There is a plethora of digital tools available to drive a modern data-forward tax transformation. So many, in fact, that it might be tempting to assume that selecting the platform to underline your tax department’s processes will be the easy step in any transition. That’s a dangerous assumption to make.
While expertise, planning, and corporate preparedness are undoubtedly essential ingredients, it’s crucial to the project’s success that as much thought and strategic foresight go into choosing the technology and data on which it will be built.
Unsurprisingly, digital tax platforms don’t all do the same things the same way. Some of the most sophisticated artificial intelligence technology is applied in packages, and their use of data—and the types of data they use—can vary greatly too. Others extract greater value from the data they process, mining metadata and other characteristics of the information to generate valuable insights that can better inform decision-making by the enterprise’s finance and treasury departments.
Wherever opportunities exist for tax departments to leverage technology, they should be taken. Transformation is not a one-off event. Global tax policies change continuously, and so does the technology that helps address them. It’s essential that conversations across the enterprise establish at the earliest point the long-term and ongoing aims of the transition and put in place the decision-making and infrastructural foundations from which those goals can be met.
Why Choosing the Right Digital Tax Tools Is Important
Corporate tax departments are expected to do more for their organisations than ever before. Boards are asking them to work strategically, not only to comply with tax regulations but also to make tax a supporting part of the company’s value proposition. Tax teams are also playing critical roles in other transformations, such as those being carried out in supply chain management and sustainability functions.
Regulators also expect more. For instance, the Organisation for Economic Cooperation and Development’s Base Erosion and Profit Shifting (BEPS) initiative has required tax departments to increase their due diligence work to prevent international tax avoidance. Their work on this isn’t finished yet—the measure isn’t fully implemented six years after its introduction and even more guidelines are to be introduced to the 140 nations that adopted the initiative.
While technology is helping organisations make that operational shift, many companies haven’t yet optimised their IT infrastructure to help drive a data-led evolution. Many enterprise resource planning (ERP) packages do in theory have the functionality to handle a range of tax use cases, particularly the indirect tax obligations of the European Union. However, their operational potential depends largely on the initial design and of course the specific data available, which may have been decided without the tax function’s input. Even if the tax team did provide some input, it’s still highly likely that there will be material gaps between their requirements and the ERP’s ability to meet them in the short and longer term as tax authority requirements continue to evolve.
ERP change or upgrade projects can represent unique opportunities for the tax function to provide value to the business, aligning with the organisation’s finance, IT, and market-facing departments, but only if the tax team knows what it wants to achieve and is confident enough to make itself heard in the early stages. This is often easier said than done, especially given that tax and IT professionals typically speak “different languages,” where ongoing, careful translation is often required.
That said, ERP systems are not the only places where tax functionality can be built. Whether within ERPs, other technologies already elsewhere in the organisation, or by bringing in new solutions, there are many options open to the tax function to take ownership of its future. The key is to work closely with IT and other change teams to find the “path of least resistance” to enable the tax department to get what it wants whilst also maximising value for the wider organisation.
Properly managed tax data can help departments harness analytical tools that generate insights, both predictive and real-time. This allows them to instruct new strategies, identify sources of value in the data, highlight tax risks (especially useful for multinational corporations), and prevent or fix errors.
Such is the ability of data-led transitions to accelerate the time to execution of new processes, like payments and other transactions, and shorten the time to market for new products, that tax tech has become a must-have instead of a nice-to-have. Without it, companies can find themselves at a comparative disadvantage to their competitors.
Importantly, ERP update or upgrade projects represent a unique opportunity for tax to benefit using a budget that isn’t theirs. If tax is unified and compelling in its message to the teams affected, gets involved early, and talks in their language about exactly what’s needed, they can drive change without having to draw from their often-constrained budget.
Where to Start in Selecting the Right Technology
To begin a transformation journey, decision makers should answer some important questions. It’s important at the outset to identify what problem will be solved through the application of technology because there are different solutions to relieve different pain points. This early-stage examination should also include an identification of the key performance indicators that will need to be tracked to help the organisation keep its transition on course.
An assessment of the organisation’s existing tech stack would also be crucial. That’s not because it may be lacking an important component; it may also contain functionality that can be of use but is currently under-utilised. Data analytics software licences are a common example of assets that are far more useful than is often recognised.
Start by analysing what technology the organisation already has. It could be that the solution needed is already being used elsewhere and that a simple upgrade or licence change is all that’s needed to bring it into the tax team’s armoury. This will make the project more cost-effective.
Technology is nothing without good quality data and so an audit of tax and enterprise data would be in order, ensuring it’s properly mastered and cleaned and suitable governance rules are in place to enable the extraction of greater value from it.
Engagement with the IT department will be essential in establishing how this can be achieved and what products will be needed. It’s likely to require an examination of data warehousing, automation, visualisation, and other strategies that can help outline opportunities for tax departments and identify where there may be limitations to their use.
Finally, compliance teams ought to identify the governmental obligations of each department in the jurisdictions that the firm serves. Regulators are digitising too, probably faster than most corporations. In the UK, for instance, HM Revenue and Customs (HMRC) has launched a Making Tax Digital (MTD) programme that envisages all reports to be submitted electronically. It makes sense to keep up with them to avoid logjams and errors in tax reporting processes or having to re-do tasks again too soon into the future, thereby wasting resources.
The Right Technology for You
Having assessed the operational needs for a tax function technology stack, the next step is to choose which package to use. Accounting platforms can go so far in satisfying tax processing needs but as the demands placed on firms increase and become ever more complex, more specialised technology will be needed. It also may be sensible to invest in several solutions, depending on the business needs; if chosen wisely, the overall adoption cost of multiple solutions may be less than investing in a single product that doesn’t suit those requirements.
Compliance platforms help with the nuts and bolts of submitting VAT and other tax returns. On-premises or in the cloud, they offer automated workflows that enable organisations to gather and compile necessary data, then package it into a report that can be easily transferred to the tax authorities. The HMRC’s MTD portal offers an exhaustive list of such products.
Analytics packages perform a multitude of functions to ensure an organisation’s tax data is correct and used properly. As well as cleaning and mastering the data, analytics can identify errors and flag potential problems or omissions in tax reports and disclosures. They can also harness artificial intelligence (AI) and machine learning (ML) to predict where errors are likely to occur and provide solutions to fixing them in advance. Further, they can track their own success rate, measuring how much savings in costs and resources have been made.
Robotic process automation platforms can also deploy AI and ML. They provide consistent operational efficiencies, workflow management solutions, and data quality improvements by establishing rules-based workflows that can carry out functions at speed.
Enterprise performance management software measures the effectiveness of operations and provides performance metrics. The data it generates can be fed back into the system to inform financial planning processes, budgeting, and other forward-looking objectives. For tax departments, they can be deployed in tax reporting, transfer pricing, and many other functions.
What Should You Choose?
Leveraging technology across enterprises is fast becoming a foundational requirement for tax departments, not merely a differentiator. All organisations will eventually digitalise, and failing to join them is not an option. Doing so will put your organisation at a competitive disadvantage.
No single solution will fit all the needs of every company, so a careful examination of what challenges need solving should be undertaken. Often, the right answer is a combination of several tools and technologies, so it’s important for the tax team to not only know what it wants to achieve, but also understand its priorities from a functional perspective. It ensures it is armed for open discussions on the various technical options to meet them and can appear flexible and proactive to the wider business.
To secure budgetary support for the solutions chosen, tax leaders must build a business case for change, identifying how the solutions not only add value to future-proof the tax function but how they also benefit other departments within the organisation. Once budgets have been secured, a change management programme is crucial to ensure all parts of the organisation, especially tax and finance departments, are aware of what will be expected of them as the new software is implemented.
Adopting new digital tax tools can be a very detailed process that requires significant technical expertise and transformation experience. This may be beyond the capabilities or confidence of many organisations, which means third-party help is necessary to frame the conversation and move the project forward. An external tax partner can assess a company’s current state and advise on the best technologies to use to achieve its specific transformation goals.