has been agreed by the G20 and endorsed by more than 90% of participants in the Organisation for Economic Co-operation and Development (OECD) inclusive framework. And with each new tax policy that’s introduced – whether it’s the EU’s country-by-country reporting or new digital sales and sustainability taxes – the reporting requirements grows.

And the list of pandemic effects goes on. It disrupted supply chains, with implications for transfer pricing and substance. It also accelerated longer-term issues, including the mounting pressure on organizations to cut costs; the need for businesses to have the right technology in place; and the evolution of the skillset required of modern tax professionals – at a time when companies already face a war for talent and skilled employees are at a premium. It has also catalyzed inflation in many markets.

By the time other pre-pandemic tax reporting changes – such as the Foreign Account Tax Compliance Act (FATCA) and Common Reporting Standard (CRS) regimes – are added in, the list of pressures affecting tax teams can seem endless. In the face of such disorienting demands, tax leaders shouldn’t blame themselves for feeling frustrated.

So here are a few questions designed to serve as the first critical steps beyond the pandemic:

  • Based on everything you know your tax function is going to have to deal with in the near- to mid-term future, which areas do you want it to prioritize?
  • What will it take to be compliant on this date, three years from now?
  • What technology and skills do you need to meet these changing demands, and how are you going to acquire them?
  • Which of your business processes are high value and so must remain in-house, and which can be entrusted to a partner via co-sourcing or outsourcing? Where you draw that line will dictate many of the points outlined below.

Here are five steps that tax leaders can take to help them stay ahead of shifting demands.

How EY can help

Global compliance and reporting (GCR)

In a globalized economy with increasing digital demands from tax authorities, global compliance and reporting has to keep pace.

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1. Keep scanning the horizon

The global tax policy landscape will continue to move fast, as COVID-19 related policies are unwound, and new policies are introduced in governments’ ongoing drive to secure revenue. The first new policy should never absorb the team’s entire focus – because there may be another five new policies lurking around the corner. Some immediate issues commanding attention include audit reform, Environmental, Sustainability and Governance commitments by businesses, major changes in digital tax administration and the evolution of post-COVID-19 business models.

As such, “scanning” is the operative word here. While tax directors have to see enough of the global picture to analyze exposure to the unfolding compliance risk, it will be impossible to figure out the exact impact of every new policy as it’s announced. The true picture tends to emerge slowly, so the challenge lies in knowing when to double down on the detail. 

2. Remain agile and flexible

With little clarity over exactly how tax policies will unfold and affect risk, tax functions need to build in agility and flexibility so they can move quickly to adapt to change and reduce controversy.

Prior to the pandemic, many tax teams were stuck in the comfortable routine of robotic day-to-day tasks. Now, the complexities demand a nimble tax team that’s responsive to a fast flow of emerging new priorities and has a core skillset that is globally, digitally and sustainably aligned with wider strategic objectives to continuously add value to the enterprise.

This is where the analysis of value and balancing the relative merits of in-house and co-sourcing arrangements proves incredibly useful. Tax functions should establish a model that gives their in-house talent the freedom to react intelligently to changing critical tasks while achieving greater agility by leveraging technology, too.

3. Get ahead in the war for talent

The pandemic has sparked unprecedented levels of employee turnover, as people examine their life choices, make different demands of work, and seek fresh challenges.

This is exacerbating a parallel shortage of tax professionals with the balance of traditional and new tax expertise – including the process, technology and data analysis skills that the future of tax demands. As such, attracting and retaining the right mix of talented people is becoming much harder, and these skills now command a premium.

But the businesses that find an advantage in the war for talent will win in the long term. Organizations need to develop a compelling plan for how they're going to attract and retain talent with the knowledge and skills to steer their tax function into the future. This means examining everything from remuneration and career development to company culture and values – and ensuring there’s no discrepancy between promises made and actions taken.

4. Review technology and data strategies

Technology is now playing an increasingly critical role in tax compliance, as authorities switch to powerful machine-learning-enabled tools to tighten the tax-filing process, improve the sharing of information between governments, and strengthen revenue collection.

So, tax functions must ensure they have the best systems in place to gather, collate, understand and share their tax data. This means employing multi-jurisdictional systems, powered by the latest collaborative cloud technology, to provide a holistic picture of tax across the organization, at a glance, from anywhere.

But the right technology really begins with a clear data policy. Tax data needs to be high quality and quick to pull together so tax functions can drive out robotic costs and leave their people doing more value-added activities. This is also crucial for drawing out the hidden extra value the data contains, which will help make the tax function a far more valuable contributor to the business.

It is incumbent on tax officials to educate their chief information officers and finance executives to ensure tax is embedded as part of any wider finance transformation projects and see to it that IT budgets include money for critical investments in tax automation. Too often, the tax authorities already believe businesses are more advanced in these efforts than they actually are, which can increase risk for laggards.

But remember, investing in technology, whether in-house or via a third party, isn’t enough on its own. Tax functions need to recruit people who understand it.

5. Put decision-making support in place.

While it’s very easy to get sidetracked by new obligations, reporting demands and skillsets, the tax function’s core role remains fundamentally unchanged: to provide decision-making support for the broader business strategy.

In the wake of the pandemic, there are huge opportunities for businesses to grow, access new customer markets, or reconsider their global footprints and supply chains. So, the importance of the tax role is increasing all the time.

As such, everything should be geared, first and foremost, to facilitating truly effective decision-making across the business – from the people that tax functions recruit to the processes they build and the technology they deploy. 

Conclusion

Since the arrival of the COVID-19 pandemic in early 2020, tax teams have faced truly staggering levels of upheaval. As well as sparking a raft of tax policies and broader business impact, the pandemic has also significantly accelerated long-term forces of change. And even as the tax function struggles to understand and overcome these challenges, it must shift its gaze to the future to yet more tax policy changes and pressures.

And there’s no scope for sitting back and waiting to see how this upheaval plays out. While the background may be one of deep uncertainty, businesses need to take bold steps in their transformation journey, so they’re suitably equipped for the compliance and reporting requirements that lies in wait on the horizon. 

Summary

Looking beyond the pandemic means tax leaders adopting new approaches to people, processes and technology – and creating a tax function with the agility and flexibility to meet the shifting environment demands.

The good news is that by taking a proactive approach, tax functions can triumph in an increasingly grueling war for talent; future-proof their processes; and equip themselves to fulfil their true core task – to offer vital decision-making support to the business. 

About this article

EY Canada
By EY Canada

Multidisciplinary professional services organization

Related topics Tax
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