Tax is taking on a prominence it never had before thanks in large measure to how technology is impacting everything from business models, operations and revenue streams to the regulatory environment to how tax authorities collect tax and assess risk. Today's tax professional has to also be a technology professional, as digitization is forcing the evolution of the operational structure of tax functions, leading tax leads to figure out the role of technology, the personnel and skills they'll need and the operating models that will help them deliver optimum value.
All of this seem particularly evident in multinational insurance firms, which have the added challenge of having to manage change in a consistent way across different jurisdictions. According to KPMG's 2018 Chief Tax Officer Outlook (PDF 7.34 MB), tax departments are struggling to keep up with the pace of technological advancement, with only 45 percent of tax leaders managing to stay on top of the latest digital innovations. Data analytics is a top priority, with 79 percent of tax leaders anticipating investment in this area in the next year. It's clear that tax in the digital age must be reimagined.
Five key trends are behind the evolving role of tax and tax functions:
Geopolitics and the move towards protectionism is creating uncertainty in the international tax arena and having a greater impact on businesses and business models. Governments are also pushing for more tax transparency and responsibility.
Technology is advancing at a rapid pace forcing tax professionals to become knowledgeable about innovations such as cloud, intelligent automation and blockchain and how they might best be implemented in the tax function to meet the new requirements of digitized businesses.
Economic. Budget constraints are driving organizations to seek new avenues for cost savings.
Social. As digital solutions continue to work their way into businesses, they are leading to an evolution of the workforce, and what that might look like in the not-so-distant future.
Regulator. Regulators, too, are using new technologies such as data analytics and want and expect direct access to data.
With all of this change, tax leaders at insurers around the world are being challenged to determine a new way forward. Each insurer is different and there is no one-size-fits all solution to a reimagined tax function. That said, charting a new course begins by moving away from the long-held view of the tax function as a cost center and towards embracing its role as a value driver and strategic enabler. This is a significant mind shift but required in order to help the overall business achieve its objectives.
Among the key drivers of value in the tax department at an insurance company is indirect tax, which includes Value Added Tax, premium tax and sales tax, for example. Unlocking the value of indirect tax requires ensuring the firm doesn't overpay them, which can impact pricing, the combined ratio and the bottom line. Because indirect tax is primarily transactional-based tax, it is an area where Intelligent Automation or data analytics can be effective in driving insights to better inform decision making.
When it comes to direct tax, new modeling technologies have a role to play in helping insurers take a holistic versus localized view of their organizations' operations and tax positions. The data analytics that come from these complex models can help the tax function make more informed decisions based on the complete picture, faster.
Technology is critical in helping tax leaders improve performance, manage risk and deliver value. Here are three key pieces of advice to reimagine tax and the tax function:
Article originally published in The Digital Insurer's March newsletter.