Is your tax function resilient now and fit for the future?

Three key trends currently impact the tax function globally. Firstly, tax is no longer the last link of the financial supply chain and has a significant impact across the entire organization. Secondly, the ongoing shift to digital, which has been accelerated by the COVID-19 pandemic, has also made a huge impact on the way tax professionals operate. Finally, upcoming changes to tax regulations globally — whether in the form of base erosion and profit shifting (BEPS) 2.0 or other tax reforms — will result in higher tax risks. This will, in turn, lead to a greater focus on tax risk management, not just at the local country level, but also globally across each area of operation.

Businesses appear to be aware of the challenges posed by these trends and are prepared to invest in addressing them. The 2020 EY Tax and Finance Operate survey showed that an overwhelming 99% of 1,013 respondents plan to make changes to their tax operating model. And 88% of them say they plan to spend at least US$5 million toward this effort. This reflects the urgency of companies — especially multinational corporations — to reimagine and transform the tax function. 

From mere compliance to strategic business partner

How does the tax function need to change? Tax can no longer be seen as merely about reporting obligations and needs to be embedded within the whole enterprise. The function is no longer just about compliance and filing tax returns, but also playing a crucial role in both the day-to-day operations and long-term strategy of the organization.

This change is critical. As Rihanna Haryanti M. Ramli, Head of Group Tax at global energy group PETRONAS, who spoke at the EY Asean Tax Forum in August, shared, the changing legislative and regulatory environment is compelling companies to relook their entire operating model and how the tax function is structured from a governance standpoint, among other things. This involves looking at things like how transfer pricing is formulated between related parties, types of indirect taxes that may be applicable as well as tracking the use of carbon-neutral materials to demonstrate environmental sustainability from a carbon credit perspective.

Rihanna also highlighted that tax is used to incentivize greater environmental compliance, a developing practice among energy companies. The tax function supports the organization’s efforts to be more ESG (environmental, social and governance) compliant by fostering transparency in the disclosure of tax contributions when conducting business in a particular area or country. 

Increased stakeholder scrutiny on risk management and governance is driving companies to regularly evaluate their tax decisions, especially when starting new businesses. The move toward greater global transparency on tax also requires organizations to put in place a proper governance risk management framework to deal with escalating complexities in a more consistent and thorough manner.

To build resilience in business decisions, tax considerations can no longer be confined to the tax department. Tax professionals need to find their voice, simplify their message and communicate better to help the C-suite and board of directors understand the implications of tax changes for their decisions in business strategies, plans and operations.