How will the tax function of the future be driven by digital? How will the tax function of the future be driven by digital?

As we move forward from the disruptions of COVID-19 and Brexit, we know tax functions need to play a pivotal role in the strategy of organisations to help them bounce back and create new opportunities. This lifts tax from being a function to becoming a true business partner. 

At the recent Our Digital Future virtual conference, I hosted a discussion about what the future of tax will look like. I was joined by experts who shared their insights into what will drive tax function change, how new international tax policies will add to the challenges, and what digital transformation in the tax function should look like.

Our panelists were:

• Piotr Kuberka – VP Finance Operations Tax, Royal Dutch Shell
• Sarah Robbins – MD for Corporates Europe, Thomson Reuters
• Emmie Nygard – Director, Global Compliance and Transformation, KPMG in the UK

The dramatic changes of the past year require new approaches from the tax function. One of the major differences is the number of people now working from locations other than their main office, in some instances not in the same country as their place of employment. In fact, making “work from anywhere” a permanent approach is an issue being discussed at the board level right now, as it ties into talent strategy. We agreed that tax must be at the table when these policies and processes are set, to make sure the business is protected from a compliance risk perspective.

Change in the tax function is also being driven by factors outside of the business – most notably government tax authorities increasing their digital transformation efforts. Examples include the UK government’s Making Tax Digital (MTD) initiative and the OECD’s BEPS 2.0.

We discussed how authorities are expecting more insights on-demand from businesses. Piotr said tax functions will need to work hard on data consolidation. “It's not only about the data that is coming from different sources, it’s about interfacing the data to build one single story with the data that you want to send to tax authorities,” he said.

Going further, Sarah thinks it won’t be long before we start seeing more real-time tax calculation and collection in the daily lives of consumers and businesses. “I'm going to say that at least one European country will actually move to a tax ecosystem,” she said.

We addressed how the digitalisation of supply chains means Tax needs to be able to ensure accuracy of profit allocations and transfer pricing policies. This highlights the vital point that manual processes and the human eye can no longer keep up with the pace of change. Technology is now necessary to ensure alignment with external systems and processes, as well as speed and accuracy.

Increased tax policy disruption around the world is very likely in 2021, as governments look to recapitalise their economies. This change will be unprecedented and will also see tax authorities using technology to help them identify and process tax liabilities. The “work from anywhere” policies will also be a new challenge in terms of factors such as PE risk transfer pricing policies, indirect tax, and payroll obligations.

Something tax departments haven’t been able to escape over the past 12 months is, of course, Brexit, and I’ve already seen it create a lot of change. Emmie said technology has the opportunity to help address new tax requirements. She also raised concerns that some organisations may be underestimating the amount of change required to the trading custom aspects of their systems, and will need to get moving quickly to make these changes.

During the discussion we conducted an audience poll, asking what their top investment priority was for their tax function in 2021. The results were that:

The results resonated with Piotr, who said that compliance, reporting technology, as well as data and analytics are key investment priorities at Shell. He’s excited about moving from the detective management of compliance and reporting processes, into proactive, real-time validation of data. He said the investment will help Tax create data to help the overall business strategy; “That's something that the future will require from all of us”.

We agreed that a tax transformation is a significant undertaking, as there’s more to it than just implementing the new technology. Emmie offered some useful tips for a smooth transformation. These included:

1. Understand what your technology roadmap should look like, and where technology will and won’t improve a process, before choosing a solution.
2. Tax needs to become an integral part of your organisation’s wider IT team and influence their roadmap. This will help support tax authorities’ “get it right first time” ethos.
3. There are affordable, low-code options that mean less IT input is required to help automate key business processes, workflows and data consolidation.

There were 3 key things that stood out to me from the discussion:

• The COVID-19 pandemic will drive permanent change in the way that we work, which requires changes in the role of the tax function, such as managing more cross-border employees.
• Digital transformation more broadly is adding to the need for tax function transformation, focusing on connectivity and real-time data and reporting.
• Tax policy disruption will occur in 2021 as governments look to restore public finances, so tax functions will need to be a true business partner to manage the change.