Tax teams around the world are facing a tax landscape that is growing dramatically more complex and competitive. New reporting and regulatory paradigms are emerging — including digital tax filing requirements, environmental, social and governance (ESG) reporting, and base erosion and profit shifting (BEPS) 2.0 initiatives introducing global minimum tax — all are driving change at unprecedented scale and pace. Meanwhile downward pressure on budgets and the ongoing race for talent are making a difficult situation even more challenging.
As the world emerges from the COVID-19 pandemic, these forces have triggered in the need for transformation, both finance transformations and the integration of finance and tax.
And so, we find the tax function at a point of inflection for change. Conventional operating models are no longer fit for purpose. Those who continue to cling to them risk falling foul of the fast-paced regulatory change, adding to already spiraling costs, and missing a golden opportunity to add value to the broader business – whether that’s guiding sourcing decisions with knowledge of duties and tariffs; influencing expansion strategy by highlighting available incentives; or even helping to fund large-scale transformations by optimizing tax credits available for doing so.
To meet this potential, tax must redouble its collaborative efforts with finance to digitally transform their operating models, and ensure they are sufficiently resilient and future-proofed to deal with disruption in the months and years ahead. Key pillars of this transformation will be to review processes and data, and to use technology to link together the tax and finance functions.
“Business operating decisions have long been based on financial information and reporting, but the trend we're now seeing is that tax can have a very large impact on business operating decisions too,” says Daren R Campbell, EY Americas Tax Technology and Transformation Leader. “But tax departments of today are like archeologists – in order to determine future tax implications, they look at transactions that happened sometime in the past. If tax strengthens the bond with finance, using tech to bring its work closer to real time, businesses can effectively factor tax in as part of the broader decision process.”
Indeed, there are huge opportunities to be gained from tax strengthening its bond with finance and positioning itself at the vanguard of transformation. If these departments can achieve greater alignment, they will not only keep pace with rapid change; they will succeed in becoming a transformative force within their organization, increasing its potential to thrive in an uncertain future.