How to drive an agile tax and finance function through co-sourcing

How can CFOs build an optimised tax and finance function that safeguards compliance and contributes to effective decision-making?

According to the EY Tax and Finance Operate report, which surveyed 1,013 organisations globally, it is evident that the tax and finance functions are undergoing major changes. These are the key findings:

Legislative changes

• 84% of respondents anticipate an increase in their workload to comply with emerging digital tax filing requirements.
• 51% expect those requirements to lead to an increase in their organisation’s tax risk profile.

Data and technology

• 65% lack a sustainable data and technology plan to implement their tax and finance function’s purpose and vision.
• 83% believe the core technical competencies of their tax and finance personnel must be augmented to include more data, process and technology skills over the next three years.

Value

• 99% of organisations are acting to transform their tax and finance operating models.
• 73% say they are more likely than not to co-source critical activities in the next 24 months to relieve these growing pressures.

Cost

• 79% plan to reduce the costs of their tax and finance function over the next two years. 

Talent

• 45% struggle to provide new responsibilities and career advancement opportunities for their tax and finance personnel.

The study found that tax and finance functions are generally struggling to keep up with digital advances and the push towards transparency and reforms of the global tax system. Most organisations acknowledge that they need to innovate their tax and finance functions to successfully manage these pressures and deliver value in an era of cost reduction. To do so, they would have to reimagine their tax and finance functions.

These findings are fairly consistent with the observation that companies and their CFOs are, on the one hand, looking for best-in-cost solutions for their lower-value activities where speed and accuracy will give them a competitive advantage and, on the other hand, aiming to be best-in-class in managing risks and compliance matters, quality and growth enablement. Companies and CFOs need to decide whether they want to own that task by keeping it in-house, or outsource it to an external service provider. The approach adopted by organisations is often a hybrid or mixture of both, depending on their objectives and needs.

Established professional service providers have taken notice and started providing support to CFOs to manage their tax and finance operations (TFO), both locally and across multiple locations. The TFO teams typically consist of dedicated accounting and tax professionals working in tandem to support the CFOs holistically. They have centralised teams offering best-in-cost transactional support and access to cutting-edge technology and operational platforms to turn financial data into key insights, which will help CFOs make better informed decisions. While the transactional support teams may be located in centralised locations, the TFO teams are based locally and will work with the CFOs to develop strategies and plans, while providing full compliance and helping to protect the company’s reputation with the use of best-in-class processes, technology and talent.

Essentially, the TFO teams will provide a “wing-to-wing” service and solution to the CFOs, from handling and processing invoices, updating and maintaining accounts, cash management, direct and indirect tax compliance to the eventual preparation and filing of financial statements and tax returns, as well as reporting dashboards and analytics. More importantly, they harness technology to provide CFOs with timely and useful insights to make good decisions.

Key benefits of engaging a TFO business partner

By engaging a strong business partner to manage the company’s TFO – one with global infrastructure to support global operations and which has its own local specialist teams, i.e., without using sub-contractors – CFOs can look forward to these key benefits: 

• Cost reduction in the long term
• Greater control and risk mitigation
• Scalability and increased efficiency
• Access to cutting-edge technology
• Elimination of staff turnover, continuity and retraining issues
• Up-to-date dashboards and alerts
• More informed and quicker decision-making using accurate and timely data

CFOs looking to streamline and redesign their tax and finance functions should consider this as a possible option. Companies that have gone through restructuring resulting in carve-outs and spin-offs will benefit from having a TFO business partner. The same would apply to family offices and groups with many special-purpose subsidiaries.  

With the multiple challenges facing the tax and finance function, it is imperative for CFOs to act now and consider the optimal approach for their organisations, in order to reinforce their tax and finance function for today and tomorrow.

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The co-authors of this article are Seng Chye Chia, Partner and Technology Sector Leader, Tax Services, Ernst & Young Solutions LLP and former EY partner David Ong.