4 minute read 20 Feb 2018
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How to face tax automation challenges

By

Mark Tafft

EY Global Tax Automation Leader

Believer in automation as a massive catalyst for adding value to client services. Motorcyclist. Surfer. Dad.

4 minute read 20 Feb 2018

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Automation and analytics software create an opportunity to evolve tax functions and tax processes, but the complexity tends to be underestimated.

In the simplest terms, tax processes are generally managed as a component of corporate functions and in-house tax functions, performed by a mix of people, utilizing software that’s either internally built or externally licensed, and utilizing external providers to some extent, such as business processing outsourcing companies or providers of professional tax services such as EY.

Regardless of the location or agency of those processes, we know that currently there is still a lot of manual effort involved: a survey of 175 CFOs, Tax Directors and Tax Managers suggests that of the top 200 in-house tax functions in Australia and New Zealand, 47% were spending at least 35%–50% of tax function resource time on manually moving and transforming data from one application to another.

The survey also revealed that 27% are spending at least 50%–65% tax function resource time on this type of manual task. Tax-oriented software has not managed to limit that. 

There is lots of talk about tax being ripe for process automation, and that’s partly right. Automation and analytics software creates a real opportunity to evolve tax functions and tax processes. But what tends to be underestimated is the complexity of the task.

For example, our member firms operate in more than 150 countries, each of which has many tax regulations within different regions or states. Add to that the fact that many tax processes are being performed on bespoke client data sets with complex qualitative decision making required, and there is a major multiplier effect — it’s very far from being wholly standardized. Many of the same challenges exist for individual corporate tax functions.

For tax functions it’s better to explore these possibilities sooner rather than later, to see what challenges intelligent automation might be able to resolve.

The world of tax is changing extremely rapidly

Organizations, suppliers and governments can be plotted on a “digital tax administration” continuum — how far along a particular tax jurisdiction is toward digitalization and automation.

Level one is paper-based, and level five sees a scenario where tax administrators no longer ask organizations what they think they owe — they are actually plugged into an organization’s financial systems and are able to tell that organization what they owe, based on raw data, analytics capabilities and the resources to compare tax liabilities against other organizations within their bell curve.

This new world will suit providers who can utilize economies of scale with automation and analytics software and cope with big data: the sheer scale of tax assurance obligations, the ability to chop and change for legislative and corporate change, the need for analytics capabilities and access to external tax relevant data pools will be hallmarks of the future of tax processes — and will heavily influence who performs them. And intelligent automation will be a big part of that.

If the corporate tax function doesn’t tackle this head on and actively try to anticipate this future state, there is also the risk is that a broader corporate automation project will just automate to forcibly slash headcount, without taking into account the requirements for future tax processes and assurance levels. The tax function is very different from other functions within organizations.

How to create an effective digital tax strategy

A good digital tax strategy is a function of four quadrants:

  1. Digital tax effectiveness
  2. Digital tax administration
  3. Tax technology
  4. Tax big data 

By examining these areas, you can help get to a nuanced point of view on what, when, where and how to evolve the tax function. Here are some illustrations of the approach clients are taking:

  • Rationalize total direct cost and shadow tax function costs via staged internal or external automation of specific tax processes — and free up highly skilled tax labor to perform much higher levels of tax analytics and assurance
  • Consider co-sourcing the tax function itself or parts thereof — versus maintaining the existing insource solution
  • Explore tax technology capability against a particular tax pain point as a preliminary test and decide whether the IT solution should reside within the organization or be accessed via an external platform provider
  • Focus heavily on tax analytics capability given a highly digital tax administration global geographic outlook

Summary

For tax functions it’s better to explore these possibilities sooner rather than later, to see what challenges intelligent automation might be able to resolve. At the very least they should start questioning the paradigms of the world of tax and tax processes to anticipate changes that are coming.

About this article

By

Mark Tafft

EY Global Tax Automation Leader

Believer in automation as a massive catalyst for adding value to client services. Motorcyclist. Surfer. Dad.