The pressure to make tax more transparent is increasing. Both tax regulators and the public want to know who has paid how much, to whom, and when.
The government is asking us to provide more tax data today than ever. And tax authorities are shifting both how they access that data and audit it. In some cases, tax authorities are inserting themselves directly into the transaction process between the business and the customer, as they do in more than 30 countries, including Brazil, Mexico, Italy, and India.
Most tax and finance leaders believe tax authorities will have more direct access to their systems within the next three years, according to a recent Deloitte survey. This is a material shift in the way most U.S. organizations report taxes today. Preparing for a world where tax authorities have real-time transaction-level access is increasingly problematic; many companies still need to extract and process data from multiple systems to meet their tax compliance obligations.
Tax and finance leaders are preparing for a more transparent tax world in three key ways, according to the survey.
1. Improving data access and quality with next-generation (NextGen) enterprise resource planning (ERP) migration.
As organizations move from server-based ERP systems to NextGen cloud-based systems, progressive CFOs are giving tax a place at the table. Simply put, the system needs to allow tax leaders to create a tax-sensitized environment within the traditional finance data setting.
Many tax teams already enjoy the benefits of tax-sensitized ERP systems for indirect tax compliance. However, getting tax-sensitized ERP data for direct tax compliance is much more difficult. Often, it’s important to influence how information is processed at the general ledger account level, which in turn can unlock greater tax automation across other systems outside the ERP.
In a transparent world in which tax authorities have direct access to systems, NextGen ERP will be a critical part of the solution.
2. Investing in tax transformation.
Two catalysts are pushing businesses to act out of necessity: the move toward digital tax administration, and the Organisation for Economic Co-Operation and Development’s initiatives that relate to global minimum taxation and allocation of profits.
Tax functions need to upgrade their technology capabilities to support new calculations and tax compliance burdens. And CFOs need more-sophisticated scenario-modeling capabilities that include these new rules to inform their strategic decisions.
3. Rethinking operating models.
In Deloitte’s survey, many of the leaders say they are looking at how to transform tax operations with the help of artificial intelligence (AI) and machine learning (ML).
Deloitte’s survey also suggests that most tax and finance leaders see outsourcing relationships as key to controlling costs and accelerating technology modernization; they provide access to talent, capacity, and cutting-edge systems that might not yet be a priority for capital expenditure investment.
The Endgame
CFOs and tax and finance leaders understand that the tax environment is changing. They see the rapid shift toward digital tax administration. They feel the growing stakeholder demand for greater tax transparency. And they recognize the rising complexity of the business and the tax function.
The projected evolution of tax reporting and the drive for increased transparency fully illustrate the need for greater investment in the tax function. And now, corporate and finance leaders are starting to see this evolution as an opportunity for wider transformation. They are looking to shift their tax function from being largely compliance focused and a retrospective remit to one that drives strategic value over the long term.
Among the several takeaways corporate and finance leaders can find in Deloitte’s survey are three common tenets relevant regardless of industry or sector:
- Use new technology to provide real-time management information that drives objective decision making.
- Facilitate processes that allow data to be sensitized for the tax environment and that enable the automation of key processes across linked systems.
- Recognize that the move toward digital tax administration is happening. Keeping this change top of mind while designing your operating models will greatly increase reporting efficiency and transparency.
With these tenets in mind, is your business ready for a tax-transparent world?
Read the full Deloitte Tax Transformation Trends: Technology in Focus report here.