Managed tax compliance services: a new model for a new reality

For tax functions, the future looks very different from the present. Global tax regulation is changing rapidly and dramatically – and it’s a trend that’s only going to intensify.

This is making tax compliance more onerous and more complex. Not to mention more expensive: tax leaders we work with are seeing their compliance costs rise by as much as 10 percent.

Broadly speaking, three underlying forces are inflating the tax compliance burden on organisations:

1. Digital tax 
   
   Around the world, tax authorities are moving to real-time data collection and liability assessment. And each country is taking its own approach to implementing digital tax reporting, with little or no consistency between them.
   
   
2. Post-pandemic recovery
   
   Authorities are looking to rejuvenate their tax take following the economic slump brought about by the COVID-19 pandemic. So they’re raising even more challenges and enquiries in response to companies’ tax returns. For tax functions, that means more time and resource taken up collating the data required to respond.
   
   
3. The transparency drive
   
   With ESG high on the agenda – for governments, consumers and businesses – tax authorities are seeking greater transparency of firms’ tax arrangements. They’re also introducing far-reaching new regulations, such as BEPS 2.0 and UK SOX. Complying with these rules will demand robust governance of tax processes.

All of this adds up to a new reality for tax departments: compliance is moving from being done in retrospect, to a forward-looking approach. 

The upshot is that how you operate now is unlikely to work in five years’ time. The tax function of the future will need to be agile, digital and future-focused.

Your operating model must be ready to adapt to new regulation before it comes into force. Your systems will have to gather, analyse and report on huge quantities of data. Your processes must take advantage of commonalities between different jurisdictions’ requirements, rather than handling each one separately. Your people will require a wider skill set to cope in the new landscape.

And while striving to achieve all that, you’ll be under pressure to keep a lid on compliance costs.

Transforming the tax function to this end will mean modernising three crucial elements of your operations:

1. Data. You’ll need to ensure the data your department receives from the business is ‘tax-ready’ – in terms of its format, categorisation and granularity. Without this, data management can take up 60 percent of a tax team’s time.
   
   
2. Skills. As well as technical tax knowledge, your team will need data and technology capabilities; transformation expertise; and the negotiating abilities to liaise with increasingly inquisitive tax authorities.
   
   
3. Integration. Tax must be integrated into all business processes across the organisation – which will require strong business partnering skills.

This may be too much to take on alone. You’ll no doubt need to bring in strategic partners to help you prepare for the new reality.

Your tax managed service provider could be a good place to start. They should have the necessary technology, data processes and capabilities at hand.

Working more closely with your provider will give them an in-depth understanding of your finance and tax systems, and of how data flows through your organisation. Put simply, an effective managed services partner should know your data better than you do.

As such, they can work with you to establish a cost-effective data management and analytics platform that will enable you to:

• efficiently comply with real-time digital tax frameworks
• respond to queries from authorities with minimal fuss
• integrate tax requirements into your business processes

And the benefits can go further still. Leaving tax compliance to external experts should free up to 50 percent of your team from compliance activities. With their new capacity, they can learn new skills, such as data analytics; or work on high-value activities like preparing for future regulation.

The demands of a changing tax landscape call for a less transactional, more embedded, relationship with your managed service provider. It’s time for them to become an integral part of your tax department, and a strategic partner to the business as a whole.

Get in touch to see how KPMG’s tax managed services can help you get ready for the new reality.