E-book
Maximizing ROI in digital transformation
- Intro
- 1. Understanding the barriers to digital transformation
- 2. Become a strategic partner with a comprehensive plan
- 3. The risks of overlooking tax in digital transformation
- 4. The benefits of early tax department involvement
- 5. Strategies to advocate for early inclusion of the tax department
- 6. Implementing tax automation in digital transformation for greater ROI
Digital transformation has been a significant trend for over a decade. Tax compliance, global tax minimums, and environmental, social, and governance (ESG) requirements have introduced greater complexity for corporations. Technology solutions help streamline processes for tax departments by integrating with ERPs, customer relationship management (CRM) systems, and e-invoicing systems, providing essential support for tax compliance efforts.
When tax departments are involved early in the planning stages of cloud migrations and ERP implementations, the overall transformation project is more successful by considering all systems and how well they will integrate. This proactive approach significantly reduces the risk of fines and penalties, avoids the costly mistake of attempting to combine incompatible systems, and lowers the costs of ongoing IT maintenance. Additionally, it allows the team to offer strategic insights on utilizing real-time data to enhance operational efficiency and boost profitability.
This e-book provides a roadmap for understanding the challenges faced by tax departments and highlights the risks of treating tax compliance as an afterthought during digital transformations. We will discuss how to effectively advocate for integrating tax departments from the beginning of the process. This approach ensures long-term sustainability and maximizes the return on investment (ROI) of the overall digital transformation.
Chapter One
Understanding the barriers to digital transformation
Tax administrations have historically been reactive and manually labor-intensive. Both tax departments and tax authorities are leveraging cloud-based technologies to monitor their transactions more closely. The ability to access tax-related data in real time has increasingly prompted tax authorities to adopt advanced technologies that improve tax collection and compliance. As such, businesses must enhance their reporting capabilities to meet these requirements.
The need to access tax-related data across multiple business units in real time is becoming a necessity. Changes in how businesses operate and how goods and services are sold — digitally and across various jurisdictions — require a strategic approach to integrating ERP systems and digital transformation to optimize tax reporting and compliance.
While accounting has become easier for most tax departments, they still face numerous challenges and limited resources. One example of this is the large number of retiring baby boomers and the struggle to find suitable replacements for their expertise. According to the Thomson Reuters Institute 2024 State of the Corporate Tax Department report, 51% of respondents stated their department was under-resourced.
As tax regulations rapidly evolve across jurisdictions, such as Pillar 2, the global minimum tax, and base erosion and profit shifting (BEPS) 2.0, business compliance maintenance has become more labor intensive. The expansion of digital marketplaces, the blurred origins of supply chains for digital products, and the broad scope of indirect taxes (IDT) further complicate the process. Due to limited resources and staff, tax departments are adopting automation to improve their efficiency and effectiveness and avoid audits and penalties.
As a result, there is a distinct shift in the required roles within tax departments taking place, along with a need for more strategic leadership that can influence the broader digital transformation efforts. Implementing stand-alone solutions unique to the tax department removes significant opportunities for department heads to contribute to optimization strategies, risk mitigation, and improved reporting across the organization. Instead, they should be involved in the broader digital transformation process.
Since nearly 80% of respondents in the corporate tax department report said their departments have automated less than half of their work processes, businesses undergoing digital transformation would greatly benefit from the input and guidance of tax professionals in the initial planning stages of new ERP implementations.
To tackle this issue, tax departments must address the resource shortage and critically evaluate the skills, roles, and leadership required to drive this change. In the report, more than two-thirds of respondents stated their departments have a reactive (45%) or chaotic (21%) approach to technology. Adopting new technology requires the development of new hybrid tax-technology roles and a commitment to transforming processes. Additionally, 41% of respondents said they anticipate changing current job roles to accommodate technology growth, and 32% anticipate entirely new job roles due to technology.
Chapter Two
Become a strategic partner with a comprehensive plan
To advocate for their involvement in the broader organizational strategy, tax departments need to quickly develop a comprehensive plan to understand which tools will best support departmental and organizational transformation. There is a lack of confidence in technology stacks and tech-competent personnel within tax departments; developing relationships with IT departments will help align technological needs with organizational goals.
By integrating tax planning with digital transformation, the tax department can provide the C-suite with invaluable insights that enhance strategic planning, minimize compliance risks, and boost profitability. This approach also helps define the role and requirements of the tax department, highlighting its impact on decision-making and identifying new opportunities.
Cloud-based services became normalized throughout the 2020 pandemic with the mass adoption of remote work. The explosion of AI-based technology since 2023 has created a new challenge that poses the question, “How can we leverage AI to automate manual processes so we can shift our focus to more strategic planning and high-value work?”
According to the 2024 Corporate Tax Department Technology Report, less than half of respondents said their departments use a data warehouse, data lake, or other repository for easier data sharing. Additionally, less than one-third of departments use network communication tools like application programming interfaces (APIs) or other ways to connect different technology systems.
AI’s real-time ability to synthesize data across multiple platforms and jurisdictions offers many opportunities. However, that is only possible if the tax department can establish itself as a strategic partner to the organization at large.
It’s time for tax departments to embrace significant transformation on multiple fronts. They should adopt technology and AI to enhance efficiency, create new roles integrating technology with tax expertise, and cultivate a culture of innovation. It is crucial to align departmental goals with the company’s broader vision and secure a position in the C-suite as advisors and leaders in digital transformation. By becoming strategic partners with a comprehensive plan, tax departments can support organizational goals and profitability effectively.
Chapter Three
The risks of overlooking tax in digital transformation
Deloitte's Tech Trends 2024 report highlights that the COVID-19 pandemic significantly accelerated digital transformation, with 85% of global CEOs acknowledging a notable increase since 2020. This trend has led to greater investments in technology, elevating the importance of tech leaders and employees as organizations integrate software into their core operations. The report underscores the crucial role of software engineering excellence and developers in enabling companies to seize these transformation opportunities.
IT departments, CIOs, or digital transformation officers typically manage digital transformations. These leaders focus on overseeing these transformations but often fail to consider tax compliance an influential factor in the company's profitability. As a result, they miss the chance to improve operations and lower compliance risks by integrating tax transformation with ERP and cloud solutions.
Tax departments face challenges with their internal digitalization and need to ensure the broader organizational planning process considers their perspectives. With workloads increasing and budgets decreasing, tax departments are struggling to maintain compliance as tax structures at all levels are undergoing continuous updates at a fast and furious pace. With the introduction of e-invoicing, annual reporting cycles started coming down to quarterly, then monthly, and now real time as tax authorities expect auditing from the source systems.
Organizations could face multiple fines across numerous jurisdictions, and these penalties can be substantial. For example, in 2016, the European Commission ordered Apple to pay 13 billion euros ($14.4 billion) in back taxes to Ireland, saying that the iPhone maker benefited from two Irish tax rulings for over two decades that artificially reduced its tax burden to as low as 0.005% in 2014.
Digital transformations are not easy and tend to be quite a financial undertaking for businesses. As Kelley Lear, Vice President of Partnerships & Alliances at Thomson Reuters, points out, “Organizations get into trouble when IT departments consider tax operations something to be dealt with only when required. In the long run, a ‘we’ll deal with it when we need to’ attitude is more expensive and requires more work and rework than if tax departments were included in the planning with finance and IT from the beginning.”
Attempting to make ERP structures tax sensitive after you’ve already implemented them is quite challenging. If you are working with different systems — such as SAP, Oracle, or Microsoft — across various jurisdictions, system integration issues may occur. Information pulled from data lakes, CRMs, e-invoicing, and supply chains must reflect legal corporate structures and jurisdictions for tax administration. Otherwise, the ability to conduct business in certain regions may be limited, which can lead to disruptions in business operations and an increased potential for penalties and fines.
Chapter Four
The benefits of early tax department involvement
Considering that every transaction in an organization is affected by tax, the benefits of bringing tax departments into the conversation early in the digital transformation planning process extend across the entire organization's operations. Corporations and tax authorities have had to rely on manual, error-prone processes — but digitalization has changed that.
As businesses transition from using Excel and spreadsheets to consolidating their tax data into a single repository, they gain greater data transparency. This shift allows them to access tax information whenever needed; tax authorities also benefit from easier access to this data. All of this leads to improved company data control. This real-time transparency and data access enhance compliance and risk management, reducing the potential for fines and penalties.
Global minimum taxes are becoming more complex, along with jurisdictional changes and the expansion of global digital marketplaces. Due to coinciding advancements in cloud migration, ERP implementation, and AI progress, the tax department must have a seat at the table when discussing digital transformation for the company.
It’s essential for an ERP provider and tax solutions to work together seamlessly. This integration simplifies tax reporting and compliance, enhancing data accuracy and reliability. These resources are invaluable as tax departments shift from rear-view reporting to real-time reporting, reducing time spent on repetitive manual data entry and focusing on monitoring and addressing changes as they occur.
By using predictive analytics, tax departments can more accurately predict tax scenarios and provide insights to assist their business in making crucial decisions that could affect their tax status in various locations. Over time, this approach supports better strategic decision-making, streamlines business operations, lowers costs, and improves cash flow.
Chapter Five
Strategies to advocate for early inclusion of the tax department
Corporate tax structures are becoming more complex, prompting more frequent consultations with tax departments regarding their insights on business planning, strategy, and tax efficiency. Tax department heads can leverage these relationships, fostering and building on them with primary decision-makers in finance and IT departments, particularly to initiate conversations and influence digital transformation processes.
To effectively advocate for the tax department's involvement in corporate digital transformation, tax department heads should start by aligning their goals with C-suite priorities to gain a deep understanding of what they value most. Tax leaders can make a compelling case by demonstrating how the tax function can significantly contribute to digital transformation, reduce expenses, and enhance cash flow. By suggesting ways to minimize compliance risks and pointing out potential improvements in operational and strategic planning, the tax department can emphasize the value of its role in digital transformation.
As tax departments struggle to keep up with limited internal resources, numerous changes, and increased workloads, they should proactively collaborate with IT and leadership to share information and resources that support their digitization efforts. Regularly scheduled meetings or check-ins can foster collaboration and highlight the significant role that corporate tax modeling and planning play in predicting tax liabilities, optimizing tax positions, and ensuring compliance with evolving tax laws. Through this initiative, tax leaders can demonstrate their value and support the broader goals of their organization.
Tax department leaders should consider taking an extra step to understand incentives and bonus structures that motivate IT teams. By aligning with these motivations, they can demonstrate how involving tax departments in the planning process can help reduce long-term maintenance costs, avoid major system overhauls, and prevent additional work or rework.
Regardless of the preferred approach, it is best to act early on to build the internal case for involving tax departments at the beginning of a digital transformation project.
Chapter Six
Implementing tax automation in digital transformation for greater ROI
The 2024 EY Tax and Finance Operations survey revealed that 87% of respondents believe integrating generative AI (GenAI) will drive efficiency and effectiveness within the tax function. Those who were largely unaware of GenAI over a year ago are currently exploring its integration to transform modern tax and finance functions.
Tax leaders utilize next-generation ERP projects to collaborate with finance teams and access tax-sensitive data through updated, standardized processes and integrated systems. Outsourcing and collaborating with organizations like Thomson Reuters, which has developed alliances with consulting and implementation firms such as EY, Deloitte, and KPMG, provide tax departments with tools that shift their tax department’s focus from ordinary task completion and cost control to delivering insights that can add real value for a business making strategic decisions.
While global tax structures become increasingly complex across jurisdictions, tax technologists have embraced a “clean core" approach to simplify and streamline software maintenance testing and upgrades. One example is SAP Clean Core, a framework for extending and integrating SAP solutions while maintaining control of the business process and master data. The main concept is to avoid customizations of code and data, keeping the core of SAP solutions clean and stable.
Integrating tax automation solutions with ERPs offers an enhanced tax management and compliance solution for tax departments. Following the “clean core” approach as much as possible, ONESOURCE solutions span tax, trade, compliance, and risk management. ONESOURCE integrates seamlessly with over 200 leading in-house technology solutions. Among the 12 integrations for SAP solutions, four are SAP-certified apps and three are SAP-endorsed apps.
An EY article for tax leaders that discussed challenges and lessons learned on data and technology states that demonstrating ROI is essential for securing leadership support for transformation initiatives. Metrics like time and cost savings are strong indicators of success. Some tax executives have embraced innovative methods like tracking time spent on transformation activities. This data-driven approach not only helps in allocating resources but also creates persuasive business cases for hiring more staff.
The state of the corporate tax department report mentioned earlier outlines five key steps to help promote technology adoption to deliver maximum ROI:
- Assess needs and set clear goals
Identify specific challenges and goals that technology can address. Doing so ensures you select the right tools that align with each department’s strategic priorities, such as improving efficiency or enhancing compliance. - Invest in training and skill development
Ensure you train staff adequately on new technologies. Provide ongoing education and support to help overcome digital transformation resistance and improve technology implementation. - Secure leadership buy-in
Engage leaders by demonstrating potential ROI benefits of technology adoption. Highlight technology improvements such as mitigating risks, reducing costs, and enhancing strategic capabilities. - Prioritize automation and integration
Focus on automating repetitive tasks and integrating new tools with existing systems to streamline processes. This technology can free up resources for more strategic activities and improve overall efficiency. - Monitor and evaluate progress
Continuously assess the impact of technology on department goals. Use data metrics to evaluate ROI, making adjustments as needed to ensure expected technology benefits are delivered.
Involving tax departments early when organizations undergo digital transformations, cloud migrations, ERP implementation, and integrations can generate invaluable ROI across multiple business functions. Including tax considerations at each stage will lower long-term maintenance IT costs, reduce errors, and improve the quality of tax-related data in real time. This approach provides valuable insights for strategic decision-making and tax planning for the corporation.
Digital transformation allows tax departments to leverage automation and streamline workflows, helping them focus on global tax liabilities and accurately evaluate taxes in specific jurisdictions. Additionally, embracing the right technology ensures compliance across various business functions.
Utilizing tools like ONESOURCE — which seamlessly integrates with ERPs like SAP and Oracle — can significantly enhance capabilities and increase ROI during digital transformations. By bringing together the right people at the right time, digital transformations can deliver long-term ROI through cost efficiencies, increased profits, tax savings, optimization, and data-driven strategic planning.
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