Tax departments can be either centralised or decentralised and for the most part, are an integral part of the Finance arm of the business. In some multinational companies, the tax function can also operate independently.
Typically, the tax department carries out the following functions:
- Fulfilling all tax compliance processes – the key focus for every tax department is in essence to fulfil compliance requirements timely and accurately.
- Managing the operational or transactional taxes – indirect taxes applied to purchases and sales transactions, mainly influenced by the supply chain from a purchasing perspective and route to market from a sales perspective.
- Accounting for income tax – carried out on a quarterly, semi-annual, or annual basis. The direct tax team will examine the immense amount of data required to determine the income tax liability for the organisation.
- Assisting with key decision-making – tax strategy or planning teams assist in key business decisions such as a new supply chain route, new product launch, and most importantly business restructuring activities.
- Transfer pricing and profit tracking – a crucial role in the process of trading goods between parties and across borders, tax professionals ensure prices are aligned with local market prices or OECD regulations.
Tax professionals face similar challenges across most organisations:
- Quality of data
- Consistency of data (Data Standards)
- Compliance processes
- Staying informed of regulatory changes
- Tax tools to support strategic business decisions
Quality of data:
This is one of the biggest challenges faced by tax departments. Lack of quality or accurate data leads to poor tax decisions or loss of opportunities to recover more taxes, as well as impacting the timely completion of compliance processes.
Usually, IT teams do not involve the tax department in ERP data governance and do not consider tax implications when defining the data standards in upstream master data.
Consistency of Data:
The use of varied systems for different processes usually results in inconsistent data across the process chain. Often, compiling and standardising data for use involves considerable manual efforts if the right tax technology is not in place.
MNCs are required to satisfy different geographical compliance requirements in very tight timelines. As governments are moving towards electronic tax filing, without appropriate tax software in place, tax departments are struggling to meet deadlines. Failing to comply with deadlines risks not only heavy financial penalties but also risks the organisation’s global reputation.
In some countries, legislative changes are more frequent than others. Most governments are moving towards e-governance and e-filings so some recent changes are related to business operations, such as electronic invoicing. To remain up to date with continuous legislative changes, advancements in technology like ERP systems are essential to continue business operations.
Tax tools allow for the creation of data models for the simulation of business scenarios based on internal and external market factors that influence key strategic decisions. Without the appropriate data analytics tools, business intelligence reports, and executive dashboards, the collation of data is a manual and time-consuming process for tax departments.
A key function of tax technology is to allow for the efficient performance of value-adding tasks such as planning and strategic decisions in line with the organisation’s objectives.
Improving the Compliance Process
Exploiting opportunities to automate activities via integrating robotic process automation with existing ERP systems allows for the elimination of repetitive manual tasks and improvements in compliance processes. Predictive analysis of transactional data using artificial intelligence and machine learning can identify potential issues far in advance of the compliance timetable.
Utilising Latest Technologies:
Implementing best practices in ERP systems like SAP S4 HANA, NetSuite ERP and Dynamics is essential to using tax technology efficiently. Automation – of complex tax determination logic and tax compliance processes – can be done using the external tax engines that have native integrations with ERP systems.