Prepare for tax administration 3.0, says Unilever tax chief

As revenue authorities improve digital operations and search for additional revenue streams to pay for the COVID-19 pandemic, MNE tax directors must react by digitalising their own tax functions. Beginning tax technology projects early will allow time for a trial-and-error approach, whereas waiting for revenue authorities to impose local requirements could put the company at risk.

“If the train comes into the station before you get to the platform, you’re running and chasing your tail for the rest of your life,” said Karl Muller, tax director of global projects at Unilever.

Muller, who is presiding over a multi-year global tax technology transformation at Unilever, made his comments in conversation with Tertia Barrett, managing director at Konsise, at a webinar hosted by the South African Finance Indaba Network.

Businesses in South Africa are prioritising system improvements following the country’s 2021 budget, which included a R3 billion ($216 million) investment to improve the South African Revenue Service’s (SARS) technology and expand its audit capacity.

“Can you as a business still afford to run manual systems? If SARS starts knocking on our door, are we going to pull out our spreadsheets?” asked Barrett.

However, SARS is not the only revenue authority making improvements. Tax administrations around the world are digitising their systems amid more data transparency under measures such as country-by-country reporting (CbCR).

Muller warned that companies should not overlook inexperienced tax administrations with archaic systems because these are beginning to leapfrog over more established tax authorities.

“It’s the developing world that is going to go past the developed world in this area,” said Muller.

MNEs will need to transform their compliance processes to keep up with the third iteration of tax administration. Tax administration 1.0 refers to paper-based, manual processes, while 2.0 refers to e-filing and e-invoices. However, authorities are beginning to move to tax administration 3.0, in which compliance is real-time, transparent, and embedded in systems.

This kind of administration will be data-driven, allowing tax authorities to access evidence from taxpayers before it has been shared with them. It will also include interoperable ecosystems and provide for international cooperation.

“You’re going to see more multi-country audits happening,” commented Muller.

As tax administrations gain increasingly instantaneous access to data, companies are feeling the pressure to ensure that their figures contain no errors. Excel spreadsheets have long been a stalwart solution for tax directors, but the manual processing that they require makes them unreliable and risky compared to automated solutions such as robotic process automation (RPA).

“Any spreadsheet has at least three errors on it somewhere that could cost you money,” said Muller.

In addition, for many tax authorities, being able to see taxpayers’ data is no longer the end game. Instead, revenue authorities want visibility of companies’ controls and access to their systems. MNEs must therefore be able to demonstrate that their controls are solid and immune to human error.

Another concern for tax directors is the increasing number of unilateral taxes such as digital services taxes (DSTs), and the resources needed to keep up with constantly changing legislation across the globe.

Muller and Barrett suggested that tax technology can help to solve these problems, but companies should begin early to minimise risks by using a trial-and-error approach.

Muller and his team at Unilever began their tax technology revolution cautiously, testing a variety of platforms with different levels of complexity across different countries and tax administrations. Yet before beginning the roll-out, the tax team needed to get the rest of the company on board.

One of the biggest hurdles to overcome when pursuing a tax technology strategy is resistance from inside the business. Decision-makers often baulk at investing in a solution to a problem that does not yet exist.

However, the more embedded a company’s systems are in technology, the more nimbly the tax team will be able to react when problems do arise, emphasised Muller and Barrett.

“You’re not automating processes because something is broken. You’re automating your processes to make yourself future-ready,” said Barrett.

Still, tax directors must develop a business case to persuade senior executives to invest in technology. One approach is to highlight the savings that can be made by eliminating costly errors in tax returns.

“In every country we’ve rolled [tax technology] out into, we’ve picked up errors that we’ve corrected,” said Muller.

However, the traditional return-on-investment model is unlikely to work for tax technology. Instead, tax directors should focus on the value that tax professionals could add to the business if some menial compliance processes were automated. For example, employees could make more use of free trade agreements, improve the company’s customs and excise processes, and work proactively rather than reactively to address tax policy changes.

Muller advised dedicating one or two people in the tax team to change management. Documenting and sharing the real-time benefits of the transformation can help to create enthusiasm for the project.

Transforming a company’s tax department is a significant undertaking in an MNE, which is why businesses must begin immediately, according to Muller and Barrett. The longer companies wait, the less time there will be to use a phased approach and the more stressful the process will be.

Barrett suggested that tax departments begin on a small scale by automating repetitive work that is completed every month. This allows the tax team to become familiar with automation and see the benefits of it, and it could help to build a business case for further transformation.

Meanwhile, tax directors should take the pressure off themselves to invest in the biggest and best solutions on the market. “You don’t have to get the Rolls Royce of tax technology,” said Barrett.

The prospect of tax technology can be intimidating, particularly for MNEs with complex tax systems. In a survey of attendees at the Finance Indaba Network webinar, 40% of respondents said they have not yet begun their tax technology journey.

Yet as time passes, tax administrations around the world are digitising, and intergovernmental organisations are pushing forward international collaboration and visibility measures. Meanwhile, public pressure on MNEs to pay a fair share of tax has never been greater.

Transforming a tax department will require a significant investment of time and money, but tax directors will be rewarded with increased visibility, more efficient systems, and the confidence that they will be able to cope with incoming changes from tax administrations.

“It’s a long journey; within Unilever it’s going to take us roughly three years to complete everything, but it has been worth the effort and the couple of grey hairs that have gone with it,” said Muller, summarising his experience.

For Muller, mid-way through a revolutionary tax transformation project, the message for other tax directors is to start slow, but start now.