New disruptive and constantly evolving technology is rapidly transforming businesses. Companies are investing in big data, automation, and artificial intelligence solutions to enhance their business capabilities. The 2020 pandemic has also forced companies to accelerate the existing digitalisation plans to have data and processes continuously available and operable in a secure manner to ensure continuity of the business.
As businesses transition to new digital operating models, the structure of the finance, accounting, and legal requirements for tax data are evolving rapidly and tax functions are having to respond quickly. However, tax leaders report widespread unpreparedness for digital transformation due to a lack of ‘tech-savviness’ and no clear strategy nor budget for the digitalisation of the tax function. Often tax functions are not included in the broader digital journey discussions that other parts of the business are initiating.
This lack of readiness should be a priority for tax leaders given that the tax authorities around the world are actively incorporating new technologies into their tax audit and enforcement programmes. Tax authorities in many countries are learning new skills and hiring data scientists and other new technology related capabilities. They are obtaining far more information through transparency regulations and applying technology in innovative ways to analyse the information collected. This trend is further illustrated by the direction that is set out in the most recent OECD discussion paper “Tax Administration 3.0: The Digital Transformation of Tax Administration”, which reinforces the conclusion that tax administrations will accelerate their focus on real time, data driven tax compliance.
Given the immediate need to act, this article considers some of the measures that tax departments can take to move forward and not fall behind the digital transformation wave.
Revisiting the tax operating model
Tax leaders are often confronted by the high cost of digital transformation and the fact that the capital needed to invest in the transformation of the tax department will not be available. Other challenging factors are the gap in expertise and capacity, due to the need for a new set of skills and cost-cutting measures. In most cases, it has become evident that the current ways of working will no longer suffice. Tax leaders have no alternative but to rethink their current operating models.
There are different tax operating models, which can range from maintaining all activities in-house supported by technology to outsourcing some, or all, activities to third parties. Co-sourcing and outsourcing are ways to access innovative technology solutions, expertise, and capacity immediately and at lower costs. In a digital world, the additional relevant question is which activities can be carried out by machines?
Companies can have access to technological capabilities, skills, and resources without necessarily having to bear the investment costs required to implement and maintain their own systems, technology, and applications.
Revisiting the data model
Accessing good quality data is consistently viewed as a key challenge for tax departments. Many companies recognise that their existing data management processes and technology are outdated. Newer technologies will offer better, faster, and perhaps cheaper ways of doing things, factors that drive the effort of pursuing the best available solution. However, no technology solution is worth the investment without first looking into the data model. There is no efficient automation with unstructured data.
One area in data management with significant benefits is the cloud-based enterprise resource planning (ERP) solutions. While in the past there has been some reluctance around the levels of security around data available in the cloud, cloud-based ERPs have become conquering terrain due to benefits like reduced complexity and lower implementation costs.
The shift to cloud-based ERP systems may provide the opportunity to structure and standardise the data and promise a single source of truth for data, which will save time for tax departments which currently spend significant amounts of time doing the heavy lifting of manually cleaning data for various tax processes. Tax leaders can already start imagining a world where the team will be spending less time in data analysis and more time on analytics, scenario planning, and providing value added input to the business.
Transforming ERP systems
Traditionally, when organisations started ERP transformations, tax was not part of the end-to-end business process and systems design. Tax has often been covered within the finance process workstream which has often followed a ‘lift and shift’ type approach. This means that processes related to tax are copied from the legacy environment into the new ERP system. This creates the risk that processes are copied in a way that does not fully take account of all relevant tax requirements and where they relevant requirements are not covered then consequently global tax compliance and reporting obligations may not be right first time.
Part of the reason why ‘lift and shift’ approaches have been pursued is because the tax function has often not had a seat at the table when their organisations were undergoing ERP transformation projects, and as such, they did not get the chance to contribute to the business case to secure their tax requirements.
Tax authorities intend to accelerate taking data directly from the companies ERP systems and applying data analytics to analyse such data. Accordingly the tax function needs a seat at the table in ERP transformations.
Revisiting the team
To respond to the digital challenges, tax leaders need to focus on reskilling and upskilling initiatives for both existing personnel and new hires. Flexible, curious, and collaborative minds will be key for a tax digitalisation journey. Project management, data analytics, automation, and programming skills will enhance the tax processes and consequently the tax output.
The need for translators
The implementation of technology solutions (e.g. data cleansing tools, workflow management applications, bolt-on tax software) into the tax function has demonstrated the need for a broader variety of skills. Tax technical professionals are vital because of their experience with existing tax department processes and knowledge of tax laws and regulations. However, increasingly, tax professionals will be asked to work with other professionals not only in the area of information technology (IT) but also data scientists and other professionals from across different functions. One of the challenges is that these professionals from diverse educational backgrounds often do not speak the same ‘language’. Tax professionals do not speak IT or data science. IT professionals, data scientists, and representatives from the business do not speak tax.
As a result, there is a growing need for tax professionals who have such soft skills – who can manage the tax departments’ automation and serve as interpreters for other team members. Their job will be to help the other parties articulate their needs and concerns and help translate ideas into actionable steps that can lead to the desired outcomes. Some tax departments already have a dedicated tax professional who interfaces with IT to oversee tax technology and look for opportunities to improve and innovate.
Learn from others within the organisation
Another way to upskill the task team is by assigning a team to learn how other areas of the company – and even other tax departments in peer companies – are piloting digital tools and automation processes. The technology that will become the mainstream in the next two to four years is likely already being evaluated somewhere in the business.
Be inclusive of machines
Revisiting the team may also mean being more inclusive of machines. Having open-minded, agile, and collaborative people that do not shy away from including automation options such as robotic process automation (RPA), artificial intelligence, and other technologies in their daily routine will be an important accelerator. A thriving team will be a team that is confident enough to embrace technology and work together with machines.
Manage human talent
Assembling the right team and teaming with machines can be an important building block of adaptability, which is a much-needed capability in tax departments that are undergoing digital transformation. It is important for team members to feel there is purpose and meaning to their work beyond meeting objectives, budgets, and profits. Meaningful work binds team members together. It emboldens and energises them to execute on their shared mission.
Adding automation options into the equation can multiply those benefits by helping human team members address tedious, manual tasks faster, more efficiently and, often, more accurately. Taking care of these must-do tasks leaves more time to focus on value-added and, perhaps, more interesting and gratifying tasks.
Involve the team
Involving the entire tax department in assessing how to embrace technology can accelerate transformation by making technology less threatening. Consider conducting sessions to educate tax professionals on what automation is and is not. Ask tax team members to think about the tasks they do repetitively but wish they did not have to do. Ask them how they could work more efficiently and effectively as a team. Involving the tax department in these activities can reinforce the point that the goal is not necessarily to eliminate jobs but to free team members up from routine tasks so they can focus on work that is even more interesting and of high impact.
This type of thinking requires a different kind of leadership and collaboration between tax team members — one that values all insights and opinions regardless of who offers them and how ‘out there’ they may seem to be at first. Leaders should place more focus on facilitating the exchange of ideas and the flow of conversations across the tax organisation, as well as providing greater autonomy at team and individual levels. This mind-set shift from ‘top-down’ to ‘alongside’ is a crucial component to successful transformation.
At the same time, tax professionals should not overestimate the ‘intelligence’ of the automated solutions. A bot designed to gather specific data and populate a tax return probably will not be able to fully assess the quality of the data or confirm the completeness of the tax return. That is still the domain of the tax professional. Clearly communicating the capabilities of the automation solutions, including what it cannot do, and training tax professionals on how to use it wisely is a key part of building effective hybrid teams.
In transformation initiatives, speed is important. However, acceleration may be more important. An important capability for tax teams tasked with developing and deploying automation options is constant forward momentum, even if it means working in unknown areas without perfect information. ‘Fail fast’ a borrowed philosophy from the agile system design approach could not be more helpful here. When implementing transformation, due to a number of variances and challenges that will be faced on the way, failing fast also means learning fast and being able to steer the course of the transformation into the right direction fast.
This may be a particularly difficult challenge for tax departments whose activities require accurate and complete information. Yet our experience with automation initiatives is that experimenting in short sprints, getting feedback quickly, iterating, and pivoting when needed is how teams drive progress in ambiguous situations.
This short sprint approach combined with rigorous testing and monitoring, can help reduce ambiguity and increase certainty even when new areas of automation are being explored. Important questions for tax automation teams to consider include: What is the fastest way to get useful feedback? Is it possible to create a proof of concept before investing too much time and resources? Can we look outside the team or the tax organisation to get to a solution faster?
The key elements for tax departments to focus on in the digitalisation journey may be summarised as follows:
- Data: The future tax function will only be successful if data is managed effectively. Significantly improving the quality of data that the tax function needs should be prioritised.
- Process: Technology has a significant role to play in supporting tax processes. New and improved tax technology solutions continue to arrive and being flexible to adapt tax processes to take advantage of technology will be critical to gain the necessary efficiencies and to manage tax risk.
- People: It is important to motivate the team to embrace change. Being inclusive and clearly communicating the benefits of change both for team and the individual will be critical in developing a culture for success.
Martin Krivinskas is an international tax partner with Deloitte based in Zurich.
Martin has extensive experience supporting global multinationals solve complex tax challenges, helping them mitigate tax risk and manage their tax operating models. He is also increasingly leading projects where tax technology plays a key role, and leads Deloitte Switzerland’s business tax technology team.
Martin is a chartered accountant and a member of the Chartered Institute of Taxation.
Patricia Costa is a tax senior manager with Deloitte based in Zurich.
Patricia has a background in international tax and transfer pricing and has extensive professional experience in supporting global multinationals with the digitalisation of their tax function and re-designing tax operating models. She has led the implementation of a number of tax technology solutions with multinational companies and is a senior member of Deloitte’s tax technology team.
Patricia holds master’s degrees from Fundação Getulio Vargas, University of Lausanne and IE Business School.
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