How TMT companies are transforming the tax function

Technology, media and entertainment and telecom companies must deal with compliance, technology and talent challenges to compete effectively.

TMT companies can also reduce risk via co-sourcing. Nearly half of the surveyed companies noted a “reduced risk profile through increased transparency and control” as the top perceived benefit of co-sourcing.

Co-sourcing can also help with cost reduction. Three-quarters of TMT companies plan to reduce tax function costs over the next two years, at a fractionally higher rate than the overall survey sample.

Managing legislative and regulatory change

Compliance is expanding and expensive—and getting more so. TMT companies expect to spend an average of $9.1 million on digital tax filing compliance over the next five years, nearly 20% more than other industry sectors.

Compliance also generates frictional burdens that slow innovation and consume TMT resources. Tax functions spend a significant amount of time on day-to-day compliance activities, which detracts from time spent on value-added activities.

From the survey, TMT tax functions spend on average 61% of their time gathering and processing data to comply with tax and statutory requirements. Even more dramatically, one-quarter of respondents spend 70-90% of their time on these tasks. Needless to say, that leaves little time for high-value activities such as tax planning, strategy, communication and risk management.

Unfortunately, the trend shows no sign of slowing. Eighty-six percent of TMT companies anticipate an increase in their workload due to current and emerging digital tax filing requirements. And that burden brings risk. About half of respondents expect an increase in their overall tax risk profile as a result of these requirements. Further, roughly a third of respondents say they are unlikely to be prepared for this accelerated level of compliance.

Digital readiness

The lack of a sustainable plan for data and technology is by far the biggest roadblock to delivering a tax function’s purpose and vision. Respondents cited this gap more than twice as often as the next most common barrier.

There’s an irony here for technology companies in particular, which might be presumed to have a well thought out digital strategy. Instead, when tech firms have capital to spend, they spend it on their markets and research and development.

Along those lines, more than half of TMT respondents say co-sourcing/outsourcing key data and tech capabilities is the best way to reduce costs and improve quality in the tax and finance function.

TMT companies, however, are more forward-looking in their use of emerging technology. Ninety-seven percent say they are using AI and/or machine learning in some capacity, compared to 85% of all respondents across all industries.

Changing talent demands

Issues around talent weave through the challenges facing the tax and finance functions and the changes already taking place. The need for digital transformation, for instance, will shift the nature of what tax and finance personnel actually do. From the survey, 85% of TMT companies agree that the mix of core competencies will swing to data, process and other technology-related skills over the next three years.