If you are like most tax leaders, you are probably eager for change. You are likely feeling significant pressure from the business, both for increased efficiency and for improved business insights. You may already be responding to pressures from tax authorities who are, themselves, actively modernising. You may even recognise that your technologies, processes, and capabilities are rapidly falling out of step with the rest of the business (and the finance function in particular) as digital transformation takes hold.
It's not surprising, therefore, that the vast majority of tax leaders are ramping up their technology investment and awareness. In fact, in a recent survey of around 270 tax decision-makers conducted on behalf of Deloitte's global tax network, 56% of respondents said they had increased their investment into digital and tax technology over the past two years. According to another research report by Deloitte, 81% of companies expect to increase their use of artificial intelligence (AI) over the next three years.
Letting the machines take the strain
Those seeking to rapidly modernise the tax function are right to be exploring the value of emerging technologies.
The benefits can be significant. Consider this, we recently worked with a tax team to apply automation to the sales tax audit invoice pulling process (arguably a non-core and under-resourced process). We used robotic process automation (RPA) to automate about 95% of the process and, in doing so, helped them save more than 1,500 full-time equivalent (FTE) hours annually while simultaneously reducing their overall financial exposure.
In many cases, we are seeing tax functions start to combine RPA with data wrangling tools to achieve significant efficiencies and flexibility. RPA with data wrangling is increasingly being used by tax functions to manage rather mundane tasks such reconciling and validating data, reformatting, reading and writing to databases, making calculations, and connecting to other systems. Others are using data wrangling tools to help aggregate data from multiple sources, to generate new datasets, and to prepare their data for analytical tools.
Some of the more advanced tax functions are increasingly exploring how they can combine RPA with 'cognitive technologies' – things like machine learning, cognitive automation, and natural language processing (NLP) – to further modernise the tax function.
For example, we have worked with companies to deploy NLP 'chatbots' that provide real-time EU VAT advice. We have helped others combine machine learning and optical character recognition (OCR) technologies to improve the way they determine the taxability of transactions and to identify potential refund opportunities. Also, we have developed a virtual legal research assistant which utilises cognitive technologies that can complete preliminary legal work and assess whether a tax case is likely to be successful.
RPA in the tax function
What is robotic process automation (RPA)? At its most basic, RPA is about automating existing manual processes. Often referred to as robotics or robots, RPA is defined as the automation of rules-based processes with software that uses the user interface of other software, including web-based applications, ERP systems, and mainframe systems.
How is it being used? Indirect tax leaders are using RPA to perform data-gathering, adjustments, reconciliations, processing, and e-filing. Coupled with data wrangling tools, bots gather and convert multiple source files to generate jurisdiction-specific adjustments, perform reconciliations and notify teams of any exceptions, and produce standardised output files and jurisdictional summaries. Bots can then submit finalised data to tax authority websites and monitor and document acceptance confirmations.
Source: Building the tax function of tomorrow – today, Deloitte, 2019
Harnessing the 'Power of With'
While investments into new tax technologies are certainly encouraging, Deloitte's experience suggests that far too few tax leaders are placing enough emphasis on the 'other half' of the equation: people. Indeed, the true value of tax technology comes not from the bots and machines that do the heavy lifting but rather from the additional human skills and capabilities that can be unlocked by those technologies.
It's not about replacing humans with machines. It's about coupling people with technology. It's about amplifying existing capabilities with new tools. It's about empowering your professionals to do more. It is what Deloitte professionals refer to as the 'Power of With'.
Going back to the earlier example about helping a company automate its sales tax audit invoice pulling process; the automation did not result in any headcount reductions because the process was never formally resourced. However, it did provide tax leadership with much greater control over their sales and vendor invoices, better insight into potential control issues, and a greater ability to serve the business. It also allowed the company's tax professionals to maintain their focus on their strategic tasks that would add value to the business.
The employee mix is changing
What many tax leaders are finding, however, is that the technology is often the 'easy part'; it can be much harder to transform people skills, talent strategy, and capabilities.
In part, the challenge stems from the ongoing intergenerational shift that is sweeping through businesses around the world. Research conducted by the Network of Executive Women, and Deloitte (Welcome to Generation Z) suggests that, by 2025, Gen Y and Gen Z (millennials and post-millennials) will make up more than half of the US labour force. That shift, on its own, will lead to significant changes in the way tax professionals work, think, and operate.
The changing shape of the labour force – the rise of virtual working, the shift towards gig economy jobs and freelancing, for example – is also creating new complexities for tax decision-makers and leaders. Some estimates suggest that more than one-in-three Americans already work as a freelancer. Furthermore, Deloitte's Global Human Capital Trends report suggests that 90% of companies are using alternative workers as part of their talent strategy.
Machine learning in the tax office
What is machine learning? Machine learning is about enabling machines to become increasingly more accurate at spotting patterns in data and then using that ability to help make decisions. This includes technologies that can perform and/or augment tasks, help better inform decisions, and accomplish objectives that have traditionally required human intelligence, such as planning, reasoning from partial or uncertain information, and learning.
How is it being used? Rather than spend human resources on classifying expenses for tax purposes, indirect tax leaders are using machine learning algorithms to automatically categorise expense data across tens of thousands of potential categories to support partial exemption calculations, saving significant amounts of resource hours and reducing potential errors.
Source: Building the tax function of tomorrow – today, Deloitte, 2019
Becoming a tax renaissance figure
At the same time, expectations of the tax function are also rapidly changing. With automation and technology taking up much of the heavy lifting, tax professionals are expected to be much more analytical, strategic, and customer-centric – like a 'tax renaissance figure', if you will. Core capabilities such as communication and collaboration are becoming almost as valuable as tax technical skills. Tax functions are starting to hire and develop a more diversified range of skills and capabilities.
This has left many tax leaders asking what they could be doing to help drive both their individual development journey and their team's talent strategy. In a recent webcast, we outlined a few areas where, in our opinion, most tax professionals could be focusing as they prepare to update their individual skills and capabilities for the tax function of tomorrow.
For example, we suggested that tax professionals should be making efforts to learn new technical skills and to become more tech savvy (one of the authors of this article, for example, is learning algorithm programming while another is getting certified in a data wrangling tool). We encouraged participants and tax leaders to improve their problem-solving skills and to adopt more of an 'advisory' mindset. Additionally, we have advocated for greater cooperation and skills sharing between corporate functions and tax departments.
Catalysing the change you require
For tax leaders and decision-makers, we have outlined five practical steps to help drive their talent strategy and encourage effective teaming in a digital tax department:
1) Assemble multi-skilled teams. While tax technical skills will always be in demand in the tax function, we are seeing leading tax groups start to integrate a wider range of skills and capabilities into their tax teams. Some are hiring technologists, data scientists, and project managers to inorganically expand their capabilities. Others are looking at their existing teams to identify tax professionals who show aptitude in other capabilities such as communications and technology, and helping them develop and expand on those skills.
2) Be purpose driven and move fast. By all accounts, millennials and post-millennials are driven as much by a sense of purpose as they are by financial rewards. Evidence also suggests that teams with a shared sense of purpose demonstrate higher levels of engagement. But don't let that engagement stagnate; move fast – encourage short sprints and fail fast approaches. Focus on creating continuous forward momentum and improving agility throughout the transformation.
3) Challenge the norm. Never repeat a process or methodology simply because it seemed to work last year or last period. Encourage your tax teams to challenge the status quo and to seek out new opportunities to develop new approaches and models. Continuously look for opportunities to leverage automation and technology to reduce the heavy lifting in the tax function and identify opportunities to evolve and elevate the activities of tax professionals supported by new tools and technologies.
4) Manage hybrid workforces. Be deliberate about your approach to automation and alterative workforces. Actively identify opportunities to create freelance and alternative roles – both to attract a new generation of workers and to help ease older workers into retirement without losing their experience and knowledge. Develop new strategies for knowledge transfer that recognise this generational shift and emerging development gaps created by new technologies.
5) Support tax professionals through the change. Provide professionals with curriculums that help them gain exposure to new forms of technology such as RPA, analytics, and AI. Encourage them to pursue certifications in related disciplines such as data management. Consider creating rotation programmes to help your professionals deepen their knowledge of broader business issues. Encourage employees to evolve their mindsets to become more global, diversified, collaborative, and growth-oriented.
Moving forward with purpose
Deloitte's collective view suggests that the tax function of the future will not be dominated by machines. Rather, it will be characterised by people working with machines to vastly improve the value created for the organisation.
Tax leaders looking for change would be well advised to focus on ensuring their technology strategy and their talent strategy are integrated and aligned to encourage the value that can be created by harnessing the 'Power of With'.
Amanda Hale is a managing director with 18 years of experience leading large-scale global projects, with a focus on governance and operations optimisation. She serves as the engagement leader for several of Deloitte's most significant global compliance and reporting clients, where she focuses on creating value through visibility, control, and insights. She has transitioned, delivered, and led some of Deloitte's largest and most complex tax compliance outsource engagements.
Additionally, Amanda advises clients in developing strategies to transform their tax department, with a focus on next-generation sourcing models. She publishes articles and speaks at conferences on topics such as the future of tax, the impact of technology on tax professionals, and tax operating model trends and best practices.
T: +1 404 631 2715
Emily VanVleet is a partner in Deloitte's tax management consulting practice and the leader of the robotics and intelligent automation team. She thrives on anticipating what might be next and boldly embarks on the path to get there. This approach to her work and her life has afforded her the opportunity to support her clients in driving incremental value and staying ahead of market trends.
With more than 20 years of experience in tax consulting, strategic process design, and practical approaches to tax transformation, Emily is known for designing and delivering tax solutions that allow her clients to confidently and successfully streamline and automate to intensify value, mitigate risk, and increase efficiency in tax operations.
Emily thrives on leading large-scale, multi-dimensional tax transformation plans, and projects across industries globally. She is also a regular speaker and author on topics related to tax transformation, automation, and the future of work.
T: +1 416 601 6507
Jeff Butt is a senior tax manager and a CPA in the business tax practice at Deloitte. With more than 13 years' experience in tax accounting and tax compliance services, he specialises in helping multinationals meet their global compliance and reporting requirements; covering direct and indirect tax, tax accounting, and statutory accounting services.
T: +1 616 336 7922
Taj Hollis is a senior manager in Deloitte's tax management consulting practice and leads its advanced automation team. She joined Deloitte in 2001 and has since served some of the firm's largest multinational and middle-market clients, delivering tax solutions that adds value, manages risk, and increases efficiencies.
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