How tax and finance transformation drives value for board governance

A more strategic and agile tax and finance function can help companies recover after the COVID-19 pandemic.

Tax and finance functions today face a staggering pace of tax legislative and regulatory change, talent and cost containment challenges, as well as difficulties in creating a sustainable plan for data and technology. Furthermore, companies need to balance a set of different — often competing — priorities, including ensuring compliance, planning, managing costs, and proactively supporting the organization’s wider business and capital agenda.

There is a pressing need to accelerate transformation of the tax and finance function into a value-added collaborator in the business. The COVID-19 pandemic, which put many organizations’ resilience to the test, underscores how having the right finance talent, technologies and processes is crucial in withstanding disruptions. As boards work to guide companies to recovery, a well-structured corporate tax and finance operation will be essential.

Yet, recent EY research suggests that many companies are struggling to put in place the right people and technology models to monitor, evaluate and respond to fast-changing global conditions as they increasingly operate across borders. In their oversight role, boards should know whether their tax and finance function is able to effectively reduce cost, manage risks and importantly, drive higher value for the business.

Doing more with less

The 2020 EY Tax and Finance Operate survey, which covered 1,013 organizations from 42 jurisdictions, found that the sheer pace of legislative and regulatory change is overwhelming tax and finance functions. This year alone, a significant number of jurisdictions globally are reforming their tax regimes. Tax administration continues to go digital, with countries from Brazil to the UK completely digitalizing their end-to-end compliance processes. Half of the respondents expect these emerging digital tax filing requirements to raise their organization’s tax risk profile.

In this complex landscape, the board and management will want their tax and finance executives to be actively offering insights that support the broader business strategy. But the reality is sobering: the survey showed that companies spend 62% of their time on routine compliance activities and therefore lack the time to focus on more strategic matters. The anticipated increased workload from emerging digital tax filing requirements and broader financial regulations will only exacerbate this.

Tax and finance functions have always had to contend with doing more with less. Not surprisingly, almost 8 in 10 respondents plan to reduce the cost of their tax and finance function over the next two years. This means companies not only have to do more to comply with new laws and regulations, but also need to spend less over the long term.

Build or buy to transform?

As companies seek to build a more future-ready tax and finance function, they typically choose one of three approaches. The first option is rebuilding or transforming the existing in-house tax and finance function, making significant investments in digital technologies and new talent. This operating model could be challenging, given the unrelenting pace of change and the cost involved in setting up and sustaining it — especially for larger organizations operating across multiple jurisdictions.

The second option is to co-source the tax and finance activities to a third party that has already invested in technology platforms and has a network of talent that the client organization can readily tap into.

The third option is a hybrid of the two approaches above where organizations seek to improve effectiveness and control, while reducing the overall cost of the tax and finance function. The abovementioned EY survey, where 73% of respondents said they are more likely than not to co-source tax services in the next two years and rely on vendors who stay current by investing in both people and technology, suggests that co-sourcing may well be the most viable path forward.