How technology can help tax and finance drive business transformation

Tax is ultimately based on financial information. Companies pay tax based on critical data that has a financial foundation – whether that’s profit, or the value of a transaction.

To achieve maximum impact with technologies such as data analytics, machine learning, artificial intelligence and intelligent automation, that data needs to be liberated and democratized, so it can be accessed and leveraged at all levels, including the end user within the tax function.

These days, organizations can no longer afford to tolerate a siloed approach to data.

“Given the volume of data requirements for tax, in terms of process efficiency, a single source of truth is now a must,” says Lee. “It’s also a must in terms of data integrity, supporting audits and enquiries. More and more, we see tax authorities around the world auditing by looking into the source systems, as opposed to doing a desk audit, so companies don't get the chance to re-present their information back to the tax office.”

To leverage data to the maximum extent, and to create this single source of truth, organizations should consider investing in IT architecture, such as data fabric, and next-generation ERP systems, including SAP S/4HANA. 

For tax teams unable to participate in ERP transformation, perhaps because such a process has recently been completed, another alternative is to harness EPM systems, which consolidate data from different source systems and are typically used for group financial reporting, planning, budgeting and forecasting. EPMs are a good option for tax functions as they consolidate information from different sources.

Other emerging technologies may be worthy of consideration too. Take blockchain, which has the power to further disintermediate and decentralize data exchanges, ensuring that value and information changes hands at the fastest speeds possible. The added power of blockchain is that it can be used much more broadly to help with the veracity of data throughout the supply chain, to help process and track customs and duties and other linked payments.

According to the EY 2022 Global Tax Technology and Transformation Survey, 84% of respondents agree that the tax function is seen as a strategic business partner by the organization’s owners, board and C-suite. At the same time, technology is enabling businesses to treat data as a strategic asset. In this environment, tax and finance, which historically have had so much data at their fingertips, can truly embrace this strategic role, adopting a more prominent position and providing a wealth of data and valuable insights into the business, at speed.

“The biggest thing is going to be for tax to communicate with finance, so they understand each other,” says Campbell. “We’ve held workshops with tax and finance sitting in the same room and talking about the issues for the first time. I’ve seen a lot of eureka moments there.

“In one specific example, the finance team said they’d never understood what tax was doing with the data they were requesting. When the tax team talked about what they needed, finance realized there was actually another report they could give tax, that would be exactly what they were looking for. Tax had been taking five different reports and consolidating them; finance was talking about a single source of data that they’d had the whole time.”

The prospect of a cross-functional ERP transformation may seem daunting, in its potential complexity and cost. If so, using an outside advisor may be an efficient and cost-effective way to absorb the unavoidable burden in terms of resourcing and skills, rather than pulling a full-time tax professional off the team and needing to cover their work for the duration of the process. 

An external advisor may also offer invaluable help advising on leading practice, and how to benchmark against peers.

“Unless the tax function has someone who has been through several ERP finance transformations in the past, it’s going to be very hard to implement best practice and be able to identify where some of the risks and challenges are,” says Campbell. “Getting outside support gives you the ability to temporarily add people who have the experience of going through similar transformations, potentially in the same industry, to provide input on leading practice and benchmarking, and how to advocate for tax in the appropriate way.”

With the increasing integration of tax and finance activities, the continued infusion of technology, and the difficulty tax departments are now facing in finding new recruits to meet the escalating workload, there will be a significant focus on ensuring companies have the right talent and skill sets, both to enable the change and to extract the full potential benefit.

In tax alone, 95% of the companies surveyed expect that their tax personnel will need to augment their tax technical capabilities with data, process and technology skills in the next three years. This is no simple task. 

“It’s unreasonable to expect the whole tax profession, which already has a very technical job, to become experts at technology overnight,” says Lee. “We're going to have to consider people that have a broader background, which could be finance IT, or all IT people. But pure IT people also don't necessarily fit the bill either. I've encountered many IT people who find it difficult to deal with the nuances of tax.”

Some degree of the tech burden will be offset by the fact that technology is being democratized. Tax professionals can take advantage of the fact that AI and other cutting-edge technologies are being embedded invisibly in the tools they are expected to use, so they don’t need to be a deep technologist to flourish in the role.

But that can only go so far. Again, there is potential scope for outsourcing to, or co-sourcing with, a managed service provider, who can shoulder some of the resource burden and introduce the necessary expertise into the tax function.

“Tax and IT each require completely different training,” says Lee. “It’s like telling a doctor you want them to go and be an engineer. There are some physics and chemistry involved with both professions, but they're fundamentally different, so it will take some retraining to crossover. One way to bridge those challenges is to work with external professionals.”

Campbell cites the example where EY leaders introduced a team of data professionals to handle the initial data ingestion, which allowed them to centralize the data, standardize the process, and identify where automation was possible. They could then let the tax professionals focus on doing what they did best.

“We put that data transformation work into the hands of professionals who are trained in data,” says Campbell. “And we're letting the tax team focus on the tax determinations, applying the tax law to that data. As opposed to expecting our tax professionals to be the data transformation expert too.”

Another key takeaway here is that, while the focus is on data automation, skilled people still have a critical role to play in the process. It’s a case of tax professionals working together with the machines, rather than engaging in a race against them. In any finance and tax transformation, people should remain at the center.

“You need people to execute on the strategy, to create the transformation plan and the systems, and then to operate it,” says Lee. “It still requires judgment. And it still requires exception management. That’s why human resources will play a significant role in all of these transformation projects.”

With enterprise-wide transformation high on the C-suite agenda, CFOs are eager for both tax and finance to reinvent themselves too. They want their tax and finance functions to analyze their operating model, and increase efficiencies, do more with less, and manage the analytics and value coming out of their common data sets. Budget-wise, they know that to meet these priorities, they need to invest in innovation and technology.

EY teams’ latest research points to a much tighter coupling between tax and finance in this transformation process, where historically they may have been more discrete.

Finance and tax functions are well advised to embed agility and sustainability into their operating models. Here are some key steps to achieve that:

• The first task is to assess your current state against potential future impacts and run a gap analysis. A key part of this involves functions sitting together and making sure that finance understands exactly what tax needs and why.
• The changing regulatory environment means extra work, which necessitates using more powerful technology. Tax professionals with the necessary skills are required, not just to handle the volume, but to manage the heavy data requirements alongside cutting-edge automated tools.
• Identify which operating model best supports the desired strategy. This could be outsourcing, hybrid/co-sourcing, or in-house function re-design.
• Leveraging your enterprise systems, thus building a common, standardized data framework, the resulting ecosystem (which EY teams refers to as the intelligent tax and finance function) will allow ERP, EPM and other source systems to underpin the entire finance and tax record-to-report process.
• Build the ecosystem incrementally. It should start with leveraging the existing enterprise technology stack and build your data models to support your use cases. Together it will enable continuous improvement and help drive long-term value for the enterprise.