The COVID-19 crisis has required tax teams to adapt like never before and they now need to consider a number of key operational and technology issues in order to manage the new demands placed on them and ensure they are equipped to be effective and adaptable in the period ahead.
To begin with, tax teams should assess all tax filings due over the coming months and consider if the required resources are in place in order to ensure returns continue to be filed on-time. Will the process be slower and less efficient where the tax team is working remotely? Can additional technology help? Gaps should be addressed now.
Some governments are granting extensions to 2020 payment and filing deadlines. Will such deferrals simply result in a “crunch” period in the future with numerous deadlines arising at once?
In surveys carried out this year, 23% of KPMG’s Global Tax clients report liquidity as being the key issue for their tax team during the COVID-19 crisis. It is important for tax teams to work closely with the wider business in relation to cashflow planning. Data and analytics technology can assist with cashflow scenario analysis and modelling and can also help identify potential opportunities to claim statutory reliefs such as capital allowances and R&D credits or to reconsider the group’s VAT recovery rate.
The introduction of the Temporary Wage Subsidy Scheme and tax warehousing reliefs in Ireland and similar reliefs around the world are welcome developments. Once again, it is important that the tax team partners with the finance and HR functions to ensure the reliefs are claimed and that the data required for accurate claims is available. Existing technologies can help extract and refine the required data.
Many of the decisions taken at this time will be based on limited information within in a short timeframe. It is critical that the underlying rationale for these decisions is clearly documented to ensure that future examinations from tax authorities can be efficiently managed.
The need for close relationships between tax teams and the rest of the business has never been greater. Decision makers need practical insights from their tax team to facilitate COVID-19 responses which may see them embrace e-commerce and the digital agenda, restructure and streamline the business or seek new sources of capital.
These relationships work in both directions and offer the tax function a “seat at the table” when discussions around business transformation are happening.
The second half of 2020 is set to be challenging on a number of fronts. Projects put on hold by tax teams still have to be completed. In addition, it will be necessary for many companies to put procedures and tools in place to deal with new regulations such as the EU Mandatory Disclosure regime and the ATAD interest limitation rules. More fundamental regulatory change (such as BEPS 2.0) continue to be actively considered at an EU and global level.
There must be a clear process to manage this workflow at a time when resourcing and budgets will be under pressure.
For many tax teams, the COVID-19 crisis has highlighted the need to streamline processes and utilise technology in a new way. The aim should be to automate many of the manual, time-consuming processes that are part of the current operating model, to allow the tax team to focus on value added activities and to spend more time helping the business with decision making.
This will require an in-depth review of what’s currently happening. It will be critical for tax teams to understand upstream business processes that produce the data to support tax compliance, planning or reporting. This exercise may include interaction with IT, finance, HR, treasury and other key business stakeholders.
While most tax professionals will be familiar with many of the reporting tools that support domestic compliance, there has been a significant trend among global tax teams towards the use of dedicated global tax software applications, data analytics, visualisation and process automation tools. The business case for investing in these tools is strong in many cases as the efficiency gains can be clearly articulated.
In assessing new technology solutions, it is always important to consider existing systems. It is often the case that minor tweaks to these systems can deliver big results in terms of data accuracy and time savings. Consideration should also be given to the resource and training supports needed to ensure the success of new technology rollouts. Cutting edge technology cannot be transformative without them.
Finally, strong governance structures should be in place to provide clarity to tax teams and other business stakeholders in relation to responsibilities with regard to tax and associated data as well as to manage tax risk within the business.
The OECD model tax control framework refers to six key characteristics of such a governance framework – there should be a “tax strategy established”, that is “comprehensively applied”, with “responsibility assigned”, “governance documented”, “testing performed” and “assurance provided”. Large tax teams should consider how evident these characteristics are in their operations.
For smaller teams, a simple RACI (Responsible, Accountable, Consulted, Informed) matrix can be just as effective in providing the clarity required.
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An abridged version of this article first appeared in the Irish Tax Review, Vol. 33 No. 2 (2020) © Irish Tax Institute and is reproduced here with their kind permission.