by Jon Dobell, EY Global Compliance and Reporting Leader
The public debate over corporate taxation is often emotive, and newspaper readers might presume that corporate tax functions are not doing the right things, but for a majority of corporations that could not be further from the truth.
Corporate tax functions are performing better than ever at keeping organizations compliant globally, despite shrinking budgets and an increasingly complex legislative environment. The key to this success is “connecting,” around a space that we have identified as “Connected Tax.”
Organizations are connecting around their technology and data, with leading companies boosting investment in tax technology and data science talent with the goal of building a solid infrastructure of valuable data assets. Taken from the organization’s many incompatible legacy systems, data is being scrutinized, cleansed, rearranged and combined to create a foundation for better performance, not only in the tax and finance functions but throughout the organization’s broader business activities.
Tax functions have also been connecting with the finance function and with other stakeholders in the broader business whose combined experience can proactively drive better outcomes in the company’s key business activities and position tax and finance as strategic boardroom business partners.
We see four principal areas where tax and finance executives can have this tangible, positive impact as part of Connected Tax.
Cost reduction — tax savings through business processes
According to a recent EY survey, more than 90% of companies have active cost-reduction programs in place.
As finance, tax, legal and human resources functions are cutting costs increasingly often, we see an opportunity for the tax and finance functions to play a bigger role in several business processes that already have tax “events” embedded in them: corporate finance; sourcing and procurement; property acquisition, construction and management; and research, design and development.
In each of those areas, what enables tax and finance to play a more constructive role is the foundation of clean data from across the business, which facilitates enhanced data analytics, yielding the insights and efficiencies that can provide cost reduction.
Given the rapid pace of M&A activity in the market, the C-suite is naturally more interested in how tax affects any major acquisition or sale. We see an opportunity for tax and finance functions to be more embedded from the early days of considering a transaction through to successful post-implementation integration.
Post-deal knowledge sharing is critical, and detailed tax and finance knowledge acquired during the transaction helps to enable better strategies for Day One readiness and ongoing post-deal tax integration and planning.
Compliance is another post-deal challenge as the organization integrates systems and processes. Robust tax and finance participation will assure that regulatory registration and reporting obligations are met early, and that the tax function is truly connected to the organization’s M&A agenda.
Business transformation dominates the C-suite agenda, both as a mandate for staying viable and as a way to capture the opportunities presented by industry convergence. Three key elements are:
- Digital transformation — “future-proofing” a company’s business so it will be fit for a digital world
- Finance transformation — improving the efficiency of a company’s tax and finance functions to lower costs and mitigate operational risk
- HR transformation — enabling a company’s talent model to keep pace with the connected economy
In all its aspects, true transformation involves the entire enterprise, and virtually every business decision has a tax implication, so the tax and finance functions must have a seat at the transformation table to help achieve long-lasting business impact. We are seeing this as another way that tax and finance functions are playing their part and connecting to the broader business agenda.
Response to the forces of globalization
Tax and finance functions can help the organization stay ahead of the curve in managing the risks and identifying the opportunities that result from globalization. We see four themes arising:
- Regulatory change. Considering BEPS, Brexit, US tax reform and waves of indirect tax enactments, to name a few, recent years have seen dramatic change continue to impact corporate taxation. However, according to our same survey, 87% of organizations lack the resources to respond to new tax legislation.
- Business tax transparency. Government-imposed transparency measures such as country-by-country reporting (CbCR), the common reporting standard and SAF-T are forcing disclosure of much more information about business models. In addition, companies are sharing more information with business partners and even competitors under the banner of “co-opetition.” Our same survey, however, shows that 95% of organizations see greater tax risk, including reputational risk, when complying with such transparency initiatives.
- Digital disruption. Digitization has forced “traditional” businesses into the digital realm where they must compete with entirely digital companies as well as face a new generation of digitally savvy tax administrations. As a result, 47% of businesses believe that tax authorities are ahead of taxpayers in going digital.
- Workforce change. Our recent research with LinkedIn found that 38% of the world’s largest public companies had talent in 100 or more countries. With employees so far-flung, companies that need the right people located in the right places are trending away from large expatriate populations toward more short-term business travelers, which triggers major tax effects. Another critical trend is the increasing size of the contingent workforce.
Tax and finance functions that identify and prioritize the globalization trends with the highest impact on their companies are being seen as much more connected with their businesses overall.
A connected solution
Leading companies with advanced tax and finance functions have shown that they can combine data from all parts of their business. As difficult as this is to achieve, it then sets them up to perform sophisticated, comprehensive data analytics that yield nimble but well-informed decisions, making them better connected to their business. That is the focus of Connected Tax.
Reproduced with permission from Copyright 2018 International Tax Review (800-372-1033) www.internationaltaxreview.com.