Tax transformation refers to the process of modernizing and optimizing a company’s tax function to align with the overall business strategy. It involves leveraging technology, data analytics, and process changes to enhance tax planning, compliance, and reporting. The goal is to make tax a strategic asset that creates value for the organization.
Why is tax transformation important?
There are several reasons why companies are pursuing tax transformation:
- To keep pace with changing tax laws and regulations – Tax rules are complex and constantly evolving. Tax transformation equips companies to quickly adapt.
- To align with digital business models – New digital business models have tax implications that require new capabilities to address.
- To gain efficiencies and save costs – Automation, standardization and centralization of tax activities can drive significant efficiencies.
- To enable advanced tax planning – Advanced analytics and modeling enables more proactive tax planning vs. reactive compliance.
- To enhance tax risk management – Centralized processes and controls improves tax risk management.
- To attract and retain talent – New capabilities and technologies make tax roles more strategic and engaging.
In summary, tax transformation is becoming critical to keep pace with the evolving business landscape and maximize the value of the tax function.
What are the key elements of tax transformation?
There are five core elements that comprise a holistic approach to tax transformation:
- Tax technology strategy – Evaluating tax technology needs and implementing solutions to automate processes, centralize data, and enable advanced analytics.
- Operating model changes – Redesigning the operating model to streamline global processes, leverage shared service centers, and improve governance.
- Data management – Improving the collection, organization, storage and retrieval of tax data across the enterprise.
- Advanced analytics – Utilizing data to uncover insights that drive strategy, planning, and compliance optimization.
- Organizational alignment – Evolving the tax organization’s structure, skills, roles, and responsibilities to align with the business.
This provides an integrated approach to upgrading the tax function’s capabilities and transforming it into a high-performing strategic asset.
What are some key tax technology solutions?
Here are some of the most impactful tax technology solutions companies implement as part of a tax transformation:
- Tax provision software – Automates the global tax provision process, streamlines data collection, and improves analytics for forecasting.
- Tax reporting software – Centralizes tax reporting processes, implements controls, and enables tax data management.
- Electronic tax compliance – Solutions for preparing, filing, and managing tax returns electronically in a centralized way.
- Tax planning software – Leverages data to model different scenarios and optimize tax planning strategies.
- Workflow software – Streamlines taxes processes, implements controls, and improves collaboration.
- Data management platforms – Consolidates and rationalizes distributed tax data into a single source of truth.
Implementing the right combination of tax technology is essential to enabling sustainable transformation.
What are the biggest challenges in transforming the tax function?
Some of the top challenges faced when pursuing tax transformation include:
- Getting alignment – Gaining alignment on the vision and goals across diverse stakeholders and geographies.
- Letting go of old habits – Transitioning employees entrenched in legacy processes to adopt new solutions.
- Data quality – Accessing accurate, consistent and complete tax data to enable new capabilities.
- Adding capabilities – Acquiring people with new skills to support the transformed tax function.
- Measuring ROI – Quantifying benefits and return on investment from tax transformation initiatives.
- Underestimating effort – Not anticipating the full magnitude of time and resources required for implementation.
Companies that invest in change management and take a phased approach tend to be the most successful in navigating these challenges.
What are the expected benefits of tax transformation?
Some of the key benefits that can result from tax transformation include:
- 30-50% reduction in tax compliance costs by automating manual processes.
- 10-30% savings from streamlining operating model and leveraging global business services.
- 10-20% improvement in effective tax rate from data-driven tax planning.
- 90% reduction in time spent on low-value reporting activities by implementing tax data management.
- 50-70% faster close process by automating tax provision.
- Up to 20% reduction in audit assessments leveraging analytics and controls.
The magnitude of benefits depends on a company’s starting point but the potential impact from tax transformation is substantial.
Tax Activity | Legacy State | Transformed State |
---|---|---|
Tax provision | Manual data collection and calculations | Automated workflow with analytics |
Tax compliance | Manual returns prepared locally | Centralized e-filing of returns |
Tax planning | Reactive with simple models | Data-driven scenarios and optimization |
Audits | Manual response process | Analytics and controls prevent assessments |
This table summarizes some of the key differences between legacy tax operations and results of tax transformation.
How long does tax transformation take?
The timeline for tax transformation depends on the scope and complexity of initiatives. Typical program duration is:
- Tax technology implementation – 6 to 12 months per solution
- Operating model redesign – 12 to 18 months
- Tax data transformation – 12 to 24 months
- Building analytics capabilities – 6 to 12 months
Given the interdependency of various workstreams, the end-to-end transformation often takes 2 to 3 years. Some companies adopt a phased approach implementing foundational initiatives first.
Ongoing maintenance and continuous improvement of tax capabilities after the initial transformation program is also critical.
How can companies manage the risks of tax transformation?
Some recommendations to mitigate key risks include:
- Secure executive sponsorship to drive alignment and coordinate resources.
- Assign dedicated program managers to coordinate efforts.
- Invest in change management and training to aid adoption.
- Involve technology, tax and business teams in solution evaluation.
- Validate data accuracy early in the process.
- Use pilots and testing to prove value before full-scale rollout.
- Focus on quick wins to build momentum.
Proactive risk management and governance processes are critical to ensure tax transformation projects deliver on goals and benefits.
Conclusion
Tax transformation represents a fundamental shift in how the tax function operates and the value it delivers. By leveraging technology, optimizing operating models, enhancing data management, and developing strategic capabilities, tax can transition from a cost center to a value creator.
While the journey requires time and commitment, the potential benefits make tax transformation a strategic imperative for companies today. Approached holistically and thoughtfully, tax transformation enables sustainable performance improvements and a competitive edge.