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COVID-19: tax transformation

  • Christoph Funke, Director |

COVID-19 has raised many questions for businesses around the globe, including some that are affecting their tax functions. Now is a good time to re-evaluate the status quo, analyze the challenges ahead and consider transforming tax functions accordingly.

Introduction

The outbreak of COVID-19 has posed challenges for all industries around the world. It has also highlighted the importance of an innovative and well-organized tax function. How is this relevant for you? Budget constraints, remote working conditions and the increasing power of tax authorities have heightened the need for many companies to accelerate their tax transformation journey. Clear responsibilities, global oversight and efficient tax processes that are aligned with relevant business requirements are the key elements of an up-to-date tax function. Read on to find out how refining an organization’s tax operating model and tax compliance strategy can provide answers to current challenges and help prepare for the future.

Tax Operating Model

For many companies, the primary concern right now is how to limit the financial damage caused by COVID-19. Because of this, many companies are cutting back the financial resources for optimizing internal processes. But it is exactly dramatic situations like the current one that are putting companies’ current business models to the test. This is also true for the tax function.

Now is the time for tax managers to consider the robustness of their current processes and review tax control frameworks to make sure tax risks are properly mitigated. It is also a time when the tax managers of both SMEs and multinationals would like to be confident of the fundamentals in order to be able to focus on adapting to new circumstances and unexpected topics crucial for the company’s survival. This is where having automated and digital processes and a clear structure of responsibility is very helpful.

Different technological tools and skills are required to manage the tax function in order to use resources optimally. Organizations may need to develop or rethink a strategy for their tax function and to design a target operating model that is robust enough to deliver and execute their tax strategy efficiently through the corona crisis and beyond.
In particular, a well-designed tax operating model helps a company manage its internal processes, creating transparency on taxes, thereby enabling proactive detection and management of risks and opportunities.

Outsourcing Tax Compliance

One particular aspect of the tax operating model that may spring to the mind of a Head of Tax’s before anything else is whether the company has the right sourcing model once the initial acute phase of the coronavirus is over. Looking back, one of the questions may be whether the tax function was able to fulfill its compliance responsibilities from remote locations? Did the company have the right technology in place for this? Are the business continuity plans robust enough to ensure continued compliance also when the next crisis comes? Does the company have enough resources and knowledge to deal with unexpected tax risks?

For organizations that handle their tax compliance in-house, or outsource to numerous providers, the corona crisis may be a catalyst to join the growing trend to use a single service provider for tax compliance. Among other things, this will ensure that local tax specialists are on-hand to identify tax risks and opportunities, and react quickly to country-specific measures announced by local tax authorities. After all, if there’s one thing that is certain once this crisis is over, it is that we can expect more tax obligations rather than fewer.

Tax reimagined

The currently unprecedented situation we are in will change how we will work together going forward. The remote work conditions so many companies set up showed that there is a need to be ready and compliant with the digital future of tomorrow. This situation will most likely be seen as the starting point for a change in mindset.

Tax teams need to become more aspirational and be willing to reimagine how they can work together in the wider tax function and with their stakeholders in general. Tax reimagined also means considering new target operating models, technological tools and capabilities which are more adaptable and configurable to tax needs and flexible new ways of approaching sourcing. Reimagining the tax function starts now.

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