Safeguarding the tax function

As authorities tighten their stance on their need for transparency, in a bid to restore fairness and integrity to today’s tax systems, how are tax functions preparing for the digital disruption caused by increased globalisation?

The OECD/G20 BEPS project resulted in a framework of 15 actions (released in 2015) designed to support governments with domestic and international rules in their crackdown on tax avoidance strategies, ensuring profits were taxed where activities were carried out. The beginning of 2019 saw the OECD announce a new programme of work, termed BEPS 2.0. Released on January 29th, version 2.0 aimed to introduce further reforms to the framework for international taxation. As a result, authorities have invested heavily in modernising their systems to increase transparency, accountability and to aid them in the collection of what they deem to be a “fair share”.

Tax functions are now under increased pressure to meet the demands set by authorities, who are seeking increased volumes of data within shortened time frames. As part of Governments’ vision to improve the tax system, the filing of tax returns is now no more. Today, tax functions must be equipped to provide real time data to allow authorities to make their own assessment. This fundamental shift, from output (in the form of returns) to input (the data) is a key focal point when assessing how functions are faring in the race to modernising their approach.

The risk, if functions are not able to truly understand its own data, is that authorities may reach their own (potentially incorrect) interpretation. The focus now firmly sits with authorities when it comes to demanding what companies owe. Whether this is accepted or rejected is another question.

Subsequently, many businesses are now focused on transforming their own tax operating models, investing in the right people, processes and technologies.

Ensuring the function is prepared for the introduction of S/4 Hanna by 2025, making sure the function is fully integrated within the business and ensuring tax is positioned to act as an effective business partner will aid in the need for real-time data. Finally, hiring professionals with that challenging mix of tax technical understanding and IT literacy will increase the accuracy and the understanding of the data, all of which will help position the tax function well in today’s digitalised environment.

Authorities’ own digital transformation has further enhanced the need for tax functions to be forward thinking. Tax officers must now adapt their approach to meet the increased type, volume and transparency of information required by authorities.

A clear strategy and the adoption of a technology road map is therefore critical to today’s modernised tax function.

Several questions must therefore be asked

  • Is the tax function structured correctly in respect to its IT systems and processes?
  • How well integrated is tax into IT and Finance transformations?
  • Is tax aligned with the business?
  • Do they have the correct talent in place to interpret such data?

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