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How to futureproof the tax and finance functions now

Photographic portrait of Seng Chye Chia
Seng Chye Chia

Partner, Tax Services, Ernst & Young Solutions LLP

7 minute read 01 Apr 2022
Related topics
Tax
Tax compliance
Tax planning
Managed services
Tax leaders’ agenda

Tax and finance functions must transform and go beyond being a support function to be a strategic partner that adds value to the business.

In brief

  • The changing global landscape is driving organizations to re-evaluate their tax and finance functions, with the aim of turning them into a strategic partner.
  • Organizations can outsource or co-source these functions to better manage the changing requirements.
  • Finding the right mix of in-house and outsourced activities can help enhance the tax and finance functions’ efficiency and effectiveness.

The global business landscape is undergoing a seismic shift. The COVID-19 pandemic and accelerated digitalization are among some of the key triggers. In response to this shift, many businesses are re-examining and re-evaluating aspects of their operating models. One area is transformation of the tax and finance functions, which presents several challenges.

It is increasingly clear that in this current landscape, tax can no longer stay as a mere support function in organizations. It needs to transform into a key business and strategic partner of operating units in the organization — and more actively and directly add value for the organization and stakeholders. But this transformation journey is hindered in several ways, particularly in talent acquisition, keeping up with legislative and regulatory changes as well as the costs and investments to adopt technology and collect data.

Governments around the world are increasingly adopting digital tax filing. We expect the breadth and depth of digital tax filing to increase manifold over time. The challenge for organizations and their tax and finance functions is to have the right technology tools and data to meet what we believe to be a heightened level of compliance.

It is also quite clear that the Organisation for Economic Co-operation and Development’s  Base Erosion and Profit Shifting initiatives will precipitate overhauls in many countries’ tax regimes. For example, the Singapore Government announced in Budget 2022 that it is exploring a top-up tax called the Minimum Effective Tax Rate that will affect multinational enterprises operating in Singapore with annual global revenues of at least €750m. As one country overhauls its tax regime, other countries are not staying still. In the next 12 to 18 months, we should see a complex web of tax filing and reporting challenges, especially for enterprises with a regional or global footprint.

The headline findings of the 2022 EY Tax and Finance Operations Survey (TFO survey) mirror the reality on the ground. It shows that businesses are actively transforming or looking to transform. For the Asia-Pacific region, 73% of respondents are revamping their tax and finance operating models. They focus on priorities such as automation, the use of shared service centers and co-sourcing. A large portion of the remaining respondents indicated that they are planning to change their operating models in response to the array of challenges they face.

Impact of increased ESG focus on tax and finance functions

Tax and finance functions now play a bigger role in helping their organizations address environmental, social and governance (ESG) objectives. Seventy-nine percent of the TFO survey respondents for the Asia-Pacific region say they are currently co-sourcing ESG reporting activities or considering it. Even when adopting the co-sourcing approach, one challenge remains with the organization — automation of its information and data infrastructure to harvest reliable data to meet reporting needs. More likely than not, this challenge will be faced by the tax and finance functions.

Incidentally, the survey shows that respondents are now more focused on making voluntary disclosures about their organizations’ tax activities. This trend is driven by the demands for transparency in tax reporting. The disclosures range from the tax governance framework to the variety of tax payments made to governments. The increased focus on ESG also places more emphasis on having the right talent and data to meet the demands of delivering such insights in an accurate, complete and timely manner.

Challenge of “The Great Resignation” and “The Great Reshuffle”

The tax and finance functions are not spared from the global phenomena of “The Great Resignation” and “The Great Reshuffle”. People with the right combination of specialized tax technical, data, process and technology skills are in short supply. In fact, all Asia-Pacific respondents in the TFO survey believe their tax and finance teams will need to upgrade their tax technical skills as well as data, process and technology skills within the next two years to keep up with the demands of the functions.

It is one thing to invest in upgrading the team’s skill sets. It is quite another to retain them. “Talent grab” is common in the market. People with the right skill sets are in such high demand that rapid turnover creates a further challenge — retention of institutional memory. At the moment, no one can tell if this is just a passing phase or if it is a longer-term structural shift. 

How EY can Help

  • Tax and Finance Operate

    Our tax and finance operate solution can help your business manage risk, realize value from data, drive innovation and improve efficiencies. Find out how.

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Managing multifaceted pressures on the tax and finance functions

 

More organizations are now tapping into technology tools to automate and manage the increasingly demanding tasks and activities in the tax and finance functions. Organizations have the option of either investing in their own infrastructure, engaging an outsourced service provider or adopting a combination of both.

 

One of the benefits of outsourcing or co-sourcing is that they give organizations instant access to qualified and experienced tax professionals who can meet their demands. In addition, they leave the retention, replacement and training of this manpower resource to the service provider. They also offer organizations access to high-end technology that leverages data to provide insights that may otherwise be too costly to acquire on their own.

 

To that end, we have been helping clients that are keen on an outsourcing or co-sourcing approach to reimagine their tax and finance operating model with our Tax and Finance Operate (TFO) solution. The EY TFO approach is not a “one-size-fits-all” or exhaustive solution. It can be tailored and is scalable. It can be customized to fit organizations’ focus and strategic priorities, supporting their road map to build “an intelligent tax function”. In a nutshell, an intelligent tax function is one that accesses a single source of data and leverages advanced technology to effectively address risks across the organization’s tax life cycle.

 

With the TFO solution, organizations are not burdened by the cost of constantly adapting their own capabilities. The outsourcing or co-sourcing approaches arguably require less management focus and investment. They should also allow the in-house tax team to focus on more strategic activities.

 

There are pros and cons to each of these options. An option that appeals to one organization may not offer the same appeal to another. Evaluating these options in the context of an organization’s current and likely future needs must be the first step in the tax and finance functions’ transformation. 

Outsourcing and co-sourcing offer the advantage of instant access to qualified and experienced tax professionals who can help meet organizational needs, while leaving manpower management to the service provider. Another benefit is affordable access to high-end technology that provides the organization with insights.

With the tremendous volume of changes faced by the tax and finance functions, the time to act is now. The transformation urgency is greater for enterprises operating in multiple jurisdictions. Most of these organizations have started their enterprise transformation. They are in various stages of upgrading their IT systems and setting up shared service centers. At the same time, businesses are facing cost pressures and some of them are embarking on headcount reduction initiatives. Some organizations may decide to address these challenges internally, while others may consider an outsourcing arrangement.

Whichever course they take, organizations should continuously re-evaluate their operating model to identify gaps in people and technology as well as aim to respond promptly to changes and shifts. They would want to decide which activities are “high value” and “best-in-class” that should remain in-house. Activities that are “best-in-cost”, i.e., more routine, highly repeatable and rules-based, may be performed more efficiently via co-sourcing with a third-party service provider.

Ultimately, it is about finding the right mix that can help improve both the effectiveness and efficiency of the tax and finance functions, while empowering the in-house tax function to become a value-added partner to the business. 

Summary

Tax and finance functions are under pressure from global changes to become a key business and strategic partner in the organization. However, they face challenges in this transformation journey across areas such as talent acquisition, keeping up with regulatory changes and technology adoption costs. Outsourcing or co-sourcing can help them address these issues and focus on more strategic activities.

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