Future-ready, data-driven tax functions give firms an edge

Written by

• Jenny Clarke, Partner and ASPAC Leader of Tax Transformation & Compliance, KPMG in Singapore
• Catherine Light, Partner, Tax Technology & Transformation, KPMG in Singapore

In recent months, there has been increased media focus on whether large organisations are applying the right amount of tax in the various jurisdictions. This as well as the never-ending changes to global taxation laws and regulations are increasing tax compliance and reporting demands for taxpayers, and mounting pressure on them to be seen as paying tax responsibly.

Businesses can expect governments to continue to look for new and innovative ways to collect tax revenues more effectively and efficiently. These could come even in the form of incentives to drive investment while scoping out what companies need to pay as a fair share of the global tax take. This situation has been exacerbated by the pandemic straining countries' finances.

Global business leaders surveyed in the KPMG 2021 CEO Outlook Pulse Survey have ranked tax risk as the second greatest threat to growth for companies over the next three years, a significant increase from where it ranked eighth just last year.

These CEOs recognise that in addition to the recent Base Erosion and Profit Shifting (BEPS) announcements, there are also post-pandemic challenges. Government deficits from giving out relief packages have reawakened the impetus for tax collection. A remote workforce also poses potential double taxation issues for companies and their affected employees who are working from another country.

Adding to the urgency is that tax authorities are extensively leveraging data and technology to come down harder on companies that have not maintained proper compliance records. More regulators are now seeking to collect tax information in a real-time manner rather than through ah-hoc one-time submissions. Hence, there is a huge onus on companies to get the data right the first time, with little to no ability for retrospective rectification prior to queries or audits being raised.

In essence, what companies are facing today isn't just new international rules on the horizon, but a general shift in demands for effective data management driving efficient tax planning and reporting. Organisations with strong tax leadership and a future-ready, data-driven tax function will benefit as business and regulatory requirements start converging.

What is clear is that affected businesses will have to institute efficient data management, document retention and triaging techniques to be able to sufficiently support the provision of requested information and report accurately to the tax authorities on time. Future-proof data models need to be able to account for the consolidation, reconciliation and analysis of in-depth key data that might not be present in current tax reporting requirements.

Companies can take steps towards achieving the transformation without spending an inordinate amount of time or having significant budgets. A strategy that Singapore companies can adopt is to seek advice from tax experts to prioritise investments (including technology) against their future-proof operating model as part of their long-term tax transformation roadmap.

Technology is a major enabler in this ever-changing tax and regulatory climate and with the significant advancements seen in this area, it can effectively support an environment where data is expected to be available in varying formats and at very short notice. Currently, based on KPMG's interactions with industry players, most companies have less than 30 per cent of the technologies they need to support them in their transformation journey.

What Singapore companies will need is a roadmap that encompasses process improvements with a broad range of technology solutions. These improvements could be to the ways that data is being extracted, manipulated and automated to drive in-depth analytical insights, with the aim of reducing time spent on the tax planning, reporting and compliance processes. The processes should also enable the tax department to easily access relevant data to support companies undertaking in-depth scenario planning and analysis of the financial implications of any tax changes.

In tandem with transformation efforts, tax leadership also needs to have a seat at the table to proactively drive strategic decision making, supported by easy access to high-quality tax data.

Including tax leaders early can alleviate situations such as inadvertently paying more tax due to poorly planned project milestones. Case in point is Singapore's Goods and Services Tax (GST) which will be raised to 9 per cent by 2022 to 2025, up from the current 7 per cent. If businesses focus on only sales and do not bring in their tax advisers early, they could end up paying more in irrecoverable GST due to poorly conceived supply chains.

Furthermore, multinationals worldwide are considering the location and composition of their business areas as the global tax BEPS deal looks set to kick in from 2023. If key mergers and acquisitions are to be on the table for Singapore companies, tax leadership and advisers should certainly have a seat in the C-suite discussions from the get-go. This will aid not only effective international tax planning, but also ensure that the key data inputs and compliance considerations are included in the strategic decision-making process and eventually drive overall efficient and accurate tax reporting and compliance reporting that ensues.

High quality data, together with technologies, underpin all successful future-proof tax transformation efforts. More importantly, data needs to be trusted by the tax team and easily sourced for good and timely decisions to be made. Such transformation is essential and helps pave the way for tax-efficient business opportunities to be made, amid an ever-changing global landscape. This doesn't have to be a complex or expensive journey for business leaders, but it does need to be a well thought through one - and this is where tax advisers can help.