Transforming the tax and finance functions can unleash potential for CFOs
Jon Dobell of EY looks at how boards and chief executives can implement more effective and efficient tax and finance functions.
Just as industries are being disrupted, so are finance and tax functions. The workforce is becoming scarce, and a lot of day to day activities are being automated. Corporate boards are demanding finance and tax functions be more strategic, and the continuing explosive growth of data combined with accelerating technology functionality are rewriting all the rules.
In 2021, responding to these changes and pressures is more necessary than ever. Chief financial officers (CFOs) need to take a strategic view of managing the entire finance function, including their tax operation, to access and unleash potential within these functions. Get it right and they can deliver long-term value, creating teams and processes that can cope with the road ahead, which has a series of very real challenges.
In the 2020 EY Tax and Finance Operate (TFO) survey of 1,013 tax and finance professionals, 200 of which are in Asia-Pacific, 67% of the companies with annual revenues of $20 billion and above said the biggest barrier to achieving their vision for their tax and finance function was lack of a long-term, sustainable plan for data and technology.
These functions urgently need the transformation that modern technology platforms can bring. They need flexibility, such as being able to produce new analytics and reporting when the business pivots. The technology platform also needs periodic updating as tax rules change, and to incorporate new technologies and their capabilities when they become available.
Many markets in Asia-Pacific have previously been a trade-off between developing a workforce to manage evolving changes and investing in technology to accelerate adoption. The COVID-19 pandemic has created a scenario in many of these markets where workforce scarcity, especially in the finance and tax space, is making that trade off more difficult to assess. Onshoring of functions and roles has changed many labour markets, tipping the workforce/technology balance in favour of more technology.
As a result, instead of tax and finance functions making trade-offs between risk, cost and adding value to the business, technology allows all three to be improved at once.
However, getting technology to work requires talent and therein lies the second challenge. In Asia-Pacific, EY’s finance and tax functions have historically hired and trained to drive for the execution of compliance and reporting obligations; quickly upskilling teams to become more proficient technologists has become a front and centre challenge for CFOs over the last 12 months. The CFO needs a skilled team that blends tax knowledge with technology insights plus an entrepreneurial, problem-solving mindset. Skilled people like these will only build a career with you if they have the opportunity to solve interesting, strategic problems.
The third challenge facing companies is how to identify, interpret and then act on the many legislative and regulatory changes. For example, globally, nearly 3,000 pandemic-related tax law changes offering incentives, relief and support to businesses were adapted in the last year. However, even before the pandemic, the pace of legislative change was rapid with governments seeking to capture revenue from digital services and cross-border commerce. The continuing evolution of these changes, including the recent announcement by the G7 of BEPS 2.0 policies around minimum taxes and potential profit reallocations for global multinationals will only further exacerbate the challenges around continuous compliance.
Governments are also expected to increase taxes as they manage deficits and debts exacerbated by the pandemic. They will continue to impose more digital filing requirements, demanding rapid reporting of more granular data, placing stress on finance reporting capabilities and tax compliance operations.
For many companies, these three challenges are compounded by a fourth challenge which creates the perfect storm: the need to cut costs.
In light of these challenges, boards and chief executives have increasingly been asking how to drive more effective and efficient tax and finance functions.
How can tax and finance professionals unleash their potential?
How can CFOs meet this long list of tough challenges? As the world emerges from the first 12 months of the COVID-19 pandemic, now is the time for a quick but thorough strategic review to set up finance and tax functions for future success.
Such a review needs to be grounded in pragmatic operational issues, but also needs to look above and beyond current capabilities. It needs to consider broader matters, such as tax governance and how the company’s tax profile will be reflected in its reporting on environmental, social and governance (ESG) metrics. The focus should be on long-term value and not only quick fixes for today.
As part of such reviews, leading CFOs have asked the critical question: which parts of the tax and finance function can my business sustainably own and operate? Also, which processes should be done in conjunction with other organisations that can spread costs across thousands of companies?
In EY’s 2020 TFO survey, 98% of large company respondents said they were transforming their tax and finance operating models and 73% said they were more likely than not to co-source some critical activities in the next 24 months.
Is technology the key to finance transformation?
Many CFOs want to keep operating the higher-risk, higher-value processes in-house, such as strategic tax advice and complex tax policy and controversy matters. This makes sense: after all, that is what both they and their teams are qualified to do.
Many organisations are also looking to work with service providers such as EY, to access significant investment in technology and platforms that few companies can invest in alone. EY invests constantly in technology designed to help clients meet compliance obligations in a cost-efficient manner, so that they stay current with rapid legislative and regulatory changes. In turn, this helps clients to save on capital investment in technology and mitigate risk.
“In EY’s 2020 TFO survey, 98% of large company respondents said they were transforming their tax and finance operating models and 73% said they were more likely than not to co-source some critical activities in the next 24 months.”
For instance, EY teams combine the cloud-based EY Global Tax Platform, which runs on Microsoft Azure, a secure, scalable and cost-effective platform, to provide technical excellence with the support of EY professionals across the globe who bring a deep knowledge of tax to client service.
The EY Global Tax Platform can ingest a variety of data from many enterprise resource planning systems, and then validate and transform the data into a common model that can be used to facilitate routine compliance processes and drive reuse providing valuable analytics, planning, transparency through real-time dashboarding, and management reporting.
As the Global Tax Platform is a data management platform, built with state-of-the-art technologies in a plug-and-play fashion, and is readily updated as tax laws change and technology advances, these features assist in making it a future-proof solution. By accessing the EY Global Tax Platform, CFOs could reserve crucial investment capital for other value add and growth initiatives, safe in the knowledge that they will not be investing today into technology that is obsolete tomorrow.
Building the modern finance function
Finance chiefs now have more choices than ever. Every organisation needs to decide on its mix of work done internally and work done with service providers. As Eng Ping Yeo, EY Asia-Pacific Tax Leader notes: “Many companies in Asia-Pacific will decide a hybrid approach is right for them, where they decide to continue to own and resource tax and finance functions they consider to be critical, while co-sourcing others.”
Eng adds that this approach drives a shrewd balance of cost and outcomes, and unleashes the potential in finance and tax functions, allowing their own people to focus on high-value strategic matters.
Creating this kind of vision is a challenge, but also an opportunity to unleash the potential of the tax and finance functions so they contribute to the company’s delivery of sustainable, long-term value to all stakeholders. In Asia-Pacific, as businesses head into the second half of 2021, this becomes more important than ever as workforces are rebalanced and look to harness the power of technology to achieve this vision.
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Jon Dobell is a partner based in Sydney, who is also Asia-Pacific Tax and Finance Operate and Global Operations Leader. He has more than 20 years of experience in corporate and international tax, working in Asia and Europe. He specialises in advising clients on managing their global and local compliance and reporting requirements. He has a strong background in tax and finance processes, software and systems, and regularly advises clients on how best to structure their functions globally.
Jon also leads the firm’s Asia-Pacific tax innovation activities, where he is tasked with driving a culture of innovation across the tax practice. Following this culture change, the focus moves to commercialisation and the creation of incubation hubs in key locations to develop new ideas into market leading tax solutions.
Jon has bachelors of commerce and law degrees from the University of New South Wales.