While transparency creates an opportunity for businesses to strengthen trust with tax authorities, the risk of data being misunderstood is real.
“Compliance has become a very strategic exercise as you control the story,” says Jeff Michalak, EY Global International Tax Services Leader. “You can’t necessarily control the information the tax authorities have about you but you can put it in the context of a story, the true story about you so they don’t have misconceptions about what’s happening here.”
Filling the communication void
More flexible cloud-based ERP systems in the future will usher in a new era of data storage and data analytics, enabling businesses to deal with tax authorities on the basis of a “transparent view of everything,” according to Benzel.
This will make tax an increasingly strategic issue for businesses interested in building trust with their stakeholders. Those organizations that can’t explain their tax data to tax administrations in addition to their own C-suite and board of directors face reputational and financial risks down the road.
O’Laughlin of PVH says he attends board meetings every few months to explain which changes are material to the organization, whether it’s BEPS or US tax reform. “I want to clarify things, but not get too detailed so that everybody can understand the 30,000-foot view.”
IBM benefits from a network that it has spent decades building up across the jurisdictions in which it operates, Gordon says.
“We have been very successful in explaining our business to tax authorities around the world,” says Gordon. “In most countries we have a foot on the ground from a tax perspective. We may not have a huge staff in every country, but we have enough to service them.”
Having a local team where they can have a face-to-face contact with the business and tax authorities – that has certainly helped us in many, many cases.
Finding the right talent
Today’s tax function is increasingly connected to operational, strategic and decision-making functions within the business as tax regulations and policies evolve, and is in close touch with tax authorities in countries where the business operates.
As a result, the skill sets required in the tax department are evolving. Obviously, the ability to monitor and interpret complex and evolving taxation laws and regulations remains a core capability for anyone working in the tax function. However, digital management and analysis, along with communication (with boards and external stakeholders) are becoming sought-after competencies.
Getting your people structure right in the operating model is critical. The focus on technology means that people coming in need to have a more technological background in addition to the technical.
Going forward, tax functions will increasingly need “digital technologists” able to understand data platforms and identify ways in which artificial intelligence can take over drudge work and enhance the identification of liabilities.
“The data is step one,” Gordon says. “As that comes together, robotics and automation within the tax department will start to accelerate. That will take the lower-skilled work off the team’s plate and let them focus on adding value on a daily basis.”
In terms of communication skills, BEPS “opens more of a political, public relations aspect of tax that never existed before,” says O’Laughlin. “Transparency is key.”
Managing tax risk: steps to take now
- In a rapidly globalizing world with frequent legislative and regulatory change, there can be unexpected tax implications for broader business strategies. Top executives should consult with their tax departments regularly to understand disruption and minimize risks in order to implement business strategies with confidence.
- Increase investments in the tax function to achieve cost reductions in business processes. Strengthening connections between the Tax, finance and even human resource functions can lead to efficiencies and free up resources to be directed to higher value activities.
- Enlist your tax executives to identify tax implications and obligations up front as well as analyze benefits such as incentives to help maximize value.
- Leverage data analytics to identify the impacts on the business and show how tax affects the broader business strategy [to the C-suite]. This can reduce costs and provide value to the greater business.
- Be able to explain tax data tax administrators as well as C-suite executives and boards of directors. Otherwise, the business may face reputational and financial risks down the road.
Summary
Whether it’s talent, technology or regulations, today’s tax function faces many changes. But the tax function that can stay connected with stakeholders while it navigates these developments will be able to keep risks in check and the business on course.