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10Minutes

on transforming the tax function

Add strategy, subtract risk in your company's tax department

It's an opportunity hidden in plain sight. The tax function is often overlooked as an area for improvement, unlike more obvious choices such as supply chain or business services. Yet the tax group plays a key role in every business transformation, feeling impact whenever change or growth happens.

Shining a light on the tax group can reveal untapped opportunities where changes in technology, process, people, and data can lead to benefits for the broader business.

In an increasingly complex regulatory environment, the temptation is great to focus solely on compliance and data manipulation.
But a strategic tax function doesn't have to be a major disruptor or cost; make targeted changes over time to reap the benefits.

How could my company benefit from a tax transformation?

  1. More time for strategy. Less manual effort means tasks (like integrating global data) can be completed much more quickly. Many companies spend upwards of 60% of their time just accumulating, manipulating, and validating data.
  2. More informed decision making. As tax leaders spend more time on strategic activities, they can use analytics to model the effects of business opportunities and focus on forecasting.
  3. Greater access to useful information. The tax group will find it easier to locate and examine archived data to defend tax positions, make strategic decisions, and have a richer dialogue at the senior management and board level.
  4. Reduced financial reporting risk. Enhanced processes and automation
    can reduce surprises and the risk of tax provision errors.
  5. Improved compliance. Tax compliance quality can benefit from the extra time spent on review and analysis.

At a glance

With growing uncertainty surrounding tax regulations, your company must be ready for any operating environment.



Why transform tax?


Boost your tax team's effectiveness

Unlike other areas of business, the tax function often lacks a strong investment in technology from the company. Only 20% of organizations currently have a dedicated IT role in their tax department,3 which can lead to a lot of manual labor, reduced transparency, and little devotion to analytics. Yet almost 75% of companies think better use and integration of technology and data would improve their team's effectiveness, according to a survey of 101 manufacturing companies, the first in an industry-specific series.4

Free up tax talent for strategic work

A majority of tax departments say they spend less than 30% of their time on strategic analysis.5 Inefficient or undefined processes often create redundancies in day-to-day tax efforts.

The consequences can be serious. Tax-related items are perennially among the chief causes of financial restatements6 and control deficiencies. Among the 768 financial restatements filed by public companies in 2012, 14.6% were due to problems with tax issues—the second-most common cause of restatements.7 Restatements can result in reputation risk and eroded stakeholder confidence, as evidenced by stock price declines. On average, share prices drop by 5% prior to the day before a restatement announcement and an extra 1% after.8

Reissuing numbers for a restatement also represents a significant effort, placing stress on key tax talent.

Reduce financial reporting risks

As regulatory scrutiny increases, companies can't afford to make errors, yet many organizations still use non-automated systems and spreadsheets to track and manage data, which inherently puts them at greater risk for mistakes. Nearly a third of companies we polled say they manage their tax documents through email, which makes it time-consuming to find the data needed when tax deadlines loom.9


Tax tactics: Four areas ripe for improvement


Transforming the tax function may sound like changing tires on a moving car. How do you do it without disrupting activities and losing institutional knowledge? Look at these four areas.

1. Technology: Have a plan

Companies should have a three- to five-year blueprint for how enterprise technologies can support their tax strategy. The strategy needs to address areas of provision, compliance, controversy, document and process management, analytics, and data integration.

Companies prioritize tech investments based on their pain points. One multinational organization started with document management. It took advantage of a collaboration platform that the company licensed in other functions and extended it to tax for global data collection, document management, collaboration, and process management for over 500 worldwide users. With such systems, a company can find ways to streamline activities—for example, linking tax provision with the tax return. This can create efficiencies and decrease risk by reducing the number of redundant activities in the process.

2. Processes: Automate and make visible

Manual and disjointed processes are a distraction and limit data access to only the person conducting the process. By bringing data, documents, and workflow together, multiple people can collaborate and share information, all with visibility into their processes, so they can easily track statuses and identify bottlenecks or inefficiencies. Dashboards can show whether deliverables are on schedule and how to redeploy resources to meet deadlines. These dashboards can also be customized to benchmark against key performance indicators, like effective tax rates or cash taxes.

3. People: Create more collaboration

Integrated and well-organized documents, data, and workflow can lead to increased collaboration and sharing of tax documents across tax, finance, and other functions. This positions the chief tax officer to manage risk instead of sweating the small stuff.

Currently, tax personnel spend roughly 40% to 60% of their time on data management tasks, which takes them away from strategic tax analysis, planning, and risk management activities. With this time freed up, the tax function can devote more attention to strategic activities.

4. Data: Dive deeper

The final tax frontier is converting data into strategic information to help with forecasting and modeling. A company might use data to consider the tax implications of acquisitions or financing transactions, model the effect of tax law changes on planned business activities, or run what-if scenarios for transfer pricing. Transfer pricing can be one of the most challenging processes in an organization, with a finance view, a supply chain view, and a tax view. Integrating these different views together to make an optimal decision is possible with a transformed tax function.

Domino effect: Triggering value through tax



A company that invests in the tax function can improve the whole business.

1. Cutting time spent on empty tasks

One multinational technology company that deals with complex tax processes in numerous global jurisdictions realized its people's hours were spent finding the most recent tax documents, as multiple versions had the word "final" in the filename. Hard-copy documents posed a problem, too: The company had ambitions to become paperless, but its goal was not in sight.

A document management and collaboration platform turned things around, allowing for version control, revision history, and notification alerts with any changes made. This reduced the amount of re-work and helped people eliminate wasted efforts. As a result, the department's efficiency increased by 25%,10 and management was freed up to focus on more strategic objectives, such as modeling the impact of supply chain planning. Now, the tax group is leading the enterprise by example and is close to achieving its paperless objective.


2. Managing global operations with agility 

A $2 billion company was expanding its international footprint and realized that given the rapid growth, it didn't have the manpower to prepare the tax reports and documents needed. Additionally, the company's data was decentralized, and its in-house staff didn't have access to the information required to issue financial statements.

Using outside help, the company met its immediate tax provision needs. With a new focus on the tax function, the company improved its data collection, standardized its processes and workpapers, and made its deliverables more useful, including tax returns and provision information. In addition, the company shifted its data to one location so that every global office could access it. These changes allowed the company to be more nimble and informed in managing tax audits across the globe. This also created opportunities to use shared services for other tasks.

3. Smoothing M&A integration 

One large consulting and outsourcing firm made two major acquisitions that required complex integration with all its global systems. It needed to navigate a multitude of tax returns and regulations from multiple countries, extract the right data, and address compliance while still trying to integrate the business and numerous tax functions.

The company formed a staged plan to gain better control over its tax reporting obligations while also improving the quality of these filings. It used collaboration tools to automate tax data collection and standardize routine processes, too. This allowed management more time to look at key risk areas (such as their global transfer pricing policies), as well as opportunities for value creation (such as the pursuit of tax incentives).

Four questions to consider before transforming tax



Tax is an area that's impacted each time the business changes. What should you think about to get your company's tax function up to speed for continued volatility?

1. What are the telltale signs that the tax function could be more strategic?

Find out how senior tax people spend their time. Are they involved in a lot of low-level activities? Do they have to put out an endless series of fires? Do there appear to be challenges in the close process? For example, we've seen income tax accounting take more than 50% of a tax department's budgeted hours.11


2. How is this different from Lean, Six Sigma, and business process engineering?

It's not. In most organizations, similar challenges have been addressed in finance, manufacturing, customer relationship management, and supply chain. This kind of performance improvement can also apply to tax.

3. Which groups should be included in the planning stage?

It depends on the organization and its goals. Sometimes there may be opportunities to bring tax into an enterprise-wide finance or supply chain transformation project and get additional returns on these investments. Or there may be the chance to include tax transformation as part of the integration of a business acquisition. In each of these cases, the key groups would include broader finance, operations, IT, and corporate development team members.

4. How do we start the changes? 

Tax function leaders should take a close look at the data they need, the technology they use, and their current processes, then consider where they want to be. What new technology will be required? What functions are affected? 

The key changes often revolve around an enterprise resource planning (ERP) system, which uses software solutions to manage complicated tasks and data around different business functions in one place. Many times, tax isn't included in an ERP implementation or upgrade, but organizations can gain big benefits if tax is involved. Tax can piggyback on technology investments already being made. This time spent upfront can allow an organization to reduce the amount of support needed from finance on ad hoc requests, better manage legal entity reporting, and help improve transfer pricing capabilities.
An ERP system should offer standardized data for tax reporting and analysis (like chart of accounts, legal entity reporting, and fixed assets) that support provision, compliance, and controversy processes, and include both direct and indirect taxes. It should be the base for management insight and planning across the tax and finance functions. Plus, addressing tax requirements during an ERP project can reduce the overall cost of future tax technology changes.

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How PwC can help

To have a deeper discussion about transforming your tax function, please contact:

Ken Kuykendall
Tax Reporting Performance Improvement Partner
(312) 298 2546
o.k.kuykendall@us.pwc.com

Todd Bixby
Tax Reporting Performance Improvement Principal
(612) 373 7143
todd.bixby@us.pwc.com

Michael J. Shehab
Tax Reporting Performance Improvement Principal
(313) 394 6183
michael.shehab@us.pwc.com

Andy Ruggles
Tax Reporting Performance Improvement Partner
(415) 498 5087
andy.ruggles@us.pwc.com

Tim Lapetina
Tax Reporting Performance Improvement Partner
(312) 298 3058
tim.lapetina@us.pwc.com

David Wiseman
Tax Reporting Performance Improvement Partner
(617) 530 7274
david.wiseman@us.pwc.com

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