Building a strong business case for tax technology adoption

Jun Miyake, Principal, Technology and Transformation

When a company’s tax function is valued and well-supported by company leadership, it can contribute strategic benefits and a significant return on investment. The adoption of tax technology can assist in streamlining and restructuring tax processes, freeing up time by automating manual day-to-day tasks like bookkeeping and financial reporting. Few can dispute the growing importance of tax technology, as stakeholders want tasks to be completed faster, better, and more accurately — especially when it comes to financial data.   

While the benefits are clear, one challenge for tax departments is often communicating internally how investing in tax technology can benefit the business’s overall operations. If you are unsuccessful in securing investment, your tax function runs the risk of almost exclusively focussing on compliance, lamenting missed opportunities to make significant contributions to the long-term profitability and strategic direction of the company.

How can you convince your leadership team that adopting tax technology is worth the money? Here are three tips to keep in mind.

1. Build a strong business case

Your starting point should be the company’s overall business objectives. You need to be able to demonstrate the benefits to the entire organisation, not just the tax department. The demand from stakeholders to have fast, timely, and accurate data means pressure is mounting on tax teams. Traditional practices would have struggled to address this challenge in the past, but companies have been able to succeed with the help of tax technologies.

The tax function’s objectives should also be part of the pitch. A needs analysis can determine where technology can best boost performance and identify ways to reduce time and effort spent on low-value functions. Tax leaders should create a specific list of what they want to achieve through technology – this could include those priorities that are continually pushed down their to-do list because there isn’t enough time to get to them.

Senior leadership tends to listen to numbers. Fortunately for the finance profession, this is something that comes somewhat naturally. When building your business case, make sure the return on investment (ROI) can be evidenced. As the tax department shifts from a compliance function to a tax centre of excellence looking for new opportunities, this ROI will come from finding efficiencies and effectiveness, optimising processes, and powering real-time collaboration. There will also be harder-to-quantify benefits, such as the eye-opening opportunities for strategic decision-making, that can come from tax data analysis. This is where qualitative examples can be useful – especially if it is based on a real-life scenario that happened in your company.  

In making their pitch for adopting tax technology, a tax team must communicate that they are advocating for the responsible choice, based on a complete analysis of all sides and potential outcomes. Key performance indicators (KPIs) need to be clearly defined. The specific impact on tax department team members needs to be described in detail as well as forecasts of future performance both with and without the tax partner’s involvement. One approach is to agree on a set of KPIs and work towards them during a trial period.

2. Make sure the benefits are clear

The tax function is often a victim of the context in which it operates, and today’s context is one of increasing complexity. In recent years, the tax landscape has seen a wave of regulatory changes, including Making Tax Digital (MTD) for VAT introduced in April 2022, with MTD for income tax and corporation tax set to be implemented in the coming years. This means that currently the wider finance function sees the tax team as reactive, rather than a proactive strategic unit capable of assisting with short, medium, and long-term business planning, which tax technology can assist firms with.  

Often technology is vital to tax teams and the structuring of data to generate automated tax calculations; however, this can also translate to the wider business. Firms must articulate that value-add work (focusing on the common “wins”) can help drive integration with the wider business. For example, when tax calculations are automated, it saves the business time and funds from potential inaccuracies and assists the firm with tax regulations compliance.

If tax departments are forced to spend too much time doing repetitive, manual work, they run the risk of losing highly qualified professionals who can become discouraged when they are blocked from achieving their potential. In today’s competitive recruitment environment, where tax departments across the globe are desperate to retain their best staff and struggle to attract new employees, this is a crucial factor to consider. By promoting more flexible work practices and utilising technology to support them, firms can attract and retain talent, even in the face of staff shortages.

For firms that strive to have a global presence, this entails adhering to a number of tax and regulatory bodies. The firms that do not employ modern tax technology and proceed with their legacy systems will find that difficulties and errors may occur resulting in over or underpayments in each region they operate in. This is because legacy systems often lack flexibility and agility that is vital in an ever-changing tax environment. Selecting an indirect tax solution to assist with VAT compliance across different regions allows firms to automatically calculate the right amount of tax and make the correct payments based on the specific area.

3. Be prepared for a challenge

The first pushback will likely be around budget. The majority of companies are looking for ways to scale back investment rather than increasing it. While it can be expensive in the short term, firms that choose not to adopt technology will face increased costs in the long term. With mounting regulatory changes, firms must find a solution to stay on top of compliance and avoid fines from tax authorities. Digital technology can provide the solution, delivering real-time accurate tax and financial data to ensure compliance with regulatory changes and reducing the possibility of errors.

A good starting point for businesses would be to look at any tax functionalities available within the existing technology they have adopted and ensure they are employing it in the most effective way.  As tax compliance is rarely the key function of the technology in question, any gaps in functionality will need to be addressed by the adoption of the right technology.

Another common challenge is changing people’s mindsets around technology adoption. Some organisations may feel as though they do not have the right teams or skills to implement new software. Others might just not want to – they have worked a certain way their entire career and it has worked for them so far. Trying to change a mindset can sometimes be more difficult than securing budget – but it is certainly possible. Education is key to this. Tax teams must aim to share their knowledge of how tax technology can transform the day-to-day running of the business with their leadership team and employees to gain their support and advocacy.

Ultimately, CFOs must make a choice. Do they want the business to stay as it is – compliance-focused, reactive, and ever more inward-looking, or do they want to be ahead of the curve with the assistance of tax technology? Through the drafting of a business case, the tax department has the opportunity to present the option of either persisting in the status quo or building a compelling case for change.