• Hitesh Rajani, Partner |
3 min read

Change in the global tax environment isn’t slowing down.

My last blog touched on some of the forces driving compliance challenges for tax functions: digitisation, transparency, and increasingly proactive tax authorities.

These continue apace – and we can add two more to the list. The regulatory burden is taking on a more global and regional dimension – driven by BEPS Pillar 2 and the EU Corporate Sustainability Reporting Directive. Meanwhile, there’s pressure to reduce operating costs in today’s inflationary climate.

Responding to these imperatives demands new data sources, systems and capabilities – not to mention the ongoing transformation of the tax operating model. And the increasingly international nature of tax regulation requires a globally consistent approach to compliance. That must be led from the top down, rather than locally.

Models of success

Driving the necessary change will mean looking at two core models that sit at the heart of tax functions: compliance and data.

1. Compliance model

In a fast-changing environment, you’ll need a highly flexible approach to tax and statutory compliance.

Flexibility is important on several fronts. It’s vital to accounting and tax process integration. And it’s essential if you’re to keep meeting your compliance requirements, as the business expands its scale and geographical coverage.

What’s more, it will allow you to continually adjust the balance between central control and local delivery of your compliance operations. Centralisation drives synergies and cost efficiencies, while localisation lets regional and country teams adapt to practices and nuances in their jurisdictions.

The optimal balance will be different for every organisation, and depends on a range of factors. These include business and regulatory complexity; and how your business operations evolve over time. For example, moving to a shared services model will centralise where your people and data sit.

2. Data model

Data is always the biggest task – and the biggest headache – when it comes to compliance.

Large, global companies spend a lot of time, effort and money gathering, processing and analysing tax data. And their requirements in this respect are only increasing: BEPS Pillar 2 is particularly data-heavy.

Most companies won’t readily have the information that Pillar 2 demands. They’ll have to adapt their systems and processes, or create new ones, in order to obtain it.

But as you do so, there’s an opportunity to step up your data capabilities. Capture your function’s wider requirements, and build a tax data and technology strategy that meets as many of them as possible.

That will not only make compliance more effective; it will also be easier to justify than investing to meet a specific need, such as Pillar 2. Plus, you can use the model to inform much more than compliance.

Sourcing options

With the right compliance and data models in place, your next step is to decide how to source your tax and statutory compliance operation.

Broadly, this comes down to a three-way choice: build it in-house, use a managed tax service, or opt for a combination of the two.

Going the inhouse route is likely to prove complex, resource-intensive – and therefore expensive. A faster, more cost-effective way may be to adopt a managed service model – or expand your current arrangement, if you have one.

A managed service partner can help you make the changes necessary to reshape your tax operating model.

They’ll rapidly introduce the tech, systems, processes and skills to strengthen your compliance operations and data quality: they invest in that infrastructure so that you don’t have to. And, of course, they’ll run your compliance programme for you, while you focus on generating value for the business.

Steps to success

In summary, transforming your tax operating model in the face of a mounting compliance burden involves five key steps:

  1. Build a compliance strategy that’s aligned with your wider business strategy, to secure leadership buy-in
  2. Bring your tax and accounting processes together to take advantage of any synergies
  3. Pilot the changes you need to make to your processes and technology, to demonstrate the tangible benefits and make the business case for transformation
  4. Use your transformation programme as an opportunity to create new roles and develop new skills within the tax team
  5. Identify the wider benefits to be derived from the changes you’re bringing about

KPMG’s managed tax service can help you develop and execute your tax and statutory compliance strategy. Please get in touch to find out how we can support your team.

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