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Transformation beyond digital: What can this mean for tax?
December 09, 2022
Businesses are transforming beyond systems and software. They are rethinking their role for tomorrow and focusing on new capabilities and ways of operating. Tax functions too are feeling the same need to re-examine their ecosystem with a different perspective. Steadfast operating levers such as Tax Managed Services are increasingly sought after to meet a wide range of new challenges.
The word “challenges” may not be strong enough. New pressures on tax functions are not your average, run-of-the-mill sort, and may be causing tax functions to reach a tipping point — in which any additional strain could potentially cause dysfunction, filing delays and costly errors.
The new US book minimum tax and the OECD’s Pillar 2 initiatives (as well as increased audit controversy worldwide) are taking center stage for many multinational companies. A new US excise tax on stock buy-backs and other newly released regulations pose additional burdens, just to name a few. Tax compliance and reporting overall is becoming a critical focus area for C-suites given the negative consequences (e.g., on reputation and brand) of getting it wrong.
On top of these demands, tax professionals must provide all the tax analysis and real-time insights requested by the C-suite and business leaders who want to understand how proposed business changes can affect the bottom line. Toss in a more extraordinary M&A transaction and a tax function can have an unexpected tsunami of new work to tackle.
Tax has many operating levers to pull — not just digital
We’re seeing tax executives seek a variety of approaches to help address daunting workloads and reach their objectives. But gone are the days of labor arbitrage: Hiring additional staff is a common approach, however, in order to keep a lid on costs, many companies are not doing so. And if they are looking for extra people, they may not be finding all of the talent and skills they need in the marketplace.
Another fundamental lever is harnessing the power of digital, such as integrating automation into tax processes and data flows. Tax functions are thirsty for the latest tech advancements in order to reduce manual steps and shift resources towards value-added, more strategic and analytical tasks. But it’s often difficult for tax to keep up with the latest tech tools and they are rarely the sole silver bullet answer by themselves.
So how are progressive tax executives responding? Tax Managed Services for specific tax function tasks is now a go-to lever. And the reason is simple. A managed service can be tailored to fit and help address multiple pain points at once. It not only allows clients to have access to the latest digital tools, but also deep technical and process know-how, as well as wide resource scalability to meet shifting needs. And it’s a far cry from simple outsourcing — Tax Managed Services is a connected strategy for the entire tax life cycle, embracing talent, technology and process challenges together. All while keeping a mindful eye on cost.
Here’s what an SVP of Tax of a top financial company recently had to say:
“Our managed services approach is tailored and continually evolves to meet our needs. It is a collaborative arrangement providing me industry-leading wing-to-wing tax support and technical experience, staffing and succession planning know-how, all while continually growing with real-time feedback.”
Not surprisingly, tax functions have their pick of managed service providers. But their choice may be akin to installing a metal screw. You can choose a basic solution, like turning it with your hand, which may get you a temporary hold, but using the proper power tool can more quickly provide a sturdier foundation to last for years or even decades to come.
Working with the right “power tool” for sustainable results
What criteria should tax functions be looking for? Unlike the managed services of years past, Tax Managed Services is not a commodity, and successful outcomes often hinge on not only the breadth of experience and resources of the provider, but their pursuit of continuing innovation. Without strong technology assets behind a managed service team, a tax function could lose out on a significant portion of potential cost savings and efficiencies.
For example, many companies struggle to track historic and current legal entity data and have difficulty producing an organizational chart without significant manual steps and coordination with other functions that are tracking similar data. A digital platform, such as PwC’s Entity Ops, is often critically needed to serve as a single source of truth for legal entity data used by tax, legal, finance, and other in-house professionals. This cutting-edge tool can put data at your fingertips — at the same time, thoughtful functionality turns complex data into simple visualizations.
In addition to innovation, we’re seeing companies keenly focused on cost take-out and how quickly a managed services engagement can be executed so that tax can help accelerate their focus on more strategic priorities of the business. Tax and C-suite executives also want managed services arrangements to be scalable and expand efficiently as the business grows. A focus on data efficiency and boosting governance frameworks are other important elements.
But the needs of the business are only half the story…
The outcome for the tax teams involved is a significant component. Planned transitions and a robust talent model that are thoughtful and filled with opportunities for tax staff to flourish as professionals are the backbone of success. Having a "people-first" strategy is a critical element for success.
Here’s what a VP of Global Tax for a large multinational recently had to say:
“We tackled a number of challenges after an acquisition using a managed services role. Strong relationships and collaboration, coupled with an understanding of our business, enabled us to exceed our C-suite’s expectations. One of the biggest winners? Our people. Opportunities were provided for them to grow and enhance their career objectives, for which we are grateful."
Bolstering your odds for success
Many businesses are taking a fresh look at their tax operations and evaluating their need to transform — everything from small undertakings to expansive transformations. Embedding managed services can be an integral part of these changes, whether they be big or small. It can involve simply addressing specific compliance pain points such as indirect tax compliance, as well as embracing a full managed services arrangement for the entire tax function.
But success is not automatic. The bottom line is that a company’s desired outcomes have a direct correlation with the experience, innovation and workforce empathy that the Tax Managed Services provider brings to the table. Matching these qualifications to the company’s priorities can greatly strengthen the odds for more valued and resilient results.
Let’s talk about your company’s current pain points for tax and how we can help.
PwC is a cutting-edge leader in the Tax Managed Services industry. We established the first Tax Managed Services ecosystem five years ago and continue to pave the way with advanced digital tools and unique know-how. Our dedicated practice, Insourced Solutions for Tax (IST), is one of the biggest in the industry. We have a strong focus on human capital, with transition planning and talent models developed over many years of experience with various clients. We focus on data efficiency and governance as an integral part of our approach.
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