Tax Function of the Future
Tax and Finance Priorities – Revisiting your 2019 punch list
We know you’ve paid close attention to key focal points this year. Now we’re providing an update on the topics you need to consider as we approach the latter half of 2019. Let’s look at the highlights so far, and examine why these areas need to remain on your punch list for the remainder of 2019 and beyond. And here's our challenge to you: Before you close out the year, run through the list and have a strategic dialogue about each item on it. This will ensure you're hitting the key priority items before we begin the new decade!
1. Adapting to US tax reform and policy changes: Implementation is a major business challenge
You can now find guidance on major aspects of US tax reform. For instance, on June 14th, the IRS and Treasury issued proposed and final regulations concerning GILTI (Global Intangible Low-Taxed Income). Although this guidance provides clarification and some certainty, there is still significant complexity in navigating these rules. As organizations continue to grapple with tax planning, tax return deadlines approach, and many are finding that even basic compliance is challenging. The pressure will build through final compliance deadlines, year-end provision and evaluating how well companies can model the impact. Those who are able to stay close to business planning are surviving with flexible, scalable technology solutions that consider how to automate data gathering as well as model calculations around the complex, evolving rules.
2. Embracing small automation: Tax is empowered to drive change
For tax and finance organizations, change is happening rapidly. Tax can no longer work in an environment that is dependent on IT for all technology-driven process enhancements. Tax is stepping up to lead small automation projects that make work more efficient and effective.
Although perhaps low priority for IT, small automation projects have a significant impact on innovation within the broader enterprise. We continue to see tax functions taking the lead across organizations in driving these automations—and the most successful are creating governance to scale and sustain the impact beyond smaller or very targeted point solutions.
3. Upskilling the workforce: How are your people learning to innovate?
We said that you need to upskill in two areas: technical tax and digital skills. But let’s be honest, this is really hard to do. However, organizations that create “protected time” to learn these skills—combined with a pragmatic approach to training—see ROI within days. A data scientist may understand complex algorithms, but what is really needed to advance innovation in tax is knowledge of "tax-technical" rules and how technologies can help solve tax problems.
So, what is your workforce strategy? It should be to develop a culture that embraces change and a learning mindset, willing to use small increments of available time to learn. And, whenever possible, you should leverage existing resources for technical tax insights, technology and process developments (see PwC’s Tax Readiness and Tax Function of the Future webcasts and publications).
As you experience success with the practical use of digital solutions, incorporate useful case studies in training and share your stories across finance and the enterprise. Importantly, celebrate and reward your team’s efforts to innovate.
4. Challenging the traditional tax function operating structure: Is your in-house tax function still fit for purpose?
Two key factors continue to press this question: 1) managing a team of tax-technical professionals during complex times, and 2) the ability to invest in needed technology. In PwC's 2020 23rd Annual CEO Survey, CEOs are increasingly concerned about the ease of doing business in the markets where they operate. They comment on the gaps in their organizations’ capabilities—the skills gap, in particular, is impeding innovation and prompting higher people costs. These same concerns permeate throughout enterprise functions, including tax.
Considering the tight labor market, particularly for finance and accounting professionals, do you employ professionals with the right skill sets? And do you have the technology and processes in place to address today’s challenges? As the tax and business environment becomes more complex, several operating models are available for organizations to simplify executing tax functions. Flexible options range from fully in-house to completely externally managed tax services. PwC continues to lead in the managed tax services space, offering the following benefits to businesses needing access to enhanced capabilities:
- Access to skilled professionals with ‘in-house’ experience
- Ability to leverage leading-edge technology and processes
- An integrated approach to managing the complete tax life cycle
Based on US Bureau of labor statistics, the unemployment rate for business and financial operations occupations was 2.1% in July, 2019 versus 3.7% for all occupations nationally.
5. Aligning with customs and trade: It's a global chess match with tax impact
We predicted that increasing volatility in customs and trade would require the tax function’s attention; however, the extent of ongoing trade controversy has been astounding. The US has imposed or threatened imposition of punitive tariffs on a broad category of US imports, including many originating in China and products imported from virtually all countries, including our allies, the European Union, Canada and Mexico. Impacted US trading partners have retaliated with tariffs on US exports, resulting in a global trade chess match.
So what’s the tie-in to tax? Your organization’s efforts to reduce operating costs to mitigate tariff exposure could affect transfer pricing, supply chain strategy and M&A deal planning, with potential tax impact. Looking back at the first half of 2019 and the flurry of trade developments we experienced in dizzying succession, certain key points around customs and trade are now clear:
- Trade uncertainty will continue as a constant into the future
- Organizations will need to explore all options to effectively mitigate tariff exposure
- Data analytics for modeling and alternative scenario planning is increasingly important
- Recent changes to the US Duty Drawback regulations have increased the importance of the program in achieving reduction in net customs-related costs
- The current trade environment creates opportunities for expansion in different geographies (as supply chains look to restructure away from China)
- Multi-disciplinary, cross-functional strategies are essential for navigating the current uncharted landscape
6. Artificial intelligence (AI): Recognize that machine learning is here to stay
The Fourth Industrial Revolution is here. Finance and tax teams, like other enterprise functions, are stepping up to take advantage of the power of new emerging technologies, often by leveraging either their in-house investment or a firm like PwC. AI is able to:
- Manage data: reading, understanding and manipulating data
AI can enable your tax data strategy now, when availability to more granular data is critical to responding to tax complexity, governments’ increasing demands for transparency and managing financial and reputational risk. - Take action: ‘Automated interns’ performing structured and unstructured tasks
With AI, a digital workforce can be constantly available to support your finance and tax functions, improving efficiency and effectiveness in compliance, reporting and strategic analysis.
The cost of deploying AI continues to decrease, which means that use cases for AI in tax are expanding with success throughout the tax life cycle. For example, information extraction models are making tax reform compliance easier and classification algorithms are being used for international treaty compliance. And we’ve only just begun to reap the benefits of AI!
Our challenge to you–before you close out 2019–is to check items on the 2019 punch list and at least have a strategic dialogue about each one. This will ensure you are hitting the key priority items before we begin the new decade!
Based on PwC’s 2019 22nd Annual CEO Survey, 85% of global CEOs agree that AI will significantly change the way they do business in the next five years. In fact, close to two-thirds of global CEOs see it as bigger than the internet.
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