How to build an intelligent tax function

Our survey of 100 of the largest multinational companies finds that tax functions are investing heavily to close a data and technology gap.

Our 2020 Global Tax Technology and Transformation Survey assessed a tax landscape being disrupted by multiple megatrends. The pace of regulatory change, the digitalization of tax authorities, far-reaching technology advances and more are all redefining how tax functions must operate.

Among the varied perspectives we gain, there was one overarching conclusion: tax functions must close the data and technology gap as quickly as possible. The tax function of tomorrow must master data intelligence to become an intelligent tax function.

Tax authorities are disrupting the tax function

Tax authorities are driving technology changes that are increasingly impacting corporate taxpayers. These changes require companies to provide more information and perform more real-time digital filing. Firms also must increasingly use data analytics for risk profiling and auditing.

Tax functions dealing with these digital tax administrations (DTAs) are feeling the effects and taking action.

• Nearly all of the companies in our survey (98%) are organizing their response to digital tax administrations (DTAs) in a centralized and globally consistent manner.
• Companies dealing with DTAs are increasing their related technology outlays by 40% or more to deal with the new reality, despite overall budget constraints.
• Companies with global headquarters in countries with DTAs are 31% less confident in their monitoring of related requirements.

Focus on data sources and transaction-level information

Spreadsheets are often the symptom of multiple data sources and systems not being set up correctly for tax. Although the tax function cannot control the number of enterprise resource planning (ERP) systems, it can influence their design and governance. With tax becoming more real-time and transaction-based, tax functions should actively participate in the design and governance of financial systems to help achieve data quality via correct processing at the time of transaction.

• 93% of companies surveyed deal with multiple ERP systems.
• Companies with six or more ERPs spend at least six times more time on data collection, cleansing and manipulation.
  

• 45% of companies participate in ERP implementation regularly or full-time.
• Companies that participate in ERP implementation see average efficiency gains of 17%.

Improving data quality to provide tax insights

Because tax-sensitized data is required for all tax activities, the intelligent tax function thinks strategically about the tax data supply chain and employs artificial intelligence-driven data intelligence and insights to improve data quality, accuracy and efficiency.

The tax function should seek maximum leverage from the financial reporting technology – while also using specialized tax technology. But regardless of the technology, the simple truth is that no tool can analyze unavailable data – any more than humans can.

Once data is harnessed and managed, tax professionals can focus on using it to provide insights and add value. When using data to drive insights, detail becomes even more crucial.

• The majority of companies surveyed still spend 40-70% of their time on data cleansing.

• 40% of companies use a tax reporting package, consolidations ledger or disconnected spreadsheets as their primary source of tax data; the remainder use ERP systems or finance/tax data warehouses.
• Companies with multiple ERPs realize 40% efficiency gains when they build a tax data warehouse as their primary data source, which reduces collection, cleansing and manipulation time.
• 41% of companies do not use commercial tax accounting software; companies that do are 50% more efficient.
• Decades-old technology such as business intelligence (BI) tools have been adopted by 70% of companies surveyed, but newer end-user data-cleansing tools have already been adopted by 51%.

• 50% of companies struggle with basic analytical reporting, but 68% are striving to incorporate more advanced analytics into key activities.

New skills for the tax function

Today’s tax technology functions encompass very different tasks. From one organization to the next, this could include tax software maintenance, process change functions, tax data collection, data cleansing, report development, data warehouse functions and more.

The tax functions that will be most successful in the future are those that adapt to the way authorities are administering tax. In addition to having traditional technical tax and finance skills, tax functions also will need to have technology and data skills.

• Tax technology functions should act as interpreters between tax personnel and incoming data – confirming that data is fit for tax use.
• Activities such as tax software maintenance and tax data collection will evolve into intelligent data management and report development.
  

How can you transform into an intelligent tax function?

The path to an intelligent tax function begins with a strategic plan, one that maps a new way of working, and incorporates new skills and technology. It uses well-proven solutions to address persistent issues and leverages the potential of newer technologies to make a quantum leap in capability to be ready for tomorrow.