Whether it’s regulatory requirements, such as DAC7, GMT, BEPS Pillar 2.0, or the ongoing tax industry talent shortage, tax departments are under stress like never before.
The proper utilization and deployment of technological solutions alongside valued tax professionals is how successful tax departments deliver valued analysis, insights, and guidance for their organizations. Yet, technological maturity is low to moderate in many businesses.
Here are some of the biggest challenges and opportunities facing corporate tax teams today—and how technology can provide a boost while also relieving the mounting pressure.
1. Keeping regulators at bay
Tax authorities worldwide continue to pass legislation requiring greater disclosure from corporations. They’re also increasingly sharing companies’ financial data among themselves and want more direct visibility into firms’ business activities by accessing their financial data and reporting processes.
Most recently, the European Commission (EC) proposed the VAT in the Digital Age, also known as ViDA. Meanwhile, tax policymakers aligned behind the Organization for Economic Cooperation and Development’s (OECD) tax base erosion and profit shifting (BEPS) project. Further, the Global Minimum Tax (GMT) (GloBE or Organization for Economic Cooperation and Development BEPS Pillar 2.0), has placed additional requirements on nearly 10,000 businesses worldwide.
Country-by-Country Reporting (CbCR) laws also complicate compliance matters. DAC7, the seventh iteration of the Directive on Administrative Cooperation, marks a paradigm shift for firms as it extends reporting requirements to digital platforms.
Complying with all these new rules means data needs to be gathered more frequently (if not continuously), from more areas of the business, in more granular detail, and more quickly, so that tax calculations and filings can be done more regularly. This makes data management matter more than ever.
2. Aiding in heightened risk management
Many global companies are ill-equipped to meet these new demands. In addition to tightening budgets, many firms have tax data that is decentralized. Tax managers may spend valuable time dealing with messy data that arrives in a variety of formats and is stored in standalone spreadsheets. The extensive manipulation and rehabilitation required to make the data conform to tax department applications is wildly inefficient.
This lack of standardization and controls increases the risk of costly errors, undermines tax compliance, and may cause companies to take inconsistent tax positions that are more likely to be discovered by authorities. At the same time, tax authorities are now equipped with—and employing—much more sophisticated technology to scrutinize and compare corporate returns and reports.
This poses a particular risk for firms as tax audits and penalties are common, especially among under-resourced firms. Automation and quality control are highly effective measures for reducing this risk.
3. Creating a stronger partnership with finance
Many global companies are ill-equipped to meet these new demands. In addition to tightening budgets, many firms have tax data that is decentralized. Tax managers may spend valuable time dealing with messy data that arrives in a variety of formats and is stored in standalone spreadsheets. The extensive manipulation and rehabilitation required to make the data conform to tax department applications is wildly inefficient.
This lack of standardization and controls increases the risk of costly errors, undermines tax compliance, and may cause companies to take inconsistent tax positions that are more likely to be discovered by authorities. At the same time, tax authorities are now equipped with—and employing—much more sophisticated technology to scrutinize and compare corporate returns and reports.
This poses a particular risk for firms as tax audits and penalties are common, especially among under-resourced firms. Automation and quality control are highly effective measures for reducing this risk.
Corporate tax and finance teams, however, can strengthen their working relationships by collaborating on four key challenges:
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- Talent: Re-skilling staffers to become more tech-knowledgeable.
- Data and technology: Ensuring technology is designed to analyze data, cull out what is not needed, and provide data-driven solutions.
- Legislative and regulatory updates: Staying on top of the latest compliance-related changes.
- Budget constraints: Evaluating how to allocate resources, including where technology and automation may provide efficiencies that enable departments to improve workflow and redeploy resources.
Tax leaders able to align their departments more closely with the business (outside of tax-related issues) will set the unit up for more success.
4. Addressing the growing importance of ESG
Environmental, social & governance (ESG) considerations are increasingly central to business operations. Firms are facing pressure from key stakeholders to disclose more tax information, while governments worldwide are incorporating ESG considerations into tax regulations.
The increased transparency mandates also puts pressure on companies to ensure their tax practices align with their ESG commitments. Tax leaders must proactively integrate ESG principles into their tax strategies, which means aligning their organizations with broader sustainability goals and complying with emerging ESG-related tax regulations. This is key to taking advantage of tax incentives and avoiding penalties or reputational damage.
5. Developing a clear path forward
Many tax professionals say their departments’ technological maturity is low or moderate, limiting their ability to deliver the analysis, risk management, and business planning that adds value to the Finance Department and the C-suite.
Tax departments that can demonstrate the need for proper technology investment will be able to add greater value to their companies in both cost savings and penalty avoidance. That starts with developing a clear roadmap with several stages:
Automated data management
- A tax data software solution securely stores data in a centralized platform, protects the data through access controls that establishes users’ roles and responsibilities, and ensures data can easily be reviewed in real-time.
Robotic process automation
- This helps establish automated, repeatable processes for performing data preparation, blending, and analysis to support advanced forecasting and predictive and prescriptive analytics.
Analytic process automation
- Corporate tax teams must break down silos and augment and automate tax work across the organization when possible. Some firms use APA solutions to manage massive data sets, reconciliation, and analytics at the backend of their tax processes.
- Artificial intelligence: The heavily manual, and often error-prone, processes that have often been a challenge for corporate tax departments will increasingly give way to automation and artificial intelligence algorithms that provide the proper entry and verification of key information.
AI applications will become more essential for tax professionals and firms when it comes to:
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- Product mapping and classification
- Transaction analysis
- Anomaly detection
- Generative AI and talent
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Solving multiple challenges for your corporate tax team
By employing solutions that automate time-consuming manual processes and help corporate tax teams more easily stay in compliance with increasingly complex regulations, firms can free up their tax professionals to focus on increasingly strategic work.
Pairing the right automation and AI technology solutions with the brainpower of a firm’s tax team is also a smart way for tax leaders to offer more rewarding work to tax professionals, lowering the chances of burnout and serving as a selling point to recruits.
Special reportFor more insights on corporate tax department trends and challenges, read the Thomson Reuters 2023 State of the Corporate Tax Department report. |
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