By Pippa Booth, UK Tax Reporting and Strategy Leader, PwC
The pressure of change leaves no room to stand still. Minimum global taxes under OECD Pillar 2 are spearheading a renewed wave of global tax reform. There are also more registrations and returns, as digital and destination taxes bring ever more operating territories into the compliance net.
At the same time, boards now want more timely, incisive insights to help them navigate tax reforms and deal with the tax implications of disruptive shifts - in areas ranging from supply chain restructuring to the move to net zero.
These challenges are reflected in the investment priorities of the 300 decision makers we interviewed for our Reframing tax study. The front-runners have already made important strides in bringing their systems up to speed, recognising the need to sharpen efficiency and target resources with ever greater precision – more for less.
The biggest test is still to come
Unfortunately, the biggest test for those responsible for tax is coming in under the radar. Making tax digital is allowing tax authorities to collect, analyse and audit more data than ever before. This enables them to request and share more information with other authorities and government departments, comparing the data provided against other taxes paid, other parts of the business and other companies around the world. It's a whole new ball game for how tax is managed, with more transparency over companies' tax affairs, more sophisticated investigations and a sharp increase in enforcement action to come.
Adding to the risks is the lack of public fanfare over this step up in scrutiny. Tax authorities haven’t said what specific areas of taxation they’re targeting, and indeed this may vary. Neither have they warned businesses to be on their guard. It’s almost as if they want the upsurge in audits to come as a surprise, so the resulting shock and awe will be all the greater. As a result, few if any companies – including the ones with the most developed systems – are sufficiently prepared for the dangers ahead.
Ready to respond
How can you make sure you’re ready? As a matter of urgency, you should be assessing what the data you’re sharing says about your business, whether it’s consistent between divisions and taxes, and what risks you might face as a result.
The underlying requirement is a single version of the truth. When facing this level of scrutiny, source data needs to be accurate and consistent. It also needs to be traceable from filing all the way back to source. Neither is the case today, with data undergoing so much manipulation, repurposing and reallocation that it’s hard enough for your business to sustain clear governance, let alone contest a possible audit.
The way forward
Looking ahead, the sea-change in data transparency calls for a rethink in how tax operations are set up and run, which goes beyond the systems modernisation and organisational redesign we’re seeing today.
The need for a single version of the truth is likely to be an especially strong catalyst for the next stage in your transformation. But other factors are at play, including the need to keep tools and technology up-to-date in the face of continuing resource constraints.
Looking at both the increasing demands and budgetary practicalities, four key priorities stand out:
- Beefing up your data governance
- Putting resilience at the heart of further modernisation
- Looking at alternative delivery options
- Getting on the audit front foot
Beefing up your data governance
It's not the job of those responsible for tax to clean and adjust the data coming to them. Not only is this a waste of their time, it also heightens the risk of tax authority challenge. The data coming from your business should therefore be right the first time. The fallout from making tax digital will help to provide your business with a clear incentive for bringing data feeds up to scratch. For example, some tax authorities are preventing businesses from issuing invoices if they have questions over the tax coding in the real-time sales data.
To strengthen data governance, some businesses are integrating tax into their centres of data excellence. They’re also bringing tax into the remit of their chief data officers or even appointing dedicated chief data officers for tax on its own.
From a systems perspective, a number of businesses have brought tax into their application managed services. To support this, tax data is subject to round-the-clock automated monitoring to check for anomalies and inconsistencies.
Putting resilience at the heart of further modernisation
Having carried out the first stage of tax systems modernisation, agreement on further investment will be hard won for those responsible for tax. But improvement can still be sustained. Cost-effective options include the increased tax functionality within enterprise resource planning (ERP). For example, the modules for operational functions can be applied to support transfer pricing. In turn, a new generation of off-the-shelf tax tools are paving the way for a step-up in automation. For example, tax determination engines are taking the headaches out of indirect tax by automating reliable data feeds and payments.
Looking at alternative delivery options
Many alternative delivery options now exist which offer an agile and scalable way for businesses to manage the increased compliance and data management workload. Everything from captive shared services, to third party co-sourcing or outsourcing and execution managed services (EMS) can be employed to great effect. The results would not only strengthen efficiency and reduce fixed costs, but also allow remaining in-house teams to focus more of their time on business analysis and support. The other big advantages of these alternative delivery options are that they have the potential to take care of tax rules changes and have the scale to keep investing in the latest technology.
Getting on the audit front foot
More audits are coming - and with the increased data at tax authorities’ disposal, they’re going to be harder and more costly to contest. It’s therefore important to get on the front foot by proactively identifying risks and preparing justifications and defences before a possible contact by the authority.
From a systems perspective, monitoring of anomalies is vital here. In turn, the latest visualisation tools can help identify risks and present data to management teams in an intelligible and interrogatable form.
More from us
This article is one of a series designed to help those responsible for tax navigate their transformation journey. If you have any questions or would like to know more about redefining the role of tax in your business, please get in touch.
Reframing tax: Where are you on your journey?
Understanding your starting point is critical to finding the right way forward. Use our interactive tool to assess where you are on your journey to being human-led, tech-powered and access further content to help deliver greater business benefits.
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Tax Partner, Leader of the PwC Tax Transformation business in the UK, PwC United Kingdom
Tel: +44 (0)7710 036796
