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Fasten your seatbelts... the speed of change may be here to stay. Although Tax teams have an increased operating tempo to manage legislative and regulatory change, they are quickly realizing that this may not be a one-time surge. Instead, this new pace may be needed indefinitely due to transactions and transformations that continue to strain all aspects of their ecosystem – most importantly, their people.
The bottom line is that Tax executives are reflecting on their function’s overall approach and operating model – can they execute effectively at this enhanced pace? See how your Tax function may be positioned by taking the survey below.
Tax is in the spotlight. Competing priorities and an increasingly complex and rising workload are causing disruption for Tax functions. Many may be reaching a ‘tipping point’ where a lack of capacity, capabilities, and skill-sets inhibits their ability to deliver successfully.
Leading Tax functions are taking a critical, honest look at their current state and continually evaluating whether their operating model to address these challenges is ‘fit for purpose’. They are drilling into pain points such as manual bottlenecks and gaps in process, data, and technology, and seeking a tailored ecosystem that...
such as scalability for future growth and the ability to absorb additional compliance work with ease. Loaned staff, as an example, can help Tax to scale up and down depending upon workload and business need. Enhanced modeling capabilities also can enable Tax deliver real-time, data-driven insights to the C-suite for informed decision-making.
Leading Tax functions are embracing an array of operational changes to tackle pain points, such as strategic insourcing, co-sourcing, outsourcing, and managed services in different geographies or functional tax areas. Others are considering a full managed services approach to leverage a wider scope of talent and achieve cost reduction goals.
A strategic partnering with Finance, for example, to migrate certain tasks or processes to a global business services center (GBS) or center of excellence (COE) model can yield a ‘win-win’ for both functions.
External resources can resemble the ‘pinch hitter’ – having an in-depth understanding of the business with an ability to perform critical tasks quickly when clients’ in-house staff are strained, becoming an extension of the client’s playbook of resources.
Talent ‘gaps’ are expanding, leading to increased tax compliance risks and workflow voids. In response, leading Tax functions are cultivating a workforce strategy that aligns with their Tax operating model, overall tax vision and strategy, and embodies the desired culture within the function. A critical element is to raise awareness of how Tax processes are changing, including the adoption of technology, and provide corresponding ‘upskilling’ for Tax staff that is part of a continual regiment.
Many Tax leaders are carving out protected time and providing a wide-range of learning opportunities relating to both digital and tax technical knowledge. The goal is for Tax staff to ‘round out’ their skill-sets and apply the training to their day-to-day activities. For example:
Adopting a ‘citizen-led’ approach, particularly for digital acumen, can help empower Tax staff to not only grow as professionals, but help to carry out the future vision for Tax. As Tax teams lean in on small automation, Tax functions can help reduce manual, repetitive tasks (yielding happier employees) and make room for more strategic, analytical tasks such as those directly supporting C-suite priorities. Tax staff can move towards their highest and best use – at the same time, Tax can help reduce compliance risks and have greater agility.
Set a vision and know how to get there. Leading Tax functions are developing a multi-faceted strategy and vision for both internal and external-facing objectives. To do so, current capabilities must be assessed holistically – including people, process, data, technology, and controls – as well as how Tax is perceived by the broader business. This can lay out a basis for change, ranging from small continuous improvements to larger-scale transformations.
A ‘vision for the future’ often is captured in a tailored, multi-year roadmaps often include risk-based initiatives, but that are aligned with broader business goals. It may include, for example:
At the same time, C-suite concerns regarding brand and reputation are prompting leading Tax functions to focus more on public tax transparency, which is not only about disclosing numerical information but also explaining an organization’s attitude towards tax strategy and tax risk management. Many functions have developed a written ‘tax strategy’ that is ready for public disclosure – e.g., their approach to engagement with tax authorities and the organization’s ‘total tax contribution’ to society. They also stand ready to help the broader business prepare their ESG narratives to include tax.
Each Tax function will be different, but leading functions have well-articulated visions for both an externally-facing strategy and an internal vision for the future that are shared with and supported by Finance leadership and the C-suite. All Tax team members and their broader ecosystem – including professional services firms – use these strategies as guideposts for their efforts and become ambassadors for their success.
Dynamic, tech-enabled processes are the new norm. Leading Tax functions use calculation-ready data to efficiently perform planning, reporting, and compliance tasks – supporting all stakeholders for Tax. The process, data, and technology elements of a Tax function’s ‘engine’ should integrate seamlessly and be scalable to meet future demands. One size does not fit all and Tax functions are finding what speed and caliber fit their enterprise goals, risk appetite, and desired Tax operating model.
A critical first step is to map out workflow steps and details of the current process including tasks, roles, and responsibilities. Then, candidly assess whether your current state is fit for purpose, highlight your greatest pain points, and build a roadmap for change – which can be a challenging task. Leading Tax functions often embark on a multi-year journey using a holistic, risk-based approach that focuses on data and automation as core components.
Leading Tax functions are seeking not only hourly savings, but other goals to increase ROI such as accelerating the year-end close process or achieving certain KPIs from the C-suite. Below are a few examples of actions these Tax functions are performing – which may range from reinventing Tax processes to simply adopting ‘quick wins’:
Standardize processes to yield more consistent and repeatable results. For example, workflow details may be embedded into enterprise-wide digital collaboration tools to track status, manage documents, and provide evidence of review.
Procure tax-sensitized data at the source. Data requirements and data sources can be reviewed and documented to identify pain-points and ‘gap’ areas. Working with the broader Finance team, Tax may tax-sensitize financial statement accounts for real-time access to calculation-ready data.
Embrace small automation for component parts of processes to reduce manual, repeatable tasks. These cost-effective tools may be currently in use within your organization, or procured from third-party libraries (such as PwC’s Digital on Demand). They are often immediately deployable and deliver near-term benefits, as opposed to larger scope, tailored automation solutions. Small automation, including bots, can improve data gathering, aggregation, and transfer processes, as well as enhance analytic capabilities and deliver better quality output (i.e., through visualization tools) in less time.
Seek integrated governance and controls to help reduce financial and reputational risk relating to tax and financial statement reporting. There is a growing push to strengthen these procedures – for example, more taxing authorities are requesting data about Tax processes, which can shape a Tax function’s ‘rating’ for audit purposes. Many tax administrations are shifting towards so-called ‘cooperative compliance’ approaches and data oriented, real-time audits.
A growing number of leading Tax functions are…
of governance and control procedures within the Tax technology ecosystem. Doing so can enhance efficiency, help alleviate pain points, and lower risks such as unexpected financial statement impacts or tax assessments. For example, leading Tax functions are using automated internal control documentation and sign-offs for tax return and provision processes, rather than paper-based, manual steps. Controls are embedded into collaboration, workflow, and sharing tools to facilitate proper review of compliance steps, while managing document versions.
to standardize global tax processes, prioritize tasks, and facilitate review. After identifying priorities, Tax should look closely at how transactions, data, and related documents are received, processed, and ultimately retained. For example within the tax provision process, governance and control procedures should include an evaluation of significant business changes, transactions, and new legislation, as well as the use of estimates for more material amounts.
to incorporate and document all critical process steps and execute consistently across Tax. This approach can help mitigate key person risk so that processes are easily repeatable – multiple team members can step in to perform rather that having controls reside with one person.
by embracing procedures to protect data and manage access. Adopting protocols early in the automation process can enhance your ability to pivot seamlessly and manage risk during times of change.
As Tax functions move along their journey for change, leading Tax functions are continuously revisiting their controls and governance framework to help ensure it is dynamically shifting with new risk landscapes.
Make C-suite priorities your ‘north star’. Tax functions are being asked to satisfy an increasing need for data-driven insights relating to significant business challenges such as supply chain shifts or M&A transactions. Rather than a back-office compliance shop, Tax is viewed as a trusted business ally that brings consistent, timely value.
Many businesses have a keen focus on cost reduction, liquidity, or simply ‘running leaner’. C-suites are wanting internal functions to look across the value chain to reset their cost structure to generate cash for spend elsewhere in their business, including investment in their people, technology, and future growth. In response, leading Tax functions are seeking creative solutions to drive strategic value and operate more efficiently – often times, they are ‘doing more with less’. Similar to other functions, Tax is eliminating low-value, manual work with automation and making room for more analytical, ROI-driven tasks to build a ‘fit for growth’ operating model.
Leading Tax functions also are collaborating and partnering with other functions more than ever before to find synergies, ideas, and cost savings. For example, Tax can partner with Finance to:
Also, Tax functions are working with the CIO to adopt technology (such as collaboration,workflow tools) that is already licensed by the organization, as well as manage cybersecurity risks as they relate to Tax.
When collaborating externally, Tax functions are expecting their third party advisors to have a similar ‘customer-obsessed’ approach, for example, by bringing cross-functional and tax technical know-how in a seamless way to solve complex problems.
C-suites are seeking insights – they need real-time data to make informed decisions when faced with significant challenges such as supply chain disruption and liquidity concerns. To respond, leading Tax functions have cultivated robust consulting prowess – quickly delivering business-driven insights on related ETR and cash tax implications of proposed business or other changes. They also are helping C-suites ‘see around corners’ – anticipating issues instead of reacting to them – such as informing the C-suite about the OECD’s work on the digitalization of the economy (referred to as ‘BEPS 2.0’) and potential tax legislation.
So what is the secret formula to harness these capabilities? Leading Tax functions are assessing their function’s consulting capabilities in a holistic manner – including people, process, data, technology, and controls. While each Tax function will need to shape its own plan, we’ve seen common ingredients, such as:
Choosing a well-suited modeling approach (with either in-house developed or third party tools such as Beacon Platinum) to perform scenario planning such as ‘what if’ situations, and model federal, state, and global tax impacts. The process allows Tax staff to change underlying scenarios and facts quickly, without significant manual intervention, while taking into account related tax impacts due to the complex interdependencies between provisions.
Translating complex tax analysis into easy-to-digest, non-technical terms when communicating with the C-suite. Risk is conveyed using numbers and concrete terms. Automation and visualization tools are leveraged to enhance reporting capabilities and deliver dynamic insights and points of view. Leading Tax functions are participating in live ‘sandbox’ environments with modeling tools that can deliver real-time insights to the C-suite.
Running efficient processes for regular reporting to create capacity for more C-suite-driven consulting and analytical tasks. For example, leading Tax functions are embracing automation or other digital assets, streamlining processes, and bolstering its operating model (such as using loaned staff) to ‘create’ time in the Tax schedule. Leading Tax functions also are recognizing potential ‘talent gaps’ and leveraging alternative resource solutions such as tailored outsourcing of specific technical areas.