A tax function’s capability to provide value depends on how well it is able to modify to the constantly evolving regulatory alterations at present, while contributing to a firm’s business strategy.
Often, most corporate tax activities are not able to address the operational incompetence. Increasing regulatory needs and restricted resources indicate that tax divisions are under constant pressure.
Progressive tax departments are performing an in-depth current state evaluation that delivers a roadmap of distinct actions, cost, and comparative significance of the tax functions to reflect enhancing efficiency.
These evaluations take into account the existing operational condition, organizational culture, and an aptitude for change.
The tax scenario is becoming complex as firms are expanding their sales & operational reach into other domains and facilitating mergers & acquisitions.
Information required for the tax functions is normally decentralized and stored in systems customized for financial & management reporting. This requires a substantial initiative to not only revamp the information for tax purpose but also comprehend the position of different tax instructions.
The pressure from globalization, increasing the requirement for efficient utilization of resources, and expanding focus on business synergy is forcing business/tax stakeholders to modify their approach towards tax operations.
The progress of tax operations is a continuous process, be it an outcome of strategic alteration as requirements emerge and circumstances transform. The questions surrounding tax operations revolve around normal operations, development in global tax governance, efficient utilization of tax data analytics, and international risk management competencies.
In the recent past, severe economic circumstances facilitated several business transformations that had an indirect effect on tax operations.
Currently, risk and existing business preferences are critical factors influencing tax operations. Tax stakeholders are concerned with the tax risk and it is one of the most important priorities.
The factors influencing the regulatory and risk environment are as follows:
In-depth emphasis on peer tax rates.
An increase in control by tax authorities.
Change in international business models.
A boost in the requirement for organizing the international capital.
Discussion on corporate governance and tax avoidance.
Uncertain tax legislation.
Critical regulatory environment.
Leadership emphasis on decreasing tax.
Enhanced importance of reputational risk.
Tax authorities also felt that quality impacted global tax compliance/reporting and was the number one concern. The other factors – tax cost and the capability for value addition were also key issues.
In other words, tax authorities wouldn’t be able to accomplish the expected outcomes by functioning normally, instead, they have to change their operations. However, the process of modifying the tax structure, while maintaining service quality is complex.
Efficient tax firms can maintain performance in a volatile business environment since they are excellent at change management. They have a robust leadership team, efficient resources/tools/technology, clear communication, effective service delivery methods, business analytics, and performance standards.
In order to cater to complex requirements, several tax activities are accepting a hybrid operating method, complementing the efforts of internal corporate tax personnel with an interface of top-notch internal/external sources.
Two critical features of tax operating models are tax centers of excellence (COEs) and shared service centers.
Centers of excellence are specific, delivering a distinct service. For e.g., the creation of indirect tax returns/statutory reporting. On the other hand, shared service centers are multi-dimensional and consist of many tax controls.
There aren’t any customized solutions. Distinct solutions are exclusive to specific tax department requirements. For instance, using internal human resources would be appropriate if there exists an adequate current scale via a delivery network, security threat, and data management.
However, it won’t be a binding solution – the tax personnel from a specific sector could leverage current service center to manage special tax segments, while a firm could use the current finance & accounting methods to perform “traditional tax assignments”.
A robust internal tax system would enable an organization to manage tax operations effectively while displacing internal personnel for specific functions.
Co-sourcing gives an organization the opportunity to use the tax expertise that would not be available internally. It also provides the opportunity to shift the organization’s resources to some other use.
The offshoring of tax functions/processes provides the following advantages:
Internal personnel can emphasize high-value functions.
The possibility of establishing a relationship with global personnel.
The scope for leveraging time zones.
Organizations emphasize many critical architectures that assist efficient implementation and viable performance. They provide transparent vision/mission/objectives.
Therefore, for transformation initiatives to be successful, it would be advisable to have a holistic approach towards the complete tax process. This enables tax stakeholders to conclude on hybridization and the methodology required to enhance scalability.