Amid geopolitical uncertainty, changing business models, global tax reform and rapid advances in technology fueling regulatory demand for data, the pace of change is accelerating. Today’s challenges are leading Chief Tax Officers (CTOs) to examine all aspects of their tax operating model –how the tax strategy is developed, implemented and governed, who’s responsible for what and how performance is measured. Greater emphasis is also being placed on how risks and data are managed, and how people, processes and technology are deployed most effectively. How can tax executives guarantee their functions are designed to meet today’s demands and the challenges of the future?
Tax operating models are particularly under pressure from ongoing change in the following areas.
- Finance function transformation: More and more global organizations are moving towards centralizing their tax and other finance activities through co-sourcing, outsourcing or shared service center models. The greater automation and standardization that can be realized with centralization helps to improve processes and reduce costs. But as the ability to leverage local expertise, knowledge and tax authority relationships becomes more remote, CTOs are challenged to develop new ways to ensure their compliance obligations and risks are well managed in all locations.
- Tax system digitization: As tax authorities and regulators adopt more sophisticated data-driven techniques to assess risk and target audits, companies are increasingly asked to provide digital tax filings and documentation in a rising number of tax jurisdictions in a range of differing electronic formats. With expectations that periodic tax reporting will be replaced by real-time reporting over the next decade, efficient data management and data extraction is becoming even more complex and businesses need better, more reliable processes for harvesting data and generating immediate tax information.
- Expanding skill sets: Advances in robotics, artificial intelligence and machine learning are changing necessary skill sets. Future tax professionals will have less need for the depth of technical tax knowledge they required in the past. Increasingly intelligent software will not only be able to interpret and apply tax rules across the world’s regimes, it will also be able to adapt its understanding, for example, in response to new court decisions or legislative changes. Along with new technology-related skills, abilities in cognitive areas like communication, negotiation and change management are becoming essential. CTOs are expected to bring a more strategic, evaluative understanding to the functional risks and opportunities that technology and data analytics will enable.
- Evolving accountabilities: As the amounts of tax paid by large corporations have come under increasing scrutiny, tax executives are being called on to answer questions about their companies’ tax positions by senior management, boards and a range of external shareholders, including investors, the media and the public. A rising number of tax authorities are inquiring into companies’ tax governance and strategies as part of their assessment of tax compliance risk. At the same time, tax executives are increasingly expected to recognize strategic opportunities and pursue them in partnership with the business whilst trying to reduce their overall cost of compliance.
Of course, these trends are subject to change as the future unfolds, and new developments could change the picture completely. But one thing is certain: tax operating models will change beyond imagination. In the meantime, tax leaders exploring what their future tax operating model might look like face some big questions:
- What investments in technology do we need to make to improve tax data visibility, access and quality?
- What mix of talent do we need to make better decisions and draw insights that can help increase revenue, enhance operating margins, optimize supply chains and more?