Making the business case for tax in an ERP transformation

Extensive new compliance obligations for multinational companies in recent years – with more in the pipeline – have turned the tax world upside down. Whether it is electronic invoicing and real-time tax, minimum tax rules for pillar two, or some other new demand, tax leaders must develop robust processes and accurate data to keep pace with the changes.

At the same time, many companies are putting more modern ERP systems in place. Some companies are using the upgrade cycle in ERP technology to pursue a full business transformation; others are stopping short of that and making technical upgrades and necessary fixes. Whichever path an organisation chooses, the implementation of ERP changes is a complex proposition, but one that promises to help to meet the changing technology needs of the tax function, if done right.

For heads of tax, ensuring their requirements and ideas are recognised in an ERP implementation is an important task – with challenges. Indeed, recent Deloitte research highlights the slow pace at which some companies are implementing tax features in upgraded ERP systems.

Deloitte surveyed senior tax and finance executives about their progress in implementing a dozen key transformation activities, such as automation and advanced analytics. They reported significant progress on most priorities. For example, 97% have fully or partially implemented the automation of tax compliance and reporting, while 2% said that priority will be implemented over the next 12 months. By contrast, asked about a finance ERP system customised for tax issues, just 37% of respondents have that fully implemented, while 25% said a tax-optimised system is partially implemented and 24% said it remained to be addressed over the next 12 months.

This is not a surprise. In Deloitte’s work with clients, its practitioners have observed the complex issues tax leaders face as organisations move forward with ERP implementations. The finance and IT departments – not tax – typically set priorities and schedules. Tax does not want to do anything that might jeopardise a project that may be expensive and mission critical for the company, but at the same time, tax does not want to miss the opportunity to put in place the foundational technology to help to meet its future needs.

With these concerns in mind, the authors see four principles that can help tax leaders to make the case for tax optimisation in any ERP project.

The head of tax needs to be able to explain to the many stakeholders involved in an ERP project the importance of accommodating tax requirements. This is mainly about explaining the return on the capital being sought to add specifications and features to benefit tax.

It can be helpful to think about value in three categories.

First, there is value in having a system that generates the data and has the features for greater automation of tax processes. This is a cost savings argument, and relatively easy to make.

Second is the value of a system that reduces compliance risk through better data and functionality, and ensures that changing requirements will not interfere with business goals. This may be a harder case to sell, as it may reinforce the sense that tax is mostly a cost centre.

The third category may be the most important and least obvious: tax can create value through business insights, but it needs to have the tools to do so. This requires a big-picture view of the opportunities that can be created when the systems and data for more thorough analysis are created.

The starting point for any ERP transformation is to know how the systems and processes you are currently using will be supported or replaced. But the baseline you want for an ERP upgrade is the creation of a system that improves the ability of the tax function to meet growing tax compliance demands. In other words, this is a time to be thinking not just about how things are done now, but how they will need to be done in the future.

Data is the throughline for all the new demands tax authorities are making. Real-time tax requires that customer and vendor data be completely accurate and sufficiently granular to apply tax correctly, for example. Getting the base case right means thinking about the requirements and data needs that are coming.

Organisations have a range of choices as they upgrade to current-generation ERP technology. A brownfield approach converts existing systems, and this may appear to be desirable to preserve customisations, keep costs down, and cause less disruption. A greenfield implementation migrates data on to a new platform, providing the opportunity to re-engineer processes and rethink how you do business.

For tax, a greenfield transformation offers many advantages (as it does for other functions across the organisation). ERP functionality is being developed to keep pace with the rapid change in tax compliance requirements but may only be available to those that have fully implemented a new technology platform. Similarly, the rethinking of data architecture that comes with a greenfield implementation may be necessary to create the new, better data that tax needs in a changing world.

Tax leaders do not want to find out that a new ERP upgrade cannot do what tax needs. If the tax function quickly finds it is spending money on workarounds, that is what Deloitte calls ‘regret costs’, and it wants to help clients to avoid them.

It has never been more important for tax leaders to be knowledgeable about the total tax technology landscape. Not too long ago, tax might have been satisfied to be a consumer of data and technology, taking what was provided. Now, it has become vital to understand what is on offer, including knowledge of the native tax functionality of the latest ERP systems, and the bolt-on applications. It is important to have a point of view about how technology is going to work for you.

Indeed, part of the ability to explain the value that tax brings to an ERP system upgrade will come from this level of technical knowledge; this is how tax can come across not as a cost centre with needs, but as a business partner with a value proposition.

Tax needs to be proactive. That is the order of the day. Across the corporate landscape and over too many years, the tax function has been reactive much of the time. That has meant missed opportunities. Now, as organisations plan and implement their technology changes, tax has an opportunity to bring value and head into a changing future better prepared.