The digitisation of tax authorities around the world continues to gather pace and with it, comes a corresponding impact on tax functions. Increasingly, the role of the tax function needs to be embedded into all aspects of the business lifecycle so that there are ‘no surprises’ when it comes to tax. Combined with greater calls for transparency and regulation, tax functions are struggling to keep pace, as few have unlimited resources and infrastructure to effectively respond to the complex and challenging external environment. Optimising the tax function could be the answer.
Optimisation enables a tax function to innovate its people and infrastructure to achieve sustainable productivity that is aligned to tax vision and organisational objectives. Through this, the role of the tax function can evolve from one of compliance, to one of business partnering and tax stewardship.
Tax function optimisation can be achieved through tax led initiatives (e.g. tax process enhancement) or non-tax led change programmes (transformation), which enables the tax function to engage with the business and address tax requirements that should be embedded into business processes.
A seat at the transformation table
Transformation can relate to holistic organisational or functional initiatives (front and back office) which may impact people, processes and / or system change (technology and data). Both affect how a tax function meets its compliance and reporting obligations. For example, if the quality of data is impacted through finance transformation, this may alter the ability to identify, assess, mitigate and manage tax risks effectively. It is therefore critical that the tax function is consulted throughout the transformation programme.
A seat at the transformation table provides the tax stakeholder with opportunities to:
- Align the vision of the tax function to the vision and objectives of the organisation;
- Promote an integrated tax risk management approach within business processes (e.g. controls embedded in business processes, periodic testing and assurance programme);
- Define roles and responsibilities with key internal stakeholders, including communication framework, education and training to support in tax risk management;
- Provide input and define tax data and system requirements to facilitate more efficient compliance and reporting activities; and
- Manage cultural change - identify skill gaps / training required and approach to performance management.
Given the longer term and often strategic nature of transformation programmes, it is critical that a tax function is integrated from the get-go so its requirements can be addressed. With tax at the table, it is able to enhance its profile as a business partner with key internal stakeholders, including the C-Suite and / or the Board.
Creating agility through tax led initiatives
With new and forthcoming requirements and regimes being introduced (e.g. HMRC’s enhanced Business Risk Review, Making Tax Digital for Corporation Tax, UK SOX), this means that generally, tax functions are continuing to operate with the same amount of resources and infrastructure, while delivering an ever-increasing tax book of work.
As noted, the benefits of transformation may not be realised until a later date. Accordingly, tax functions need to assess its existing operations, prioritise and determine ways to proactively respond to changing requirements in the short to medium term. This may include:
- Reviewing the tax risk management approach against tax strategy, to determine if it remains fit for purpose.
- Reviewing tax owned processes to ascertain that key tax risks have been identified, testing of controls that are in place, and addressing any noted control gaps.
- Defining a tax technology strategy that guides the approach to the digitisation of tax processes. This may involve the implementation of tax specific solutions, or solutions which can be leveraged / integrated into wider transformation programmes.
- Determining the appropriate sourcing model and identifying whether there are activities carried out by the tax function that are not aligned to its vision, roles and responsibilities. If so, an assessment needs to be made as to where those activities should sit (e.g. in another function), or alternatively, be outsourced.
Tax function led initiatives can alleviate the pressure on tax resources and infrastructure, while aligning to ongoing transformation. Through enhancing tax governance, process improvement or sourcing, efficiencies can be gained to enable tax resources to focus on activities that add the greatest value.
Where do I start?
Optimisation can really help your tax function navigate and thrive in a world of disruption, unpredictability and rapid digitisation.
Transformation programmes enable a tax function to enhance its profile, access the buy-in of key internal stakeholders, and budget to drive change. However, the tax function is often required to work within a framework that is defined by the relevant non-tax stakeholder. The benefits to be gained may also be realised in the long term, rather than the short to medium term.
In contrast, tax led initiatives allow the tax function the freedom to address the areas where it sees the most risk, opportunities to reduce inefficiencies and better prioritise activities to achieve tax vision and strategy.
There is no ‘one size fits all’ approach to tax function optimisation.
Regardless of whether you choose to leverage the transformation programmes within your organisation, or undertake a tax led initiative, it is important that you have a baseline understanding of your current tax operations.
A first step that a tax function can take is to benchmark itself (either against a maturity model or other organisations) to understand what the business requires of the tax function and determine if there are sufficient resources and infrastructure to execute tax vision and strategy. Through this, a business case and roadmap can be articulated, which may include leveraging wider transformation. This then informs an implementation plan that will kick-start your tax function’s optimisation journey to the future.
Next steps
To help you think through how to optimise your tax function, here are our top five questions for you to consider:
- Does the C-Suite and / or Board have an understanding of the tax risks across the organisation (i.e. within business processes)? If so, do they understand how transformation can play a part in enhancing the tax governance and risk management across the organisation?
- How integrated is the tax function with the wider business? Is the business actively engaging the tax function so that it can identify and input into relevant transformation programmes?
- Is the tax function vision aligned to the vision and objectives of the organisation, and has the tax function identified the key levers to optimise the way it operates as a function?
- How can tax processes change in the short to medium term, while aligning / reaping the benefits of transformation in the long term?
- Has the tax function articulated an approach to change management to support tax resources with navigating through transformation and / or tax led initiatives?
