finance technology


Crunch time 9: Tax in a digital world

Digital tax transformation and the role of finance

It’s common for Finance to have a front-row seat when big new initiatives are underway, including technology spending. But far too often, Tax gets involved after the fact, when the best they can do is make the most of a tough situation. Fortunately, that’s beginning to change. The reason is simple: New data modeling tools make it possible to deliver valuable tax insights about different financial scenarios—in real time. Which means business leaders get the benefits of those insights before they have to make their decisions. But before this can happen, Tax must modernize along with the rest of the enterprise.

Eavesdropping: A CFO & Tax leader discuss modernizing the tax function

He said. She said.

With the recent big changes in US tax laws and rates—and an explosion of new regulations elsewhere in the world—tax departments everywhere are scrambling to make sense of it all. As the upheaval continues, tax leaders and CFOs are beginning some interesting conversations about growing complexity and uncertainty related to global tax.

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We need to talk.

Whatever you think about Tax, one thing we know for certain is this: An unprecedented number of regulatory and tax policy changes are underway, both in the US and around the globe.

But government policy is just one area where complexity is increasing. The new digital economy is unleashing new competition and new business models, both of which can create significant tax planning opportunities. If the world is a chess board, tax considerations often influence the winning moves.

Many tax professionals tell us their companies are simply not set up for this new reality.

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So you’re telling me you’ll have to hire?

With 50 percent fewer tax accounting graduates and a big chunk of the tax workforce nearing retirement, there aren’t nearly enough experienced tax people in the market today. Add in hundreds of tax jurisdictions, each with unique rules and regulations, and complexity goes through the roof. Bottom line? Companies need machines, cognitive tools, bots, and other technology solutions (or service providers deploying those solutions) to do more of their work. And that requires investment.

It’s ironic that businesses plow millions into upgrading their ERP systems, but when it comes to Tax, not a lot changes. Many tax departments have all but missed out on technology modernization.

We find that tax departments typically spend less than half the time on data analysis than they spend on data gathering and data prep. That’s problematic. Fortunately, the opportunities for improvement are real, and companies are beginning to embrace them.

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What do you mean by modernize?

Modernized Tax creates a different mindset, moving from being mostly a compliance function to a high-value planning and reporting function.

For example, consider the international tax provisions of the Tax Cuts and Jobs Act. Given the complexity of these new rules, in most cases the modeling required for effective tax planning simply can’t happen without automation and advanced analytics.

If your company’s leadership hasn’t embraced tax modernization, there’s a good chance you’re leaving real value on the table.

A lot of what’s required for tax modernization happens in ERP implementations, but not everything. You still have to integrate with other technologies like business intelligence and visualization software to see the “art of the possible.”

So what’s your plan?

If you’ve ever worked through finance transformation, you understand there’s no such thing as finished. Between new regulations and new markets, the people, processes, and technologies needed to run Finance effectively are always evolving. That’s true for Tax, too. Figuring out how to stay ahead—without spending too much—is the name of the game.

A lot of what’s required for tax modernization happens in ERP implementations, but not everything. You still have to integrate with other technologies like business intelligence and visualization software to see the “art of the possible.”

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You didn’t answer my question about cost.

The business case for tax modernization is easy to make for almost any global enterprise. Done right, tax modernization enables better management of the global effective tax rate. And with automation, you may be able to more effectively apply for tax rebates and reduce cash leakage, such as VAT overpayments.

But tax modernization is also about risk management. In the face of growing complexity, tax teams need a way to efficiently grind through the data and scenarios required for effective tax planning and reporting. Without modernization, you’ll be challenged to keep up with the onslaught of new demands–and have little chance of getting ahead of the curve.

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What’s the risk if we don’t invest?

The number of new regulations companies have to comply with is truly mind-boggling. It’s impossible for anyone to have a handle on all the issue—so risks can multiply.

Another risk involves talent. The pool of available tax talent is shrinking, with companies finding it harder to keep the best people onboard. New recruits are looking for companies with modernized tax operations. Make sure yours is one of them.

No business can prepare completely for the uncertain future, but it’s possible to get ready for the most likely scenarios. More automation. More use of cognitive tools. More artificial intelligence. More advanced algorithms for scenario modeling. These are all part of tax modernization.

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It’s crunch time.

Tax reform in the US has lowered the corporate statutory tax rate. On the global stage, tax legislation is increasing, along with calls for more reporting transparency and regulation. This means more tax reforms, more complexity, and potentially more change for your tax function.

By taking a fresh look at new technology capabilities and related operating models, CFOs may find that they can have it all: A high-performing, efficient tax department that’s tightly integrated with Finance and the rest of the organization.

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Explore other "Crunch time" reports and case studies

Explore other reports and guides in our Finance in a Digital WorldTM "Crunch time" series, and read case studies about digital transformation in the finance function. Whatever your interest, one thing is clear: From cloud computing and robotics to analytics, cognitive technologies, and blockchain, a new class of digital disruptors is transforming how the work of Finance gets done.

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