5 minute read 13 Aug 2019
ey-office-team-brainstorming

Six strategic agenda items for insurance tax leaders in Asia

By

Jeff Soar

EY Global Insurance Tax Leader and UK FSO Tax Leader

Global Insurance and UK FS Tax leader. With EY for 16 years. Big rugby and cricket fan, both playing and watching. Live in the countryside with wife and son and loves the great outdoors.

5 minute read 13 Aug 2019

Rapidly changing priorities require insurers to add capabilities, get more digital and reduce costs while meeting new regulatory demands.

Tax leaders at insurance companies in the Asia-Pacific region are faced with a range of imperatives, from intensifying regulatory requirements, emerging macroeconomic and geopolitical trends, and the ongoing — and conflicting — pressures to simultaneously cut costs and innovate boldly. Collectively, these forces are redefining the role and shaping a more data-driven and technology-enabled tax function across the region. 

Recent EY insurance tax roundtable events in Sydney and Hong Kong highlighted the hottest topics, including: 

  1. Increasingly active — and digital — regulators
  2. The battle for new skills and talent
  3. The impact of evolving global tax policy
  4. Shifting business priorities
  5. Shaping the right tax strategy
  6. Master the operating model 

1. More active — and digital — regulators 

Increasingly, tax and revenue authorities, as well as other regulators, know more about individual businesses than internal tax functions do. That’s because regulators have embraced digital technology. For example, the Australian Taxation Office has added hundreds of data scientists to its staff, far beyond what most corporate tax functions have done. In some markets, tax authorities are now asking for all of a company’s tax data and telling companies what they owe in taxes. Other authorities are using algorithms to find outliers and anomalies in tax filings and audits. 

The shifting dynamic fundamentally changes the relationship between companies and regulators. Tax and revenue authorities certainly aren’t afraid to try new methods and embrace technology; that’s why insurers must actively keep pace when it comes to adopting advanced technology and understanding how tax authorities are using the company data at their disposal. 

2. The ongoing battle for new skills and talent

Tax teams are looking for new skills and talent beyond the purely technical knowledge that has been a priority in the past. Data scientists are increasingly in demand for tax organizations. Some forward-looking tax functions are also considering public relations, marketing and relationship management expertise. By adding “storytelling” skills, tax leaders can more clearly articulate the organization’s values and commitment to paying their fair share of tax to all stakeholders (including customers) in response to increasing public controversies. Creating mutually beneficial dialogue with regulators is another area where non-technical skills can add value for companies. 

3. The impact of evolving global tax policy

While tax regimes differ across Asia, global tax issues are affecting companies everywhere. Evolving political landscapes in the US, UK and Europe – from trade wars to rising nationalism to Brexit – are also forces to be reckoned with. The main impact so far has been the de-emphasis on tax minimization and a greater sensitivity to public views about what businesses should pay in taxes. 

Consumption-based taxes are on the rise across Asia. In India, taxes are generally designed as goods and services taxes (GSTs), though separate state and federal taxes (like in Canada) make for an incredibly complex situation, where firms may file 1,200 or more returns annually. Hong Kong looks unlikely to introduce a value-added tax (VAT) given its large surplus, while Malaysia is removing its newly introduced GST and replacing it with sales and services tax in a somewhat unexpected move.

4. Shifting business priorities

These global issues are changing the inherent role tax functions play to the business. The clearest indicator of a shift is that reducing tax bills is not necessarily the top priority at every company all the time. Even the very nature of how tax functions work has changed. Not content with just making sure that their tax numbers add up, focus has fallen on data, transparency, visibility and analysis. 

The shifting priorities must be viewed in the context of ongoing cost pressures and the tendency to cut costs indiscriminately in tax functions. Without some investment in new capabilities, talent and toolsets, it will be hard for tax functions to serve as strategic advisors to the business or as the ultimate risk manager of the company.

5. Shaping the right tax strategy

Participants in the Asia-Pacific events recognized the need to clearly articulate tax strategies focused on business engagement and value creation, while still meeting reporting and compliance obligations. This means that more tax leaders are asking whether tax is best managed as a part of the finance function or whether it should be housed as a part of, or alongside, the risk management function. 

A balance also must be struck between handling core tasks (e.g., filing, compliance and reporting) and adding value for the business. A strategy that enables such a balance requires: 

  • Identifying and quantifying the benefits and value to the organization
  • Clearly defining accountability, roles and responsibilities
  • Determining key dependencies
  • Identifying the right metrics for success
  • Determining the required skills and talent for today and tomorrow

6. Mastering the tax operating model

After defining the right tax strategy, mastering the right operating model to execute the strategy is the next step. Tax leaders will need to identify the necessary capabilities and capacity and then design the optimal sourcing approach. Given the need to engage scarce talent in critical areas (e.g., data science), more tax teams are considering engagement with external providers to handle certain tax processes and work streams. 

Among the other strategic considerations, tax leaders must think through:

  • The opportunity to standardize processes, tools and applications
  • Adoption of optimal location strategies (e.g., centers of excellence, shared services centers)
  • Integration with other internal functions, including finance, risk and actuarial, especially relative to data sharing and standardization

Summary

The issues and opportunities facing insurance tax leaders in Asia – and indeed around the world – add up to a multi-dimensional puzzle with many variables. Talent and culture, data and technology, cost and value – these are the factors that tax leaders must piece together if they want to increase the value they contribute to the business and navigate the complex matrix of challenges they now face. While the pressure faced by insurance tax leaders has never been greater, the opportunities have never been more exciting. 

About this article

By

Jeff Soar

EY Global Insurance Tax Leader and UK FSO Tax Leader

Global Insurance and UK FS Tax leader. With EY for 16 years. Big rugby and cricket fan, both playing and watching. Live in the countryside with wife and son and loves the great outdoors.