With cost pressures, technology advances, changing regulations, and the need to better leverage tax data through analytics, a co-sourced or outsourced service approach could offer solutions.
Transforming a tax function to ensure that it’s fit for the rapidly evolving demands of both internal and external pressures, requires re-thinking resource and operating models, the use of data and tax technology and tax governance and the right service delivery model for each tax obligation. This could be in-house, co-sourced, or fully outsourced.
Cost pressures mean many organisations have been outsourcing parts of their business for a long time, and are now considering it more broadly, including tax. The tax function, usually embedded within finance, becomes a very easy area to begin to identify inefficiencies.
Here, we will explore the impetus for looking at different service delivery models for tax and how a smooth and successful transition can be achieved.
In today’s competitive and fast-paced environment, tax functions are being pushed to deliver more value to the overall business. This creates a number of pressures that are contributing to a rethink of their service delivery models.
Cost pressures mean it is vital to re-prioritise resources away from manual, repetitive and compliance-focused tasks, so that resource can be freed up to focus on activities that add value and drive better outcomes.
With tax regulators progressing to new technology, and competitors using increasingly efficient Software as a Service (SaaS) platforms, tax functions must keep pace. However, time, cost or resourcing constraints can limit the ability to upgrade to a full suite of new technology. If tax functions outsource, they may get access to better quality technology and more accuracy. Regulation-wise, there’s a growing trend to file tax returns electronically, and tax functions need the right technology to do that.
The globalisation of tax authorities, the need for greater transparency, and the drive, particularly by the Australian Taxation Office (ATO) with Justified Trust, to ensure that organisations are paying the correct amount of tax, are adding to the strain. There is a lot more scrutiny by the ATO and regulators on transactions and the way things have been done in the past. An organisation has responsiblity around governance to mitigate risks of missing deadlines.
As management looks to tax functions to provide deeper insights for decision making, data and analytics capabilities are vital. Extracting value from the processes and services that a tax function provides is key. For tax compliance, accuracy is essential, so data sources and accuracies are becoming more of an issue. The risk of error has heightened, so the use of data and analytics to test and find outliers and anomalies is in demand.
An organisation may be facing one or all of these pressures, so a co-source or outsource model could help to solve the issues that are relevant to them. There are different models of outsourcing available, such as setting up a business for self-sufficiency, or managing some or all of the tax obligations.
For example, organisations that have invested in their tax technology may wish to engage in a co-source model for particularly complex tax obligations. Others may prefer end-to-end outsourcing of their tax function, which would see KPMG receive the data and complete all tax obligations on behalf of the organisation. For organisations looking to decrease costs and improve accuracy, this could be a good option.
Our approach helps to move organisations from being in a reactive to a proactive situation in terms of their tax outcomes. It can also help with assurance, thanks to the transparency it offers.
When an organisation wishes to engage a partial or full outsource model, KPMG has developed a methodology to help the transition run smoothly.
Initial workshops are held to create a clear understanding of the organisation’s objectives, which are matched with deliverables. The right team is brought in to cater for the organisation’s specific needs – which could include tax specialists, transition specialists, data and analytics experts, or technology specialists. A project manager keeps everyone aligned through strong governance, so that all parties understand their roles and responsibilities. If it requires an implementation of technology, or data analytics, there is a test control period to check that the client’s results are similar to the results in the operating model.
This transition stage is crucial, as it hones in on process efficiency. It helps tax functions understand what is going on with each step, and what each party is doing in the process.
A transition to a co-source or outsource model does not need to be overwhelming – even for large multinationals with complex tax obligations. It is common to begin with a small part of an organisation’s tax obligations and to build up as the working relationship is streamlined.
One major financial institution, started by engaging KPMG to deliver their corporate income tax returns, then their monthly GST BAS lodgments, end-to-end. As their needs and opportunities developed analytics were implemented across source system data which identified savings in their Fringe Benefit Tax calculations and accuracy issues resolved through process improvement.
Our approach is always to configure the right solution for the specific needs and strategies of the business. As the rate of technology development increases, we are drawing on the expertise of solution architects, data scientists, technology and tax experts to develop the right solutions for businesses at any stage of the transformation journey to help you manage and continually deliver competitive advantage for your function and the broader business.
Contact Carolyn Harvey 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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