Leverage Tax Authorities’ Demands for Data to Align Tax, Finance, and IT

Leverage Tax Authorities’ Demands for Data to Align Tax, Finance, and IT

Organisations are sitting on a wealth of smart data that, if properly leveraged, can provide significant insights into improving business-wide performance. Used to its full potential, this data can function as a transparent, real-time, centralised source of truth.

At the same time, businesses are required to provide increasing amounts of data to tax authorities. It’s critical that rather than just submitting it in pursuit of compliance, they use it to improve relationships between departments, operations, and strategic direction. If businesses handle data well, they can align their tax, finance, and IT departments; help them collaborate; and support better decision-making and productivity, ultimately leading to increased profitability.

How Outmoded Technology Holds Back the Tax Function

There are several reasons why the tax function can face pushback when it asks for more technology investment. Sometimes it’s because senior leadership doesn’t understand the benefits of digital transformation generally. Other times, it’s because senior leadership hasn’t been given a sufficiently detailed business case that demonstrates specifically how new technology can be used to improve processes in the tax function.

Sometimes, counterintuitively, the challenge comes from within the tax department itself. Reluctance to update longstanding methods or a belief that existing solutions are sufficient is common. And tax professionals are also sometimes unaware of what digital options are on the menu. But that reluctance is changing, slowly. A survey by Industry Dive in conjunction with Ryan on amplifying the strategic value of the tax function revealed that 68% of tax executives felt that outmoded technology causing errors would have an impact on the effectiveness of their work within the next three years.

Such a statistic suggests that tax professionals are looking across the business as a whole and finding themselves behind the pace of change. CFOs may be ready to back them too because the same survey revealed that tax (specifically new taxes) is viewed by CFOs as a top risk.

Why Compliance Is Not Just a Burden But an Opportunity

As the volume and complexity of transactions increase, so does the data. And so do the requirements that tax authorities place on those under their purview.

The Organisation for Economic Co-operation and Development (OECD) has reported a huge shift—accelerated by the pandemic—in the digital transformation of tax authorities around the world. Tax regulators have demanded that businesses undergo digital transformation to meet their demands for transparent and manageable data. In the United Kingdom, a key policy initiative has even been named Making Tax Digital.

This demand for digital transformation presents an opportunity. Businesses can use the required change to get greater visibility and control over their data—and to use the process to secure more accurate information that’s available in real-time. This more transparent set of data can be analysed more closely and the results used to make better decisions.

How Data-First Thinking Brings Functions Together

  • Digital transformation requires a culture shift –Businesses must recognise that digital transformation isn’t a simple one-off. Just as changes to tax regulation won’t end, so transformation must be continuous. Achieving this requires a culture change that places a premium on transformation. This ensures the business is agile and remains resilient. Merely investing in digital transformation as a single, one-off event will only ensure that five years down the line you’ll find yourself behind.
  • Data-first operations require intra-departmental dialogue and collaboration – Transformation demands a robust and ongoing collaboration and conversations between the tax, finance, and IT functions. The sooner this happens, the better, so everyone involved can brainstorm solutions, including things like data warehousing, automation, and analytics, and make them fit together to work for all stakeholders.
  • Data-first organisations are smart and adaptable with digital systems – Transformation should not necessarily mean bringing in a whole new suite of software. In fact, it is better to be sure that you have checked there aren’t existing tools already being used by the business that would benefit the tax function. If the tax function can leverage current systems in use in other departments, they can show they are a solution-orientated driver of business value and profit. This can make it easier to get budget and for a swifter, less painful, cross-functional implementation, and can be achieved by involving an experienced tax partner that understands the applications of numerous different software platforms.

Why Tax Professionals Are Essential to Enterprise-wide Digital Transformation

Traditionally, the tax, finance, and technology functions of a business have operated relatively independently, with each relying on its own data and methods for decision-making. But barriers have been eroded by the need for speedy and agile data-driven decision-making. This closer collaboration has led to some important changes in the day-to-day operation of each of these functions.

Professionals in these fields have proven themselves flexible and innovative and can become the champions for digital transformation elsewhere in the business, thus helping to accelerate the shift to a data-first culture.

ERP Systems in the Spotlight

One example of this is the integration of tax data into enterprise resource planning (ERP) systems. Businesses have come to rely on finance systems like ERP software to manage their day-to-day operations. ERP systems have become essential to managing businesses, and the integration of tax data can be used to further boost performance by, for example, identifying areas of over-or-underpayment and keeping track of obligations and compliance, providing a more holistic view of financial performance. The software provides a centralised database that stores information on all aspects of the business, from inventory levels and customer data to financial records and employee information.

ERP software can’t solve all problems. The IT department often retains ownership of the system, meaning when it comes to transformation and alignment between tax, IT, and finance, there might be more practical options. Other solutions could range from data warehousing to automation or improved analytics and data visualisation software. To arrive at the right solution, tax must work closely with IT to brainstorm the options and translate between the two functions’ requirements, capacities, and limitations. Still, ERP can be one tool among many to make functions more collaborative and drive cultural change that puts data at the core of the business.

Fostering Collaboration and a Single Source of Truth

The ever-more exacting data requirements expected by tax authorities means the time has come for businesses to create a single source of truth. Doing so will keep them compliant but also benefit the business in numerous other ways, by informing strategic decisions about how to allocate resources and optimise operations. Whatever form this system takes, it will reach its full potential when the tax function plays a central role in its development and works with finance and IT to implement it.

By leveraging the insights provided by tax data, and by collaborating across tax, IT, and the finance functions, businesses can take steps to better meet the needs of their customers and improve profitability.

Tax functions who are waiting for a steady moment to push for action on transformation need to understand that organisations, particularly large ones, and particularly in today’s economy, are in a constant state of change. The right moment for action to bring data to the forefront of operations is now, and tax can drive this change. By standing still, tax departments are missing a huge opportunity.

Dive Deeper

Interested in how the tax function can positively impact the business as a whole? Download our research in How to Amplify the Strategic Value of Your Tax Function.

Ryan Author:

Jun Miyake
Tax Technology