Unpredictable supply chains and evolving consumer behaviour, not to mention a global pandemic, have caused the world to change recently, and the role of tax has changed with it. Once regarded purely as a cost centre, tax is now transforming into a true contributor to strategy and value – and for good reason.
In recent years, we’ve seen organisations big and small invest heavily in digital transformation projects in response to market changes and to increase efficiencies. Finance is frequently at the heart of this, as the area of the business most focused on cost but also increasingly responsible for facilitating growth.
By boosting agility, driving efficiencies, managing spend, and freeing up skilled professionals to take on more value-added work, finance teams are taking steps to secure their future despite a volatile landscape.
When it comes to re-evaluating financial systems and processes, the tax function is an area where there is a lot to be gained. This is especially the case for businesses that are looking to improve their workflows and take advantage of new global growth opportunities.
With tax rules and regulations becoming increasingly complex, and the tax function being a key interface between business and government, its strategic input should be more in demand than ever before. Yet all too often, we see this strategic aspect of the tax function overshadowed by administrative duties, such as routine reporting, invoicing, and filing deadlines.
With 92% of tax leaders expecting digital tax obligations to have moderate or high impact over the next five years, this will put significant strain on operations and resources. Businesses need to start redrawing the boundaries of what the tax function is.
Tax transformation trends
Increased online shopping, combined with a rise in digital sellers and a greater variety of buying channels and business models, has created a perfect storm for businesses and their tax obligations.
The good news is, there are more opportunities to grow and trade on a global scale. However, many governments are seizing the opportunity to tax online transactions to collect their fair share and ensure a level playing field for local ‘bricks-and-mortar’ companies. This trend has introduced complexity that can’t easily be overcome through traditional tax determination methods.
For example, using in-built tax processes within enterprise resource planning (ERP) systems needs extensive global tax research and technical support from IT departments to update any changes in tax rules. With tax calculations for online and traditional sales taking place in different systems, the maintenance effort doubles.
On top of this, tax authorities have stepped up in other areas over the past few years. As the scale and speed of global transactions explodes, tax administrations are increasingly deploying (near) real-time reporting obligations and e-invoicing mandates. This requires businesses to transact first-time-right, as errors and corrections will all be visible to the tax collector.
In addition, for online transactions, customers expect to know the landed cost of a purchase (total cost of getting your product to the customer) before entering their payment details.
Internally developed or basic tax software just doesn’t do the job. Tax teams that use a variety of spreadsheets with data from multiple financial systems find it difficult to consolidate information when processing returns and filing reports. This is less than ideal when meeting country-specific deadlines, or if an unexpected audit happens.
With tax administration shifting to digital processes and audits, a manual spreadsheet-based reporting process loses its sustainability fast.
A vision for the future
With companies now positioning themselves to thrive post-pandemic, the tax function should reposition itself to be considered by business leaders as an asset that delivers significant value.
As many businesses want to trade in multiple regions, tax requirements can be a significant problem to overcome for minor decisions such as opening a new location, hiring employees in different countries, or re-allocating inventory to cater to demand. Today’s tax professional needs to resolve or mitigate those problems and lead initiatives to support financial objectives and business growth.
Tax teams can no longer afford to be consumed by routine compliance and reporting activities. Yet, as highlighted by the BDO Tax Transformation Guide, “tax minimisation and compliance aren’t going anywhere; the to-do list is growing with no signs of slowing down. It’s the quintessential business challenge: doing more with less.”
To help ease the burden, some companies prioritise lower-cost resourcing models, move tax compliance and reporting to shared service centres (SSCs), and partner with tax technology specialists.
Often adopted as part of a finance transformation effort, tax technology helps tax professionals to shift from reporting activities to control, planning, and decision support. For example, an integrated tax engine replaces inefficient manual processes that often result in flawed data, poor insights, and inaccurate reporting. More information on the rising need for tax transformation technology can be found in the Vertex guide.
With tax technology, the potential for successful tax audits significantly increases, as indirect tax determination is accurate and documentary evidence is organised into one simple location. Additionally, rules and regulations can be acted on quickly with minimal reliance on IT departments, reporting can be done in real-time with confidence, and tax authorities can receive information directly through a system-to-system connection.
As reported tax data will increasingly come from primary procure-to-pay and order-to-cash processes, tax departments can no longer rely on traditional controls in the record-to-report process.
The compliance environment in which tax departments operate has become increasingly global, fast, and transparent. Business leaders must realise the importance of tax for global expansion, entering new markets, and optimising business models.
For tax to be more involved as a strategic business partner, while at the same time ensuring compliance levels, it needs to move away from time-consuming and error-prone manual processes.
