The key questions every tax leader should ask themselves

For tax leaders working in organizations both large and small, the pressure to transform has never been greater.

On one hand, they’re grappling with massive changes to their core responsibilities. Emerging legislative and regulatory changes are also poised to fundamentally disrupt how tax functions. Both BEPS Pillar Two and ESG (environmental, social and governance) come with unique compliance and reporting requirements that most businesses aren’t positioned to meet. And with tax digitization, authorities are shifting compliance from self-assess toward real time, creating a need for tax functions to enhance their reporting capabilities to be closer to the recording of the incidence of the transaction to meet regulatory expectations. On the other hand, widespread digitization, continued supply chain disruption and ongoing geopolitical concerns are forcing businesses to change both their business models and their operational constures.

Given the impact of these changes on tax reporting requirements, along with the considerations they present to unlock value, tax is being catapulted to the center of strategic decision-making. As a key enterprise stakeholder, it’s imperative that tax leaders and teams fully understand the internal and external drivers of change to effectively manage risk and drive business value. However, current tax function operating models and capabilities hold them back from doing so, which is driving the need for a significant pivot in how the work is done, and by whom.

Advanced technologies such as generative AI, agentic AI and machine learning promise to help tax achieve deeper insight and stronger stewardship, but doing so requires extensive technology competencies, coupled with a deep understanding of both internal and external drivers of change.

Complete, accurate and multidimensional data is central to success. What’s more, realizing the benefits of technology means changing the way the work is done, which requires a complete and holistic understanding of the enterprise’s financial and operational data. But as the 2024 EY Tax and Finance Operations Survey reveals, lack of tech-savvy talent as well as access to high-quality and reliable data are two roadblocks in the way of leveraging digital technologies to streamline processes, enhance decision-making and reduce manual efforts.

In the face of enduring pressure to do more with less, leaders should invest in training and development programs to equip their tax teams with diverse skill sets, including knowledge in technology, data analytics and regulatory requirements, to navigate the complexities of the future tax and finance environment.

Five trends driving the new tax transformation imperative

1. Evolving regulatory landscape
2. Increased focus on transparency and reporting
3. Expanding business demands
4. Digital transformation and automation
5. Talent and skills development

Disruption has become a near-constant occurrence for enterprises across industries and geographies. For starters, widespread digitization is forcing a rethink of many tried-and-true business models. Without the ability to quickly pivot to meet fast-changing consumer preferences and behaviors, organizations run the risk of becoming obsolete. At the same time, many businesses are still wrestling with the economic and operational impact of the global pandemic. And when you add in the risks presented by seemingly never-ending geopolitical concerns – such as trade conflicts and proposed tariffs – presenting significant operational risk, business and supply chain resiliency is yet another ongoing priority.

Digital transformation and the lingering economic impact of the pandemic are also changing how tax authorities operate. Jurisdictions across the world are transforming their processes to improve the efficiency, accuracy and transparency of tax-related processes, as well as to collect tax base as quickly as possible. For example, through tax digitization, authorities will access transactional data in near real time , and many of the activities and decisioning that must occur around determining the tax responsibilities for an organization must move upstream, closer to the time that transactions are recorded.

Multiparadigm reporting is also becoming more commonplace across enterprises. Multiparadigm reporting involves the use of different reporting “paradigms,”’ or methodologies, ranging from traditional structured reports to near real -time dashboards, self-service analytics, AI-driven insights and regulatory-compliant formats. It’s a strategic enabler for modern finance and tax functions focused on enabling their organization to effectively leverage data for managing risk and enabling growth.

As a result, organizations must rethink tax and finance responsibilities across the lifecycle, restructure their operating models and develop the capabilities and agility needed to navigate the near-constant change – both anticipated and unknown – that is occurring at an increasingly accelerated pace. Tax capabilities, decisioning and knowledge will be moving upstream into core finance and macro business operations, and all types of finance and tax reporting will be dependent on having comprehensive, accurate data at the time of transaction.

While many finance functions are in the midst of transforming their processes and technologies as part of ERP modernization, most don’t account for the impact of these emerging trends. When focusing on building new capabilities and challenging the current paradigm, the convergence of finance and tax becomes quite clear. To move forward, organizations should take a step back and reorient their transformation with the future in mind.

Traditional finance and tax frameworks, processes and technology ecosystems are fundamentally different from what organizations should consider to move forward. And the reality is that most finance executives don’t fully understand the reasons why – or their implications. As a result, architecting an operating model designed with the future in mind represents a seismic paradigm shift in how work is performed.

For example, consider the digitization of tax, which will enable governments to access unprecedented volumes of data for compliance purposes. This drastically reduces the cycle time from transaction to audit. What’s more, it can increase an organization’s risk profile through potential financial impact, audit activities and operational disruption. Suddenly, the role of tax changes from compliance to advocacy, and expertise in tax technologies, data analytics, effective problem-solving, managerial proficiency and adaptability are the most in-demand skill sets – all of which can be scarce in today’s market. And with more of the tax activities moving further into the core finance organization, it may get more challenging without a completely different way of looking at tax within finance.

At the same time, economic uncertainties have simultaneously forced widespread cost reductions, including in tax, which can significantly impact the operations and effectiveness. As a result, leaders are shifting how they deploy AI across the tax function for the purposes of controlling costs, solving skills gaps and meeting the “do more with less” mandate.

The problem? Traditional approaches don’t account for the impacts of emerging or future changes. Tax professionals understand what needs to be reported, but the historical, siloed nature of how tax functions has left teams ill-prepared to build the relationships necessary to gather and process required data. What’s more, outdated roles, responsibilities and processes also serve to create silos and cause excess effort for finance and tax teams. As finance, tax and ESG activities move closer toward the moment of transaction, operating models need to be natural and networked.

Finance and tax operating models should be designed with seven dimensions in mind: organization, people, technology, data, process, policy and metrics. It’s also important to note that not all dimensions are created equal, that some are more closely connected to each other than others, and that how they are prioritized depends on an organization’s current state.

However, in most organizations, the data supply chain – from transaction to reporting – is often broken by:

• Fragmented processes: tax data isn’t captured at the source, requiring manual rework.
• Outdated technology: legacy systems with weak integrations slow down data flow and increase errors.
• Siloed structures: tax teams are disconnected from finance and IT, leading to misaligned priorities and delays.

As a result, tax and finance both spend too much time fixing data rather than analyzing it. Examining the data supply chain reveals why tax and finance functions historically have been reactive and disconnected from strategic decision-making. Building faster, more reliable data flows is essential to repositioning tax as a proactive, high-value part of the enterprise.

In the future, the competencies and the infrastructure needed to manage tax requirements will be indistinct from finance infrastructure. This represents a seismic paradigm shift from traditional frameworks where tax and finance operate as centralized or siloed departments. As a result, matrixed operating models are becoming an interim leading practice for organizations transforming for tomorrow.

A matrixed operating model for finance and tax integrates multiple dimensions of reporting, collaboration and accountability across business units, geographies and functional expertise. Instead of a traditional hierarchical structure in which tax and finance operate as centralized or siloed departments, a matrixed model drives collaboration and provides a framework for embedding tax capabilities into core finance processes.

Three reasons why matrixed models are becoming an interim the future for tax:

1. Provide strategic insights beyond compliance
   Integrating tax professionals across functional, regional and business unit arrangements embeds tax into business decision-making, enabling a stronger contribution to corporate growth, financial optimization and risk management.
2. Meet emerging regulatory requirements
   Integrating systems and data across tax, finance and business units prepares organizations for global tax reforms such as BEPS Pillar Two and digital tax reporting.
3. Enable efficient resource allocation
   Integrating functional, regional and business unit processes allows tax teams to allocate resources based on risk exposure and business complexity, as well as to leverage automation, shared services and outsourcing for common, repeatable tasks.

Top tax activities incorporated into a matrix structure:

• Direct tax compliance
• Tax accounting
• Controversy
• Indirect tax compliance
• Planning and business partnering

EY Finance and Tax Benchmarking survey findings reveal that the average tax budget for a $20b organization has decreased from $16.2m in 2022 to $12.6m in 2025. Given the increasing pressure for tax teams to take on more responsibilities and deliver more business value with limited resources and budget, a risk-based approach to finance and tax operating model design can help to ensure that the right level of attention, experience and controls are applied where they are most needed.

In the context of adding new capabilities to an existing tax function, leaders should consider whether to build, buy or leverage a combination of the two. Two key criteria include the criticality of the activity to the business and the cost favorability of outsourcing.

For less critical tasks, cost efficiency is the main consideration. For highly critical tasks, the focus shifts to internal capability and the potential to outsource noncritical components when determining whether to retain or partially outsource the activity. Each of the activities identified are evaluated using a series of decisions in a decision tree such as the following:

By categorizing functions based on “best-in-class” vs. “best-in-cost” objectives, tax leaders can more effectively balance excellence with efficiency by creating a sourcing strategy that aligns with business priorities. Hybrid approaches to sourcing are an effective way to improve productivity and risk, as well as provide growth and learning opportunities for employees. For example, highly skilled employees or managed service providers can assume responsibility for strategic activities, while shared service centers (SSCs) or lower-cost third parties can handle routine compliance tasks.

How are tax leaders with limited budgets making co-sourcing work? Third-party co-sourcing and managed services providers can help tax leaders manage risks, scale productivity and empower their teams to move from a support function to value drivers for the business. While tax leaders might think that working with a co-sourcing provider isn’t a viable option due to lack of budget, co-sourcing can be an effective way of reducing costs without compromising quality.

Providers like EY help tax leaders integrate co-sourcing and managed services into their operating model by:

1. Calculating their addressable spend – the portion of total spend that can be actively managed, optimized or influenced – through a structured approach that combines data analytics, technology and industry experience.
2. Analyzing tax function operations, including people, processes and systems, along with benchmarking, against organizations in their peer group.
3. Conducting readiness assessments for some of the biggest trends impacting tax, such as BEPS Pillar Two and tax digitization.

These insights help EY help clients figure out which functions to keep in-house, which functions to co-source or outsource, and how to move forward.

Tax leaders in US-based multinational companies are under increasing pressure to modernize their operating models due to a perfect storm of regulatory changes, business complexity and talent challenges. For example, many businesses are focused on leveraging data and generative AI to drive innovation, insights, predictive analytics forecasting and automated reporting. However, AI models can’t deliver on their promise unless specific data management requirements are met. Not surprisingly, a lack of accessible, high-quality and reliable data is a key barrier to using generative AI.

Building a compelling business case for finance and tax operating model transformation requires tax leaders to frame the need in ways that resonate with both the C-suite executives, as well as the broader enterprise strategy, such as delivering better financial insights, reducing risk, driving efficiency and improving talent retention.

The chart below outlines how tax transformation activities align with common enterprise priorities, helping leaders see modernization not as an isolated tax initiative but as a foundational element of corporate strategy.

Ultimately, executive alignment is critical to securing the investment and cross-functional collaboration required for meaningful change. CFOs want predictable cash tax outcomes and reduced audit risk. CIOs care about integrating tax into enterprise data strategies. CHROs want better employee experiences, and CEOs want operational agility that supports growth.

By tying tax operating model modernization to these diverse priorities, tax leaders can elevate the conversation from technical process improvements to enterprise value creation – ensuring long-term support and maximizing the impact of their transformation journey.