Tax outsourcing transformation planning

Introduction

Phil Giuca, partner, Deloitte Tax LLP
Former Deloitte client

Several years ago, as head of tax for the asset management division of a large organization, I was faced with challenges that are familiar to most tax leaders. The operating model that had served our department well for many years was increasingly out of sync with more digitally enabled business operations, and our executive team was focused on how our processes and technology could be made more scalable and sustainable. At the same time, perennial pressures to contain costs and operate more efficiently were compounded by growing expectations for our tax team to contribute more strategic value to our organization.

Change was inevitable, and continuing to operate the same way wasn’t a viable long-term option, but figuring out where to start was daunting, particularly considering the risks. While we were open to the idea of revisiting our tax operating model, we didn’t want to upset the apple cart with thousands of filings and many stakeholders at stake, including tax authorities, investors, clients, our business team partners, our C-suite, and my tax team.

Our organization opted to outsource much of our tax function to Deloitte, solving some of my most intractable long-term challenges (particularly leveraging technology and providing training and attractive career paths for my team), all while achieving significant cost savings. However, these benefits were dependent on first carefully identifying and then effectively mitigating transition risks. I’m pleased to report success: Those thousands of filings are still completed in a timely manner (many earlier than before), accurately, and with the same high level of quality achieved under the previous operating model, and the tax function now has the bandwidth to contribute more substantively to business strategy.

My experiences leading a major tax outsourcing transformation as a Deloitte client and the experiences of my Deloitte colleagues can be instructive for tax organizations looking to understand transition risks and specific mitigation strategies.

Tax outsourcing and other operating model transformations: One size does not fit all

While COVID-19 has accelerated the trend, tax organizations of all sizes were already considering or actively engaged in adapting their existing operating models, according to Deloitte’s 2019 global tax management survey: 81 percent of respondents were operating some type of centralized global tax delivery model, and 34 percent were outsourcing to a third party. Tax organizations are adopting new operating models primarily to gain efficiencies and cost savings through digital automation and to shift the focus of tax professionals to a more strategic advisory role. Organizations today have many options for fulfilling tax responsibilities: Outsourcing full operations, co-sourcing or outsourcing specific tax services while keeping tax leaders within the organization, and a variety of insourcing models supplemented with consulting services, shared services, and process automation.

Understanding the potential transition risks and mitigation strategies for these different options is a crucial first step in making staffing and process changes to achieve your organization’s goals. The following are some key areas of focus and specific considerations for limiting types of transition risk. The steps and scale below will vary depending on various factors, including the size of your organization, the number of people involved, and the type of operating model selected.