It’s time to rethink tax compliance

By Jonathan Howe, Connected Tax Compliance UK and EMEA and Sabine Barlage, Connected Tax Compliance NL and EMEA

Companies everywhere face a growing tax compliance burden. Yet compliance budgets remain tight, and tax teams remain stretched. In a recent global PwC survey, more than half of companies said that even as regulatory demands continue to rise their budgets were unlikely to increase in the near future.

To accelerate their ability to respond, tax leaders will need to adopt innovative approaches to compliance, stepping outside of their comfort zones, collaborating and co-sourcing skills and technology. This is an approach we call Connected Tax Compliance.

In our recent survey on the future of the tax function, 85% of tax professionals in the largest organisations surveyed expect a significant increase in reporting requirements over the next two to three years. With survey respondents rating regulatory and compliance change, together with resource constraints and the need to reduce their costs, as among the top five challenges they face. It is therefore clear, that there is an emerging cost and capability crunch in tax compliance work.

Companies are right to expect tax compliance to become increasingly challenging. One reason is that we are in an era of regulatory change, with reforms such as the OECD’s Pillar Two minimum corporate tax rate creating very complex data gathering and reporting requirements (this is something we will cover in detail in an upcoming blog).

Another reason is that many tax authorities have become more demanding: they expect businesses to report in shorter cycles, and they are increasingly intolerant of inaccuracy or incompleteness. They have raised their game, and they expect corporations to do the same.

Of course none of this is news to the world’s biggest companies. Many have spent the last few years investing massively in new technology tools, including finance modules in the new generation of ERP systems that are capable of automating some elements of the tax and reporting process. Yet the reality is that there is no overarching off-the-shelf technology solution to all of the tax compliance issues that a large cross-border business faces.

That leaves companies with a dilemma. With so many resource demands in the tax function – from regional knowledge and global regulatory scanning, to data strategy and management and technology skills – they need to access external global skills and technologies if they are to make the most of the resources they have in-house.

In the past companies have accessed resources through outsourcing, but typically in a hands-off manner that is contractual rather than collaborative. We think the days of that model are numbered. Today companies need access to better resources (without breaking the bank), and to the latest technologies. They also demand better insights into upcoming regulatory change and the contribution that tax can make to business strategy. And they need to do all of this in a connected way - covering the whole compliance process, for all taxes in all territories.

This is what Connected Tax Compliance means. We believe there is a need to create more dynamic connections between tax professionals and the data they use and create, as well as the technology they use to process it. This includes better connections between jurisdictions in complex global organisations, and between taxes themselves so that data and tools can be shared whether the issue is direct or indirect taxation, transfer pricing or environmental taxes.

This approach is about using partnerships to fill gaps where they exist, and to supercharge the capabilities that companies already have. That is why we say our Connected Tax Compliance approach will always meet our clients ‘where they are’: whatever their technology status, whatever their skills base, whatever their legacy issues or ambitions for the future, we can collaborate to leverage existing resources and accelerate outcomes.

And while technology is driving much of the change in tax compliance, the solution has to be human-led. In the end technology is just a tool, and Connected Tax Compliance uses it to enable people and networks to connect data, teams and insights to turn tax compliance from time drainer to value driver.