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Embracing the tax function of the future

Digital transformation and tax reform: Time for a new tax operating model?

How can tax and finance leaders deal with the complexity caused by the Tax Cuts and Jobs Act of 2017 and their own organizations’ demands for higher performance? Understanding the role of technology, talent, and processes in the tax function of the future is key to exploring new tax operating models.

Evolution in a landscape of unrelenting change

The Tax Cuts and Jobs Act of 2017 capped off two years of sweeping changes in the global tax landscape, starting with the release of Base Erosion and Profit Shifting (BEPS) guidance, which called for greater international cooperation and information sharing. Businesses are confronting the possibility of greater scrutiny and more tax audits—even as they continue to sort through the effects of US and global tax reform on their financial reporting.

At the same time, internal pressures to operate more efficiently and contribute strategically continue to grow. And digital disruption is finding its way to the tax department.

This new tax reality has CFOs and tax directors discussing what the tax function of the future should look like and how to run the tax function in an increasingly complex environment. Reimagining the tax operating model has implications for the way tax works, the resources it needs, and how it must evolve in the face of unrelenting change.

To unpack these implications, it is first necessary to understand the role that technology, talent, and processes play in capturing a potentially historic opportunity for change.

Leveraging technology

As different parts of the organization adopt new technologies, more tax departments find themselves under a mandate to do the same. In the vanguard are robotic process automation, cognitive computing, and big data.

These disruptive technology trends are accessible across the enterprise, giving businesses the ability to carry out their own analyses using platforms they subscribe to online and automate small and meticulous human-to-machine interactions.

This kind of value is a welcome boost to tax departments under constant pressure to do more with less—and in less time. Technologies that offer a cost-effective, noninvasive way to eliminate error-prone manual processes are increasingly likely to get management's attention.

Altering the dimensions of work

For tax leaders, shifts in technology and talent create potential opportunities to consider the tax function of the future along three dimensions:

  • Work. In the future, people can work alongside automation, cognitive, and artificial intelligence technologies—with technology picking up the bulk of manual and repetitive work.
  • Workforce. The tax function of the future can assemble a portfolio of human and machine labor. The labor can be full-time, contingent, or even crowdsourced.
  • Workplace. As technology enables collaboration, integration, and line of sight among geographically dispersed teams, tax leaders can identify how and where people come together to create value.

As work becomes more automated, and the workforce more diverse, physical proximity will become less important than the ability to bring in the right people for the right job at the right time.

Read more on this topic in International Tax Review.

Changing established processes

How do these technology and talent changes break down at the process level? Today, tax teams are often impeded by:

  • Sequential processes. Consider that analytics may not happen until after year-end when the books are closed and the tax returns are done. Staffing levels are similarly rigid. However, digitization enables both processes and labor to flex as needed, allowing tax to respond to business needs as they occur.
  • Lack of standardization. Tax teams often deal with different business units, regulatory jurisdictions, systems, and processes. This creates redundancy, forces manual workarounds, and gives rise to errors around compliance and reporting. However, emerging technologies can bring automation and control with a minimum of disruption.
  • Workpapers. Tax professionals must often gather data and manipulate it so that it can fit into forms, potentially wasting time and duplicating effort with each iteration. Digital enhancement can allow preparers and reviewers to work directly with the raw data, efficiently searching out the information they need and reconciling it only once.

From tax reform to tax reality
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Rethinking resourcing for the tax function of the future

Given these and other opportunities for improvement, some companies are taking a fresh look at their resourcing models. Historically, tax departments have carried out their responsibilities with little to no help from technology, automation, or third parties. However, concerns about the traditional tax operating model’s sustainability are prompting organizations to consider the following alternatives:

  • Insourcing. Firms carry out production work via a mix of staff, company-operated shared service centers, tax technologies, and process automation. This model can be highly effective when paired with smart decisions about headcount reductions or functional reorganizations, process improvements, and tax technology enhancements.
  • Outsourcing. This model has a similar structure, but sources the production work from a third-party service provider with the economies of scale to achieve significant process automation and provide specialized staffing. Shared services and tax technologies can remain in-house or not.
  • Operate. In this emerging approach, the organization turns over all, or nearly all, of its tax function for a third party to operate. This may involve the deployment of an integrated technology platform as well as the talent transfer of corporate personnel to the third-party service provider.

What’s the major takeaway? Companies have a number of alternatives for evolving their tax processes. Regardless of which tax operating model along the continuum is selected, the most suitable one is the one that aligns with the culture and demands of the organization.

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Mapping the way forward

CFOs and tax leaders can use these seven considerations to help bring the tax function of the future to fruition:

  1. Defining a tax department vision
  2. Understanding perspectives and expectations
  3. Assessing effectiveness
  4. Prioritizing opportunities
  5. Developing initiatives and mobilizing
  6. Confirming the department’s commitment
  7. Securing buy-in and funding

Each step builds on the ones before it. Skipping one can undercut the effectiveness of a transformation effort. And each step that is completed can make the next one easier to carry out.

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More than 1,200 respondents participated in poll questions during a July 24, 2018 Deloitte Dbriefs webcast titled, “Digital transformation and tax reform: Time for a new operating model?” They shared perspectives on challenges they are facing and changes they are exploring.

Let the modernizing begin

There is no single formula for building the tax function of the future, and many models can be effective, depending on the needs of the organization. But they should be the product of careful consideration around the role of technology, the dimensions of work, and the process of achieving compliance.

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