Transforming the tax function with cloud

A blog by Stephane Lunan, partner, Deloitte Tax LLP.

It’s no longer a question of whether organizations should transition to cloud-based applications, it’s when and how. And, as most organizations move at least a portion of their application portfolios to cloud—especially their ERP systems—there is great value for tax in cloud. That value is largely dependent on the individual organization, but it is real. In fact, the shift to cloud is a life event for tax; it’s a chance to transform the tax function.

A life event for tax with many potential benefits

With ERP systems that are implemented out of the box, the information tax needs to perform its various processes may not be present—or not present in the ideal form. So, tax must manually gather and manipulate the information it needs for analysis and reporting, which can be time-consuming and fraught with the potential for error. A cloud-ERP implementation gives tax the opportunity to address these issues.

However, to enhance the opportunity, it’s critical that tax gets a seat at the table early on in the ERP cloud-migration effort. That way, the tax function can ensure that the information captured by the ERP system aligns with tax needs. ERP cloud migration can be a transformative life event for tax that provides significant benefits both short- and long-term.

For example, when tax has the information it needs and in the proper form, it can result in tremendous efficiency gains. Having the proper source data facilitates processes that require less manual manipulation, which can speed processing, reduce errors, and free up resources to engage in more value-added activities, such as tax analysis and planning. With cloud, there’s also the ability to leverage automation where feasible, which can also reduce costs and speed up operations. Finally, tax can access the information it needs to enhance operational effectiveness in all relevant tax jurisdictions in real time, which can reduce complexity and improve risk management.

Potential opportunities for long-term operational effectiveness and resilience

Cloud empowers a new era for tax—one that could see them operate more effectively and become more resilient long-term. The COVID-19 pandemic has upended the way most companies operate. It has forced them to rethink how they access and control critical business systems, how they redistribute resources, and how they facilitate remote work. These changes have had significant impact on the tax function as well. And with these changes, especially as new ways of working become entrenched, the shift to cloud can open up tremendous opportunities.

Recent shifts in the ways organizations are working is influencing future operating models. Organizations must reexamine current models to determine where efficiencies can be gained, especially in terms of the outlay, organization, and location of resources. This has significant tax implications, especially when considering how a remote workforce can affect tax liabilities for companies and their workers. And, as that workforce recalibrates, companies will likely be considering their real estate portfolios, which can have a significant impact on tax liabilities as well. Because of COVID-19’s long-term implications for the economy and the workforce, tax leaders should be thinking about how to create and manage tax functions that are much more virtualized, decentralized, and automated.

Controlling costs and funding the effort

The cloud can be beneficial for tax, but there may also be significant costs associated with a cloud migration. Controlling costs and funding the transformation effectively is crucial to a successful cloud migration.

There are several strategies companies can employ to ease their cost burden in cloud. The first is simply common-sense cost controls. Many cloud providers offer consumption-based costing, which can be particularly effective in controlling costs if cloud usage is carefully monitored and controlled.

There are also “self-funding” methods that organizations can use to help mitigate cloud costs, both short- and long-term. For example, partner-based incentives from cloud providers can help companies access technologies via their cloud provider’s relationships with service providers that they would otherwise have to purchase separately. There are also incentives where cloud providers will potentially delay costs—or spread them over more attractive time horizons—for a commitment to their services.

Various credits may also be available to companies that deploy cloud if analyzed early in the contracting process. Jurisdictional tax savings may also be available, contingent upon on how operations and resources are shifted and redeployed. Depending on the type of transformation, business or supply chain changes may also provide additional opportunities for companies interested in exploring business drivers. The key is to recognize tax-related benefits during early conversations and build the tax footprint into the road map. Each company’s situation will vary based upon many factors, and any benefits will be individualized to each organization’s particular operating environment.

Wrapping it up

Cloud has many benefits for the tax function, especially when the process is viewed through the lens of an ERP cloud migration. The mandate to implement cloud-based ERP can be a revolutionary lifetime event for tax and help the tax function become more effective and efficient. However, it’s critical for tax to get an early seat at the table, and it provides an avenue to fund the transformation in a cost-effective way. As part of a successful cloud migration, the tax function may be able to enhance its operations, both short- and long-term, and, through the process, the tax function can help the entire organization gain the resilience needed to cope with unexpected shifts more effectively.