CEE insights from the Future of the Tax Function Survey

In the increasingly dynamic business environment of Central and Eastern Europe, the regulatory landscape and compliance responsibilities are also influenced by changes. Tax functions need to adapt swiftly and efficiently to meet evolving needs and expectations. Upskilling—especially when it comes to new technological tools—becomes crucial in building resilient, future-proof tax functions. 

Under PwC’s Future of the Tax Function Survey, we had an opportunity to ask tax and finance managers, directors and vice presidents, and other individuals in charge of the tax function area from CEE how they run current tax functions, deliver tax processes and what changes they expect in the future. This helped us create a comprehensive picture of how tax functions may look tomorrow.

Tax management is now a critical area demanding heightened attention and efficiency across organisations. The tax function is no longer confined to traditional norms but must adapt to dynamic technological advancements and navigate through rapidly changing legislation.

Our survey indicates that 52% of organisations in the Central and Eastern European region, and 57% globally, anticipate a surge in tax reporting and compliance responsibilities. However, only 30% of respondents from CEE plan to increase their tax function budget in the next year. 

How do you expect your tax function budget to develop over the coming year?

Once considered routine, tax compliance is undergoing a transformative journey, breaking free from conventional norms and adapting to technological advancements and rapidly changing legislation. Today, tax functions are a dynamic and multifaceted domain that requires constant vigilance and adaptability. As businesses expand globally and operate in increasingly complex environments, the challenges associated with tax management have become more intricate and demanding.

What do you see as the biggest challenge for your tax function?

Apart from evolving regulations that are becoming increasingly complex, one of the key drivers of the shift is the relentless pace of technological innovation. The integration of advanced technologies, such as artificial intelligence, machine learning, and data analytics, has revolutionised the tax landscape of businesses. While implementing new technology seems to be a significant challenge for 36% of CEE survey respondents, automation has become a real game-changer. Through streamlining repetitive tasks, enhancing accuracy, and allowing tax professionals to focus on strategic decision making rather than manual data entry, technology is rapidly changing the operations of tax functions. 

Furthermore, tax functions are no longer confined to the realm of accountants and financial professionals. Tax functions have become a collaborative effort that involves cross-functional team cooperation within organisations—and seamless collaboration between tax professionals, legal experts, and other stakeholders to navigate through the intricacies of tax settlements. 

Connected Tax Compliance is about creating better links between tax professionals, their key stakeholders, the data they work with, and the technology they use. It involves improving connections between different jurisdictions in complex global organisations, as well as between particular taxes. Connected Tax Compliance ensures data and tools can be shared, whether the issue concerns direct or indirect taxation, transfer pricing, environmental taxes, or other matters.

Our approach focuses on connected teams, data and insights to fill any process gaps and enhance companies' existing capabilities. We meet our clients wherever they are in terms of technology, skills, legacy issues, or future goals—independently of their business model or industry they operate in. Through close collaboration, we leverage the resources already in place to achieve real-time, measurable results faster and more effectively.

Our experience shows that technology is central to an efficient and future-ready tax function. According to the survey, 61% of CEE respondents emphasised the critical importance of technological upskilling for their staff—signalling a paradigm shift in priorities. Additionally, 55% of organisations in the CEE region face challenges with access to data necessary for predictive modelling crucial in broader finance and tax decisions. To bridge this gap, it is imperative to leverage technological tools capable of extracting and analysing data seamlessly. However, as 36% of organisations in CEE foresee implementing the latest technologies as their most significant challenge, it is paramount that these tools are intuitive and user-friendly, ensuring a smooth transition into a technologically empowered tax landscape.

While the aspiration for organisational transformation through technology is widespread, the journey to realisation often proves far more arduous than initially expected. Challenges such as budget overruns, incomplete transformations, and lower than expected returns on technology investments are frequently encountered along the way. When seeking to streamline their compliance preparation processes through technology, tax departments must remain vigilant to avoid potential pitfalls of transformation initiatives and take proactive measures accordingly.

The reality is that transformation can frequently fall short of expectations. This is underscored by findings from the global survey. Despite a unanimous consensus among respondents regarding the pivotal role of technology in addressing escalating compliance and reporting requirements—as few as 3% of CEE-based survey respondents use technology point solutions for tax purposes to a great extent. 

To what extent does your organisation make use of the following to support tax compliance delivery?

These statistics point to a critical gap in leveraging technology to its fullest potential within the region's businesses. As companies strive to remain competitive in an ever-changing marketplace, closing this technological disparity and harnessing data for informed decision-making will be imperative in driving sustainable growth and compliance excellence. Additionally, only 24% of respondents have actively pursued the transformation of data into actionable insights for both tax functions and broader business strategies.

How effective would you say you/your organisation's tax function is in the following areas?

As companies invest in technology and look to stimulate AI-driven transformation, it presents an opportunity for the tax function to seamlessly integrate into a cross-functional business transformation initiative. Presently, there is a wide array of tax technology options and implementation methods—including in-house, co-sourced, outsourced, or a combination. Regardless of the approach, investing in a robust implementation strategy is critical and will ultimately determine success.

Explore the new possibilities and create an agile, robust tax function with current technology developed by PwC experts. 

Navigating the intricacies of rapidly changing regulations at both EU and national levels has become a major challenge for businesses. Governments are reassessing their fiscal strategies impacted by recent socio-economic challenges, including Russia's war in Ukraine, rising inflation rates, and the lingering effects of the COVID-19 pandemic. Also, the intensified focus on Environmental, Social and Governance (ESG) business practices and rapid technological advancements, which need to be regulated, are influencing the legislative landscape. Being under the impact of these and many other factors, 79% of CEE survey respondents identify regulatory shifts as the most significant challenge for their tax functions.

Additionally, with technology revolutionising business operations, tax policies have also substantially changed to keep pace with digital transformation. The evolving legislative landscape not only poses challenges but also elevates tax risk, with 64% of surveyed CEE organisations recognising proactive tax risk management as the prime opportunity to add value to their business. 

How effective would you say you/your organisation's tax function is in the following areas?

While just over 52% of CEE-based survey respondents reported tier organisations are highly effective in meeting regulatory requirements, the majority of the remainder feel they are merely moderately effective (39%). Only a small proportion of 3% see their organisation as being not at all effective in terms of regulation.

An illustrative example of a regulatory change about to make a significant impact on numerous businesses in the CEE region and globally is Pillar Two, which is expected to enter into force in the coming months. According to our survey, only 9% of our respondents claim they are very well prepared to meet the new requirements stemming from Pillar Two.

Where relevant, how prepared do you feel you are to meet the new Pillar 2 regulations and filing requirements?

This reveals an urgent need for companies to reassess their readiness and take swift action. Proactive measures including—thorough evaluations, strategic planning, and expert guidance—are essential to effectively navigate the complexities of compliance. Failure to do so could lead to significant disruptions and penalties. It is, therefore, not only prudent but essential for ensuring business resilience in the face of evolving regulatory landscapes.

The rapid increase of regulatory requirements around tax, as well as dynamic regulatory changes, are considered by 79% of surveyed organisations in CEE as the biggest challenges for their tax function. Companies must constantly adapt to stay competitive, carefully dealing with tax planning to avoid serious reputational and financial damage. All this contributes to a higher tax risk. Risk mitigation, therefore, becomes the key goal in tax management.

Another significant risk considered by CEE respondents is that many companies do not have a dedicated tax headcount while every regulatory change extends compliance responsibilities. As many as 21% of respondents in CEE said they do not have a dedicated tax headcount, while 18% replied they expect an increased headcount.

What change do you foresee in the coming 3 years in regard to your tax headcount?

To address such issues, PwC runs Managed Services—employing specialised professionals to manage clients’ business functions across capabilities, including finance, tax, risk, compliance, anti-financial crime, legal, cloud engineering and data and analytics.

According to the survey results, organisations in CEE outsource their tax-related processes less than global averages. There is a prevailing trend of limited outsourcing of tax-related activities in the CEE region. Typically, these tasks are handled either entirely in-house or through a hybrid approach, combining in-house efforts with outsourcing.

For each of the following compliance-related activities, please select if they are conducted in-house or outsourced in some way.

The trend depicted in the chart above diverges from a global pattern. Worldwide,  companies are increasingly inclined to adopt outsourcing models for managing taxes—most likely driven by the swift rise in regulatory demands and the constant flux of changes. We believe outsourcing tax-related activities to shared service centres and/or external providers will help increase cost efficiency and improve real-time reporting.

In a nutshell, efficient outsourcing can help numerous businesses avoid the costs associated with training and recruiting in-house tax preparation professionals, which can escalate depending on the intricacy of your company’s operations.