External pressures and internal expectations mean tax functions are rethinking their approach to delivering tax services. Focusing on processes, people, technology and governance can help to create greater success.
For tax functions, the key drivers of transformation are cost pressures, demands from regulators such as the Australian Taxation Office’s (ATO's) new expectations under Justified Trust, and the need to deliver more insights to the business for decision-making.
Traditionally, the focus for tax functions has been on ensuring the right compliance processes are in place to meet their obligations to regulators and avoid costly mistakes. Increasingly however, organisations are looking to tax to better leverage data to add value to the broader business.
Organisations are spending a lot of time ensuring other parts of the business are adding value, resulting in the tax function being seen as less valuable. Tax functions have had to spend a lot of time on compliance, and haven't necessarily got rigorous processes in place around the different tax obligations. This is where mistakes are made, which can become costly.
As a result, tax departments are evaluating how they can improve service delivery through more cost-effective solutions, and to free up resources to focus on higher value tasks.
A well-executed transformation could help achieve this. It could help the tax function streamline its processes and governance, deploy staff more effectively, use and share technology on integrated platforms, provide strategic business advice using data and expertise, and better manage compliance and risk.
To achieve this outcome, KPMG focuses on four key pillars of a tax transformation journey – processes and operating models, people, technology and governance and controls. Here we will explore our approach to each in more detail.
The foundation of tax transformation begins by assessing an organisation’s processes and operating model. This typically involves understanding the process flows of work, cross-function engagement, roles and skills of the people in the organisation, and the technology used to enable delivery of services.
However, this is where workflow issues often show up. It is necessary to ask “how could you prioritise processes and resources?” and “how could you enhance operations to take out cost, and eliminate wasted and repeated processes?”.
This understanding forms the basis to identify what changes will add the greatest efficiencies and insights for better decision-making across the tax function and broader business.
Core to any assessment of processes is the role of people – which in an environment of rapidly changing technology and automation capabilities – can be complex to define.
Adding to the challenge for tax departments is that the labour shift into offshore locations is not driving the benefits that they were once seen to be driving. And firms are struggling with the question of “what should I automate and how should I automate it?”.
As automation begins to replace manual processes, the role of people needs to shift to add greater insight to the organisation. The tax function can have more senior tax people doing more value-adding things for the business.
As tax changes, it is also possible that new or specialised skillsets will be needed. This may lead tax functions to look to co-source or outsource options. Organisations are needing to explore new delivery models that provide access to certain skillsets as well as technologies they may not be able to afford in-house.
The next pillar of transformation is an assessment of the technology and tools involved to deliver services and streamline the tax function.
The market has developed various solutions for tax functions to help drive performance, covering new technologies, software, digital, data science and service delivery models.
The emergence of Software as a Service (SaaS/cloud) and the growth seen through the introduction of new eco-systems of solutions, such as analytics and artificial intelligence, has made affordable and meaningful technologies available to tax functions. These solutions can help them meet the pressures they are now facing for better efficiencies, improved accuracy and greater business insights.
Navigating these solutions for a finance, tax or legal function of tomorrow requires knowledge beyond the technical specialisation of a CFO, or Head of Tax. We explore tax transformation technologies and the role of data in more detail in Tax can’t transform without the right technology.
As part of assessing processes and the operating model, establishing governance and controls is key.
Governance points out any issues around tax transparency and responsible tax management. These are becoming more critical to determine that there is no risk of failing Australian Taxation Office (ATO) or other international tax requirements, as well as upholding privacy and security levels.
In this world of globalisation, how do you maintain privacy over your data, and who owns the data?
Of course, any tax transformation needs strong leadership and must bring everyone in the team on the journey. Tax function transformation programs can fail without a quality change management program. This involves communication of the change, accounting for each individual’s needs, and making sure there’s significant buy-in from teams and stakeholders.
The effort is worth it, however, as the implications for not transforming the tax function in an environment where the world is speeding ahead could be vast. The ATO is expecting automatic filing, they’re using data analytics and search engines, not only to pick companies for audits and reviews, but to check whether they stand out from their peers. If an organisation isn’t up to speed, they aren’t going to be managing their tax risk properly, and they’re more likely to be assessed without being aware of what the tax office is looking at.
When KPMG’s team applies this four pillar transformation methodology, a clear picture is painted of what processes could be enhanced, where governance and controls could be improved, where resources are needed or could be better used, and how technology could have an impact. This is typically achieved through a series of targeted workshops to understand the current operating model, and to define a future state aligned to business objectives.
Contact Jenny Clarke to understand how to take the first step toward transforming your tax function.
With mounting tax compliance burdens, complex tax law and in-house tax departments budget cuts, it's time to consider tax transformation.
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