• Christoph Funke, Director |

Choosing the right approach with regards to technology implementation helps organizations strategize their tax function and design a target operating model that enables them to reduce costs, mitigate risks, improve quality and drive more strategic value across the organization.

Background

Increased demands from tax authorities and recent developments such as BEPS 2.0, changes in accounting standards as well as new digital tax filing requirements are putting increased pressure on tax leaders and professionals. At the same time, tax functions are challenged internally to operate more efficiently, reduce costs and provide faster, more reliable data to support operational and strategic decisions. 

Tax authorities are investing heavily in digital solutions that enhance their ability to gather more tax information and provide a deeper view into the tax and financial position of taxpayers. This in turn is motivating taxpayers to embrace new technologies to operate more accurately and efficiently. The processes that were acceptable five years ago now need to be adapted to today’s demanding and rapidly changing environment. Technology needs to be considered as part of a tax function’s overall transformation to deal with these circumstances.

Choosing the right approach with regards to technology implementation helps organizations strategize their tax function and design a target operating model that enables them to reduce costs, mitigate risks, improve quality and drive more strategic value across the organization.

In defining the tax strategy, organizations should ensure it is aligned with the overall business strategy. In particular, the following major points should be considered:

  • Operations: developing a roadmap setting out the transition to the desired future state operating model;
  • Performance: identifying a suitable and balanced set of KPIs that reflect the chosen tax strategy and will drive the tax function’s performance;
  • Sourcing: reconsidering existing sourcing options, especially for low value-adding activities (e.g., compliance), to free up resources for other, more strategic tasks.

Rethinking of the sourcing strategy

Considering the complexity of tax regulations and internal demand for more efficiency, one of the main issues that businesses face today is choosing between handling the tax compliance functions in-house or outsourcing them. 

Making the right choice for the organization regarding insourcing or outsourcing always depends on the tax function’s vision and strategy. Whether the organization has the right resources and capabilities within tax or finance is key to determining whether it makes sense to engage a third-party provider for specific processes.

Many companies have already started to pass on their tasks to a third-party provider that has both the systems and expertise to manage all reporting obligations and handle the workload. However, there is still a considerable number of companies that fully insource compliance activities.

In-house handling of the tax compliance functions implies complete autonomy for the company, which in turn entails a significant investment in technology. Consequently, the company must have the appropriate capacity i.e., its employees must learn how to use technology in order to prepare and file the necessary tax documentation themselves. 

A one-vendor outsourcing strategy, in its turn, entails considerable efficiency gains, such as cost and risk reduction as well as improvement of quality of compliance. Making use of a service provider’s technology, freeing up tax team resources, improved transparency and visibility as well as fewer points of contact make outsourcing an advantageous option.

The decision to outsource compliance to a single provider and embrace an innovative operating model enabling tax technologies marks the start of a fundamental change of how, when and where works gets done: responsibilities, skill sets, mindsets, and even organizational structures will need to shift over time.

No matter whether the strategic decision is to insource or to outsource tax compliance, the use of technology will be crucial.

Technological imperative

Technology is critical to the new reporting landscape since digital administration requires businesses to have an application programming interface to submit the return to the tax authorities.

The shift to electronic filing (“e-filing”) requirements results in a considerable increase of tax risks as well as workload. Hence, companies should use technology in a way that is best suited to their type of business and to decide whether handling the tax compliance function in-house or outsourcing it is the most appropriate solution. 

Tax technology solutions available today enable:

  • efficiency: to help manage specific or end-to-end tax processes, by making the right information available to the right people at the right time
  • accuracy: through the automation of repetitive or manual tasks in the preparation and filing of tax returns
  • insight: into the accuracy of tax data, to identify risks, find errors or inconsistencies and uncover opportunities for the business.

Using tax technology provides greater visibility and transparency on whether there are appropriate controls in place to ensure accurate and timely compliance, whether risks are appropriately mitigated and whether processes could be more efficient and effective

Conclusion

In terms of current tax challenges and demands, pressure on organizations is accelerating and decisions regarding the outsourcing of tax compliance and the implementing of technology are becoming increasingly urgent for tax functions. 

Challenges including overly manual processes and outdated technology are the main points of concern for companies who are evaluating the corresponding risks of errors and potential inefficiencies in the compliance process. 

Companies are therefore advised to weigh up their resources and capabilities against their financial and time constraints, know-how and knowledge to determine the feasibility of both insourcing and outsourcing approaches as well as supporting technology, in order to enable a smooth and efficient transformation of their tax function.

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