5 minute read 10 Jan 2019
Manager warehouse tax computer

How to build a connected and trusted tax department

By

Kate Barton

EY Global Vice Chair – Tax

Helping organizations develop smart tax strategies. Passionate about diversity, women in business and tax tech.

5 minute read 10 Jan 2019

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Businesses have made great strides in digitizing tax, but must still strive to embed innovative technologies and build stakeholder trust.

The ideal of the connected tax department that can serve as a trusted business advisor remains a work in progress. This point is driven home often in meetings with clients, where it’s clear that they are experiencing a disconnect between increased reporting expectations and insight into the data. In a recent EY poll, nearly three-quarters of the professionals surveyed said their tax authorities had increased digital requirements in the last three years. But over four-fifths of respondents said they had little to no idea what kind of analysis is being run on the tax data collected.

This single disconnect is but one of many. Modern tax departments need to be connected to more constituents than ever before – with deeper, more immediate links. The internal groups run the gamut from the board, C-suite and IT department to the front lines of the business, all of whom increasingly rely on the tax function to make strategic decisions with confidence. External stakeholders include investors, tax authorities and, lately, the public in a social media environment where a contested tax profile can tarnish a company’s brand. Building trust – sooner rather than later – has become critically important.

Certainly, progress has been made from the days when the tax department was a back-office silo working mainly with historical data. We’re getting there but the status quo is anything but static.

Diplomats and visionaries

Over the years, tax executives have assumed new roles and responsibilities. They are stepping up as tax ambassadors who educate the C-suite and other stakeholders about the impact of changing tax laws. They increasingly act as tax diplomats, fostering relationships throughout their organization. As tax technologists, they are embracing the power of technology to do their jobs more efficiently and redefine their roles. As tax visionaries, they are providing trusted business advice to their organization that equip leaders to make educated decisions and find value.

While growing into all these roles, however, the tax department has yet to settle into a “new normal.” Unprecedented new tax policies and game-changing technologies present continual disruptions, repeatedly challenging the way tax people work and the models they use. 

Consider how US tax law changes, once thought highly unlikely, have now become something akin to a megatrend in terms of immediate impact on US tax departments. EY teams estimate that the level of effort required simply to handle compliance with the new law, in addition to requirements from the EU mandatory disclosure regime, will at least double in the next year. And there will likely be business implications for US companies across the board in terms of how they operate, invest, compete and deliver products and services – in the US and abroad.

Another legislative swerve could be just ahead, under the European Commission’s March 2018 proposal for the taxation of digital business activities. Imagine the global implications if it turns out, as recommended, that profits are to be registered and taxed where businesses interact with customers through digital channels.

Unprecedented new tax policies and game-changing technologies present continual disruptions, repeatedly challenging the way tax people work and the models they use.  

On the front lines

At the same time, continual innovation in technology is driving companies to digitalize operations, automate supply chains and offer new digital services. Tax planning needs to be considered at every step of the way. Flash points can include enterprise transformation projects, the integration of acquisitions and globalization initiatives. At such moments, businesses face tremendous compliance risk if they don't get it right, and tax efficiencies if they do.

Tax authorities are also rapidly digitalizing. Governments that are further along in the process are directly collecting e-invoices and other transaction data, calculating the tax due themselves and presenting the bill to companies to either confirm or contest — within short turnaround times. EY research shows a traditional tax compliance cycle time of three years could be compressed by the digital compliance model to 90 days.

This approach is increasingly used for indirect taxes today but it is expanding to cover corporate income and other types of taxes. In all cases, a business needs to make sure assessments are correct. But the question is how. Should the tax department do a mock audit of its own? Do most companies even have the technology to do so?

Uncertainty surrounding questions like these is making today’s environment very difficult for tax departments to navigate. To quell uncertainty, the tax function should commit to being as close as possible to the front lines of business.

More with less

All these drivers, in turn, require the digitalization of the tax function itself. Most departments right now are being asked to do more with less, even though changing tax law and administration are making their work more complex and labor-intensive. The skills shortage in the industry is only aggravating this resource crunch.

Part of the solution is for the tax function to work side by side with the IT department because it needs the latest technologies to be efficient. This requires access to tools, platforms and applications for more robust data archives and audit processes, real-time visibility across the enterprise’s financial systems, monitoring techniques aligned with what governments are looking for as well as sufficient investment in predictive analytics, and forays into the robotic process automation and machine learning technologies that can do much of the baseline work. It should go without saying today that manual systems can’t keep up.

A connected tax department aligns itself with all stakeholders in managing the risks of business transformation, creating value and cutting costs — all while adapting to dramatically changing tax laws and administration.

Next steps

  1. Ensure that tax planning is considered at every step as you digitalize operations, automate supply chains and offer new digital services. Flash points include enterprise transformation projects, the integration of acquisitions and globalization initiatives. Get it right and you’ll enjoy tax efficiencies. Get it wrong and there’s tremendous compliance risk.
  2. Create deeper, more immediate links with key stakeholders. Internally, this ranges from the board and IT department to the front lines of the business. External stakeholders include investors, tax authorities and the general public.
  3. Make sure your monitoring techniques are aligned with what governments are looking for and that there has been sufficient investment in predictive analytics and robotic processes. Manual systems cannot do this for you.

Summary

“Connected” means using technology in ways that organizations may have never dreamed of and establishing a wider network of relationships than they’ve ever imagined. In almost every way, the connected, trusted tax department of tomorrow will look very different from today. We need to keep on connecting those dots.

About this article

By

Kate Barton

EY Global Vice Chair – Tax

Helping organizations develop smart tax strategies. Passionate about diversity, women in business and tax tech.