Never before has tax been more important to governments, taxpayers and other stakeholders. Increased global compliance requirements, together with a greater need for robust controls to manage tax risks and a desire to use data analytics to assist in business wide decision making processes are all impacting tax functions and their investment decisions.
To remain relevant to the business, tax functions will need to manage these growing external pressures and operational challenges by charting a course for continuous transformation that is immediate, holistic and practical.
The tax function of the future will look significantly different from today’s; companies that find ways to bridge the gap between this future state and their current capabilities will be the ones to succeed.
PwC’s Tax Function of the Future series explores their global predictions for the tax function, the challenges arising and how these need to be tackled by companies in the next three to five years.
Marcus Botha, PwC Associate Director and South African Leader of Tax Reporting & Strategy, says: “Tax functions that chart a course for continuous transformation will enjoy the benefits for years to come, being viewed less as a compliance centre and more of a strategic asset for the business.”
PwC’s predictions for the tax function of the future
According to PwC there will be six main areas affecting the tax function that will undergo radical change over the next three to five years:
- The global legislative and regulatory landscape
- Tax function’s role in risk management and governance
- Data flow into the tax function
- Technology automation for tax function analytical tasks
- Tax function roles and processes
- The tax professional of the future
PwC’s predictions for the tax function in these areas can be found in their report.
“In addition, global megatrends are radically changing the way businesses, including the tax function, operate,” adds Botha. In particular, shifting global economic power, demographic changes and technological breakthroughs have already affected the tax function. They will continue to shape the tax function of the future alongside ongoing internal pressures such as operational and technological inefficiencies.
The analysis suggests that global tax information reporting requirements will grow significantly and will have a material impact on the operations and related budget allocations within the tax function. The proposed country-by-country reporting (cbCR) in the Organisation for Economic Co-operation and Development’s (OECD) BEPS Action Plan represents a significant development for today’s multinational companies. This proposed reporting will require companies to provide information on their global allocation of profit, taxes paid and certain other indicators of economic activity among the countries in which they operate (for example, where employees are located).
Tax will also need to provide assurances to authorities and other stakeholders on the adequacy of the controls and process framework it uses to manage risks. “If an organisation has clarity around tax management, its tax strategy will be aligned to its business strategy, and this will help to reduce reputational risk and tax disputes,” adds Botha.
Going forward, tax professionals will also require strategic risk management skills. The ability to assess tax risk has historically been a core skill, but this skill will need to evolve to include how tax risk is being managed across the business and how that aligns with the overall goals of the organisation.
The starting point for change: A tax strategy and roadmap
The tax function won’t be able to solve these challenges with a one-dimensional approach. It will be necessary to take an integrated approach that is cross-functional, involving governance, data, technology, processes and people.
According to PwC’s report, the critical first step will be for companies to assess the current capabilities of the tax function against a tax maturity model, followed by the development of a clear vision of the desired future state. The future state should be achieved by developing a tailored transformation roadmap with measurable objectives and timelines that address the process and technology needs, together with the associated risk management objectives.
“The tax transformation journey will not be easy, but it is now imperative and the return on investment can be significant for companies. Beyond measurable cost savings, it will improve other areas such as enterprise-wide risk management, tax governance, resource management and recruitment processes,” concludes Botha.