Tax is at a crossroads. The operational decisions you make now will not only determine your ability to keep pace with fast shifting business and regulatory demands, but also make the most of the capacity freed up by automation, digitisation and more efficient use of tax professionals’ time.
Key questions include:
- What resources do you need and where should they sit?
- How can you develop the tech-enabled capabilities needed to sharpen efficiency, control costs and meet regulatory demands for real-time digital reporting?
- How can you widen your focus from delivering complex tax compliance to partnering with the business on key commercial decisions and managing strategic risks?
Judging what’s right for you
There is no single answer to any of these questions. Rather, the focus should be configuring the best tax operating model for your particular business. Nonetheless, some of the key building blocks are common to most organisations, albeit with different emphases. Through a careful balance between cost, efficiency and risk management, you can determine the right blueprint for your needs and ambitions:
- The right people
- The right technology
- The right process
The right people
This centres on the allocation of responsibilities across tax teams, in-market finance teams, internal shared services and outsource and managed service providers.
A common approach looks at how to free-up capacity within professional teams so they can focus more of their time on value-added activities. But you might need a different take if your main priorities are reducing costs and risk exposures.
The most pivotal decision is who manages tax compliance. As this is invariably the costliest, riskiest and most time-consuming area of your responsibilities, compliance is generally best managed by a specialist shared or managed service operation. They’ll have the advantage of being adept at managing data from multiple sources, standardising processes across territories, divisions and taxes and harnessing technology to provide accurate and efficient outcomes.
The right technology
Alongside tax-enabled finance systems, there is also tax specific technology to manage key demands such as analysis, computation, filing and real-time reporting. The key decision is whether to build – invest in the technology, maintain it and keep up with regulatory developments yourself or borrow – harnessing a third-party technology infrastructure such as PwC’s Connected tax compliance. Different considerations come into play here – cost, hosting, maintenance and independence. So, the decision will vary across organisations.
The right process
Your operating model needs to support end-to-end processes right through from data gathering to compliance reporting and business insight.
At a time when tax authorities are looking ever more closely at whether what you do matches what you say on tax strategy, it’s important to make sure that your approach is consistent globally and that the outcomes are well understood organisation-wide. Achieving this across different jurisdictions is an increasingly complex call, requiring close coordination of processes and rigorous management of risk. As a possible option, we at PwC have developed our Year-end-as-a-service approach to help make sure that year-end tax, finance and compliance processes are fully connected.
Making the most of freed-up capacity
By making it easier, quicker and cheaper to meet routine compliance responsibilities, an effective targeted operating model can free-up a considerable amount of capacity within your tax team and its systems. How can you make the most effective use of it? Three priorities stand out:
- Sharpening business insights
- Managing shifting risk profiles
- Standing up to scrutiny
Sharpening business insights
Amid a gathering wave of business model changes and supply chain restructuring, the most common questions coming from the business are how would each option affect our effective tax rate (ETR) and is this consistent with our tax strategy and risk appetite? Examples include the OECD Pillar 2 minimum tax impact of moving production or sourcing to a new location.
To address these questions with the necessary speed and reliability, it’s important to be able to tap into key data points, model scenarios and sensitivities and identify the analytical threads that can form the basis for actional outcomes.
Many of today’s tax tech options include powerful analytics. In turn, visualisation tools can help to present complex issues in an intelligible and interrogatable way.
Managing shifting risk profiles
Your ability to add value can be as much about managing risk as maximising opportunities. The main source of risk is now poor data quality rather than complex tax structures.
Amid the move to real-time reporting, it’s important to maintain continuous monitoring of tax data and the ability to reconcile data across different taxes and jurisdictions. This in turn demands increased automation and closer control of data feeds. Most tax teams spend a huge amount of time cleansing, manipulating and reconciling data to ensure that it’s correct before month-end filing. Using the latest systems, this needn’t be the case. But it’s still necessary to demonstrate the reliability of the data to win trust from internal and external stakeholders.
Standing up to scrutiny
As tax comes under ever increasing public and regulatory scrutiny, it’s important to make sure your affairs are transparent and understandable.
Tax authorities are investing in new digital tools to improve the ability to assess risks and identify anomalies. This includes comparing your organisation to its peers and across jurisdictions.
And with country-by-country reporting about to be made public, your affairs are about to become an open book.
It’s important to safeguard your business against these risks by developing a consistent and cohesive explanation of your tax affairs in the context of your business strategy, your global footprint, your total tax contribution and your environmental, social and governance (ESG) agenda. Quality data and the ability to analyse and report on it are fundamental to this.
Ready for the tests ahead
Tax systems and processes that are creaking now are likely to crumble as the demands on your business and the spotlight it’s under continue to increase. Getting compliance right is the starting point for an effective operating model. The Connected tax compliance priorities we set out here can boost resilience in the face of change and unlock capacity to manage unfolding risks and strategic considerations.
If you want to find out more about Connected tax compliance and how it can help you design and deliver your target operating model, please get in touch.
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