Businesses have made great strides in digitizing tax, but must still strive to embed innovative technologies and build stakeholder trust.
The ideal of the connected tax department that can serve as a trusted business advisor remains a work in progress. This point is driven home often in meetings with clients, where it’s clear that they are experiencing a disconnect between increased reporting expectations and insight into the data. In a recent EY poll, nearly three-quarters of the professionals surveyed said their tax authorities had increased digital requirements in the last three years. But over four-fifths of respondents said they had little to no idea what kind of analysis is being run on the tax data collected.
This single disconnect is but one of many. Modern tax departments need to be connected to more constituents than ever before – with deeper, more immediate links. The internal groups run the gamut from the board, C-suite and IT department to the front lines of the business, all of whom increasingly rely on the tax function to make strategic decisions with confidence. External stakeholders include investors, tax authorities and, lately, the public in a social media environment where a contested tax profile can tarnish a company’s brand. Building trust – sooner rather than later – has become critically important.
Certainly, progress has been made from the days when the tax department was a back-office silo working mainly with historical data. We’re getting there but the status quo is anything but static.
Diplomats and visionaries
Over the years, tax executives have assumed new roles and responsibilities. They are stepping up as tax ambassadors who educate the C-suite and other stakeholders about the impact of changing tax laws. They increasingly act as tax diplomats, fostering relationships throughout their organization. As tax technologists, they are embracing the power of technology to do their jobs more efficiently and redefine their roles. As tax visionaries, they are providing trusted business advice to their organization that equip leaders to make educated decisions and find value.
While growing into all these roles, however, the tax department has yet to settle into a “new normal.” Unprecedented new tax policies and game-changing technologies present continual disruptions, repeatedly challenging the way tax people work and the models they use.
Consider how US tax law changes, once thought highly unlikely, have now become something akin to a megatrend in terms of immediate impact on US tax departments. EY teams estimate that the level of effort required simply to handle compliance with the new law, in addition to requirements from the EU mandatory disclosure regime, will at least double in the next year. And there will likely be business implications for US companies across the board in terms of how they operate, invest, compete and deliver products and services – in the US and abroad.
Another legislative swerve could be just ahead, under the European Commission’s March 2018 proposal for the taxation of digital business activities. Imagine the global implications if it turns out, as recommended, that profits are to be registered and taxed where businesses interact with customers through digital channels.