How tax and finance functions are transforming – and why – International Tax Review

B

Organisations are transforming. This is not necessarily a need or want any more, but a must. The global landscape has arguably never been more challenging, with external factors creating a multitude of pressures that have pushed businesses to re-examine their operating models across the enterprise, including the tax and finance functions.
The 2022 EY Tax and Finance Operations Survey (the ‘TFO survey’, available here) – which consulted 1,650 executives in more than 40 jurisdictions and a dozen industries, including Asia-Pacific – found that organiations are having to find a balance between driving value, managing risk, and reducing cost. Yet they are attempting this even as they face challenges in retaining and transforming their talent, keeping up with legislative and regulatory change, and future-proofing their technology and data.
Businesses have been dealing for years with a number of pressures, including:
Those relating to the supply chain;
Rapid tax legislation and regulatory change, such as global tax reform; and
Shifting workforce dynamics.
On the latter point alone, changes to working practices and concerns about personal safety have played a role for many workers around the world, who are reassessing their priorities and contributing to a phenomenon of people leaving and changing jobs at unprecedented levels that has been dubbed ‘The Great Resignation’ and ‘The Great Reshuffle’.
Amid all this, environmental, social, and governance (ESG) issues have been rapidly rising up the corporate agenda, creating a new dynamic for organisations around how they operate, how they recruit and retain talent, and how they appeal to customers.
“Even before COVID-19, businesses knew they needed to change the way they operated to succeed in a rapidly evolving environment,” explains Carmine Di Sibio, the EY global chairman and CEO. “The pandemic brought new urgency to making change, while underscoring the need for any transformation to put them on a path to build long-term value for all stakeholders.”
The headline findings of the TFO survey clearly support this assertion that businesses are actively transforming, with 84% of respondents changing their tax and finance operating models, citing a range of priorities such as automation, the use of shared service centres, and co-sourcing through managed services.
This transformation is having a direct impact on where budgets are being spent. The TFO survey shows that 95% of companies plan to reallocate some of their tax and finance budget away from routine activities (such as tax compliance) to strategic activities (such as tax policy, planning, and controversy).
Central to tax leaders’ increased focus on change is the effective allocation of resources. As such, 81% of respondents are more likely than not to co-source tax and finance activities through the use of managed services. Many also need to make simultaneous investments in strategic internal activities, such as planning, controversy, and data management.
As organisations create that laser focus on the tax and finance functions, many are realising that there is a real balancing act when it comes to achieving business objectives while dealing with a distinct set of obstacles.
How do organisations attract the best people, ensure they reach their full potential, enhance their career path, and retain them long enough so they contribute to the long-term value of the organisation?
How do businesses succeed in countries where the tax laws seem to constantly change?
How do they implement and develop a data and technology plan in the face of constant change?
How do they deal with growth and expansion outside their home country headquarters?
Additionally, the TFO survey finds tax and finance functions are playing a bigger role in helping their organisations to address ESG objectives. Respondents identified environmental and climate risks and impacts as the most important ESG issue facing their organisation in the next two years, and 95% say they are, or are considering, co-sourcing ESG reporting activities with a managed services partner.
Separately, tax and finance functions are stepping up to help their organisations to satisfy more public demands for transparency in tax reporting. All TFO survey respondents say they have increased attention on making voluntary disclosures about their organisations’ tax activities, which range from their governance framework to a variety of tax payments made to governments. Having the right people in command of data is critical to delivering these types of insights.
For many, cost is an additional pressure that complicates solving the many challenges tax and finance functions face – tax and finance functions are constantly being challenged to do more with less. Indeed, 87% of all companies consulted in the TFO survey plan to reduce the cost of the tax and finance function in the next two years.
This only serves to highlight the difficult journey ahead for many tax and finance functions and the importance of designing an effective transformation roadmap from the outset.
As indicated above, many businesses are considering, or are already, transforming their operating models to strike the critical balance between routine activities and more complex contributions to the broader business objectives.
With costs as a key area of focus, it is perhaps unsurprising that tax and finance budgets are being shifted from routine to strategic activities. And considering recent, significant changes to global tax policy, such as the agreement to introduce new global minimum tax rules, this would appear to make sense.
This strategic focus on the allocation of resources will help organisations to not only keep pace with the current state of play, but also plan for inevitable future regulatory change.
This means that businesses that shift budgets away from routine activities, such as tax compliance, will need to ensure that spend is reallocated effectively.
Furthermore, the importance of having advanced technology cannot be understated. 70% of respondents say they intend to invest $2 million or more over the next three years in this area.
In addition to technology, all business functions, including tax and finance departments, are facing difficulties in attracting and retaining the right talent. Workers are increasingly demanding more flexibility in a variety of forms: flexible working arrangements, secondment opportunities, a greater emphasis on wellbeing, and heightened expectations around professional development and advancement.
Companies have also been under increasing pressure to align their values and ESG policies with employees’ values as workers assess not only where and how they work but also why they work.
Coincidently, people with the right combination of specialised tax technical and data, process, and technology skills are in short supply; 95% of respondents believe their tax and finance personnel need to augment their tax technical skills with data, process, and technology skills.
And, just as workers with specialised skill sets are hard to find in some industries facing labour shortages, these types of modern tax and finance professionals can be hard to find and hire.
In many cases, it is easier to work with a managed services provider that invests heavily in developing its own tax and finance professionals who are also knowledgeable in leveraging data to meet obligations and bring insights to the broader enterprise.
Legislation and regulation underwent seismic change during the pandemic. Governments have passed more than $33.6 trillion in support and stimulus programmes, the equivalent of 39% of global gross domestic product (GDP) according to the International Monetary Fund (IMF). In many cases, that relief took the form of tax measures, many of them temporary.
As the world emerges from the pandemic, tax and finance functions have to contend with an unwinding of temporary policies, a return to a longer-term view, and tax reform that was already gaining speed pre-COVID-19.
“Governments are focused on their fiscal stability and will likely seek to recover what was spent on the pandemic,” says Eng Ping Yeo, the EY Asia-Pacific tax leader. “This means the already rapid pace of legislative and regulatory change might accelerate. Businesses also have to contend with more tax law enforcement activity, which will place additional pressures on resources.”
The most significant policy developments have been prompted by the Organisation for Economic Co-operation and Development’s (OECD’s) project on addressing the tax challenges relating to the globalisation and digitalisation of the economy, including the agreement in October 2021 on new global minimum tax rules at a rate of at least 15%.
According to the TFO survey, 59% of respondents believe that complying with emerging digital tax filing requirements will increase the cost of running the tax and finance functions.
The cost of compliance will be considerable as well – with 83% of all companies expecting to spend at least $5 million, at an average of $11.1 million, to comply with emerging digital tax filing requirements over the next five years.
Access to up-to-date data and technology is key to achieving transparency in today’s fast-changing global tax landscape. This became painfully clear to many organisations during the pandemic as tax and finance teams, many of which were separated from their workplace files, struggled to meet basic compliance obligations such as filing tax returns and dealing with audit activity with tax authorities.
Tax and finance functions can also bring more value to the entire enterprise when they have advanced technology and data at their disposal because they are able to better project the tax implications of broader business decisions, ranging from acquisitions and dispositions to the impact of tax law changes.
The C-suite has recognised the significant role that technology plays and how the tax and finance functions can be real value-adding partners to the business. 37% of respondents (including 41% of chief financial officers) to the TFO survey believe a lack of a sustainable plan for data and technology is the biggest barrier to achieving their tax and finance function’s vision. This shows that there is plenty of transformational work to be done.
Technology can be a significant expense for a tax team budget. On average, the TFO survey respondents say they will spend $4 million in tax technology over the next three years. Meanwhile, a large number of businesses are looking to reduce costs and are struggling to build the necessary technological capability in-house. Therefore, it is not surprising that 56% have prioritised working with a managed services provider that has significant capabilities in data, technology, and shared service centre delivery.
Transformation gives tax and finance leaders the power to shape strategy, innovate, and have a greater impact on the business. It can transform tax from a compliance, business-as-usual function to one that helps the organisation’s leaders to understand the full picture of broader business decisions.
Transformation can take many forms. Some businesses may decide to address these challenges internally. Others may invest in a co-sourcing arrangement. Many will choose a hybrid model with elements of both. There is no one-size-fits-all approach. However, businesses must choose the right path forward.
The following steps can act as a guide to successful and robust transformation and how EY can help by leveraging the market-leading Tax and Finance Operate managed services practice.
Even if you have made transformational changes to your operating model, continuous assessments should be undertaken to stay up to date. Your priorities around cost controls, value creation, and risk management may change as you re-evaluate how the tax and finance function contributes to the overall business strategy.
Continuous assessment will help you to identify gaps in people and technology as you look to future-proof your operating model.
You may decide on in-house delivery of activities you consider higher value and best-in-class; for example, planning or managing tax controversy. To do this successfully, however, requires a degree of internal transformation to optimise existing people, data processes, and technology.
It may be more advantageous to co-source some activities, especially those that are more routine, such as the completion of tax returns, regulatory filings, and data collection. Highly repeatable, data-driven and rules-based tasks may be performed more efficiently via managed services with a third party.
You may decide that a hybrid approach works best – continuing to own some critical tax and finance processes and activities, while using managed services for others. The most effective hybrid approach can improve effectiveness and efficiency while empowering your people to become a value-added partner to the business by focusing on activities that improve the bottom line. Connecting in-house and managed services activities will provide greater value.
While an in-house approach enables you to develop and grow your own team, and improve control and flexibility, leveraging managed services with a third party can reduce overall tax and finance costs, control unpredictable IT expenses, and redirect internal resources to more strategic activities. It also enables organisations to leverage the managed services partner’s considerable investments in the necessary talent and technology to keep pace with an ever-changing world.
The views reflected in this article are the views of the author and do not necessarily reflect the views of the global EY organisation or its member firms.

source

🤞 Don’t miss these tips!

We don’t spam! Read more in our [link]privacy policy[/link]

close

Don’t miss these tips!

We don’t spam! Read our [link]privacy policy[/link] for more info.


    Leave a comment
    Your email address will not be published. Required fields are marked *

    This site uses Akismet to reduce spam. Learn how your comment data is processed.

    S
    Siddhi Rajput
    How to Activate Net Banking in HDFC Bank
    January 1, 2022
    Save
    How to Activate Net Banking in HDFC Bank
    H
    Hemant Malhotra
    ICICI Bank Personal Financing
    February 15, 2021
    Save
    ICICI Bank Personal Financing
    H
    Hemant Malhotra
    How to change Name in Indian bank Account?
    April 18, 2021
    Save
    How to change Name in Indian bank Account?
    Sponsored
    Sponsored Pix
    Subscribe to Our Newsletter

    Don’t miss these tips!

    We don’t spam! Read our [link]privacy policy[/link] for more info.