Why the Path to an Intelligent Tax Function Is Complex But Rewarding

It is no secret tax functions are facing pressure from internal and external forces—to deliver, to add value, and to comply. To keep up with demands and continue delivering value to the business, the tax function is constantly evolving.

One of the key messages from the recent EY Global Tax Technology and Transformation Survey was tax functions must be able to close the technology and data gap. From the use and deployment of technology and data, through to design of operating models, process controls, and governance to the different skillsets required of the tax profession: What does the path ahead look like for the tax function?

What this tax function might look like was the focus of a recent panel discussion moderated by Sveinung Baumann-Larsen, EY EMEIA Tax Technology and Transformation Leader. He was joined “on stage” by his colleague Marcel van den Brink and four global tax directors from a range of business sectors:

• Marcelo Vieira – The Dow Chemical Company – Senior Director, Global Tax Operations and Tax Strategy
• Matthew Hardy – Diageo PLC – Tax Director, Global Transfer Pricing and Indirect Taxes
• Matthias Klein – BASF SE – Head of Tax Technology and Program Management
• Troy Siegfried – FMC Corporation – Global Transfer Pricing Director

This article aims to share some of the key insights from the discussion.

Data everywhere, not an insight in sight?

Tax authorities continue to deploy more sophisticated analytics; the days of limited analysis are over. Granularity is king. When previously tax authorities would look at the profitability of the legal entity, now the granularity goes deeper. Without detailed data, audits are nigh on impossible, given the level of detail required.

Granularity is also matched with algorithmic technologies, and as Troy said, “If you don’t make your own decisions, the tax authorities will make those decisions for you.” Put simply, the tax function is in a race to keep up, and the intelligent tax function must be able to handle a lot of data.

Data can enable answers to questions being asked from the business and authorities. Troy explained, “A common set of data and financials across the organization is key.” A common set of data can be cut and sliced in different ways to provide various scenarios and analysis, which can enable more informed business decisions on profitability and investments. One source of the truth can help to provide a coherent story worldwide when engaging with tax authorities.

However, there are added dangers with a bigger universe of data, as Matt explained “…the bigger the remit of data that I have access to, the more I have to worry about making sure all of that data is accurate and reliable.” Are all of the functions producing data to a high-quality standard? Will it be delivered on time, or worse, will it stop being produced at any time? Will the definitions and assumptions change?

Matthias concurred the control and time delay gaps are some of the biggest facing tax departments: “Information is often floating around in the organization, and the challenge is to step ahead and come up with a smart way to address these gaps.” This involves collaborating with different stakeholders and functions, and setting process and policies working toward a common goal.

Getting the data house in order requires a critical assessment. Some key questions to ask are:

1. How and where is the data collected from?
2. Who is responsible?
3. How is it archived?
4. How is it used for reporting?
5. How often is the data used?

Answers to these questions are often not black and white, as Marcelo explained. “From the offset, it is easy to say, ‘decommission that report, it is only used once a year.’ But, when that report used once a year is used for the annual corporate tax return, careful assessment of usefulness is essential.” Confirming the data is valuable and used is key, especially given finite resources.

Working with enterprise resource planning (ERP) systems day in and day out, it’s clear that data is the blood of these systems and without good blood, you can’t survive. While many recognize the importance of data, recognizing the importance of good data is perhaps more critical. To avoid data taking the shape of a “commodity,” the tone from the top should reflect the value of good, clean, and accurate data. When data is the lifeblood of the intelligent tax function, those in the tax function must be comfortable working with data.

Tax people will no longer be traditional tax people

The shift to a more digital world requires different skill sets and mindsets. Being able to interpret and manipulate data is therefore critical. Troy explained, “Today you can add more value if you can understand data underlying the company.” That is not to say the role of the book-smart tax professional is redundant, nor is the traditional background of economics and accounting. Instead, data scientists must be added into the mix. A combination of book-smart tax professionals with an understanding of business operations and technology data management is the perfect combination.

From a consultant point-of-view, Marcel concurred, adding: “Companies want that expanded perspective from traditional tax advice, understanding business operations, understanding data structures, and coming up with alternatives based on what works for others.” Notably digital native tax technical professionals are hard to come by and are nearly as rare as unicorns!

So, what does this mean for the future make-up of the tax team? Marcelo boldly stated that “60-70% of the tax team don’t need to have a tax background.” The tax function can have a combination of IT, controlling, and finance supported by a core group of traditionally trained tax professionals responsible for setting and driving the tax direction. Matthias commented, “There are added benefits to a more diverse tax team, new and different ways of working, synergies from experience, and a more holistic view to tax problems.”

Matthias explained IT process excellence delivers results, especially in compliance. However, ultimately, traditionally trained tax professionals have the deep knowledge needed to unlock certain opportunities, which standard processes and optimization can’t. Keeping tax technical experts in the team is imperative, and Matthias commented that’s why “digital needs to grow as a capability within the tax team.”

Digital transformations are complicated for any organization and business function. Technology resistance is often the biggest hurdle. Marcelo explained “It’s about reprofiling the way people work.” The show-and-tell approach works well. “We talk about moving a process to Alteryx, as an example. The work that took the professional 24 hours can now be done in 16 seconds. You can see the face change positively!” Once the initial awe subsides, fear can sometimes creep in around losing their jobs or needing to learn new complex technologies. “Change management is so important and cannot be underestimated,” said Marcelo, “It’s about explaining there are better, sustainable solutions available, which means change, but good change.”

Communication and training are vital to ensure people are committed to the change and journey.

Will the tax function in the future fund itself?

“We are at an inflection point—we can choose to be a compliance shop or a contributor,” said Troy, “The tax function can move to identifying new cost savings for investments and greater profitability.” The only way for such effective business partnering is through technology. Troy explains, “The only way you can keep delivering results is the adoption and keeping up with the evolution of technology.”

To secure the technology, a strong business case for investment is required. “The focus has shifted to acting as a business partner in the organization and drive savings into business operations,” stated Marcel citing an example of a tax director who commands the attention of the CEO and CFO when an SAP S/4 tax transformation project can deliver $20 million in savings. There are two sides to the coin: First, the business case and commitment involved shouldn’t be underestimated nor understated. Second, tax technology can offer significant potential for business savings and often make for a bullet-proof business case.

While benefits can be transformational, it can be a long and winding journey to embed tax technology. Matt explained, “To get to the point where you can be more cost effective with these tools, you’ve got to really clean up the organization… being absolutely in control of your end-to-end processes and standardized as much as possible.”

Next steps on the path to an intelligent tax function

The starting point is ambition, but realistic ambition and knowing what answers you need, not want. There is the temptation to be swayed by user-friendly interfaces and one-click wonders or promises of data. The core question remains: does this solution deliver what I need?

Tax technology is like cooking a meal, according to Diageo’s Matt. For a successful meal, you need the right ingredients, the right skills, and the right equipment: “Choose a recipe we are capable of making—with the right (data) ingredients and the right skills and equipment. Otherwise it will be unsuccessful (or inedible)!” A helping hand is available from external solution vendors, such as EY. But a word of warning: Technology will fall on its own rocky bed, if not truly embraced within the tax function.

If you are able to master data intelligence, the path is certainly smoother.

This column does not necessarily reflect the opinion of The Bureau of National Affairs, Inc. or its owners.

Author Information

Sveinung Baumann-Larsen is EY EMEIA Tax Technology and Transformation Leader, and Marcel van den Brink is a Partner in the EY EMEIA Platform, Solutions and Intelligence team (Ernst & Young Belastingadviseurs LLP).

With thanks to Matt Hardy, Marcelo Vieira, Matthias Klein, and Troy Siegfried for providing their valuable in-house tax perspectives. And a special thanks to Charlene Glenister for her support on producing this article.

The views reflected in this article are the views of the author and do not necessarily reflect the views of the global EY organization or its member firms.

Bloomberg Tax Insights articles are written by experienced practitioners, academics, and policy experts discussing developments and current issues in taxation. To contribute, please contact us at TaxInsights@bloombergindustry.com.