Trusted data: 5 essential considerations for the tax department

We’ve seen a spike in the evolution of new technology solutions, enterprise resource planning transformations and use of data lakes. Responsible use of generative AI (GenAI) requires an updated data strategy, but most companies are still struggling with disparate data sources from multiple legacy financial systems. It’s time to rethink or even generate a data strategy for tax to help address pressing compliance challenges, generate the types of insights necessary to support C-suite agendas and alleviate burdens on tax teams.

Here are five consierations to help you chart a way forward.

Data can help drive the overall effectiveness of your tax function

Tax struggles with disparate data sources from stakeholders across finance and accounting, and often not at the level of granularity the tax function needs. We estimate that teams may spend more than half of their time gathering, organizing, formatting and processing data, and often handling the same information repeatedly. Crunch times riddled with manual data-related tasks can lead to process bottlenecks or errors that may put your organization at risk.

There’s a tangible cost for that lost time, and an even greater opportunity cost. Tax executives and team members alike want to focus on forward-thinking tasks, such as:

• Delivering insights for more informed decision-making and planning
• Serving as a strategic partner to finance, HR, legal and the broader business
• Performing advanced and timely forecasting and modeling
• Getting ready for more audits and controversies on a global basis

Regulatory change may require tighter controls and greater flexibility around data

New, unprecedented reporting requirements require a fundamental look at how tax gets things done. The OECD’s Pillar Two currently requires a large number of data points not previously collected, such as global payroll in every jurisdiction where you operate. Different stakeholder groups (e.g., people, legal, IT, controllership) own each data set. Ad hoc data flows established years ago to comply with country-by-country reporting probably aren’t going to suffice to address new obligations.

But it’s a lot more complicated than simply creating specific data flows. Here’s why:

• Pillar Two obligations are not static. Rules continue to evolve rapidly as more guidance is released and more countries enact legislation. Building agility into data flows and processes is critical so no rework occurs when more guidance is released.
• Tax functions face incredible pressure and higher risks if they don’t have quality legal entity and jurisdictional data. A critical step is to reassess the core data flows — what information is available from ERPs, financial reporting systems, provision software and other sources of transaction detail and how you can gather data that fits your needs.
• C-suites and the business should understand the financial impact for forecasting and other planning. Innovative design of data flows and processes can enable prompt modeling, as well as dashboard visualizations and audit-ready reports.
  

Shift your employee experience from data work to value creation

Nearly every strategic business decision has tax implications. ESG and sustainability initiatives are typically high on the C-suite agenda and tax insights and data can enhance each. The tax function can play an integral role by, for example, describing the company’s total tax contribution to society, such as how much tax is paid around the world into government coffers.

Business leaders are leaning on tax for other critical areas, including:

• Credits and incentives to help fund investments
• Mergers, acquisitions and growth strategies
• Cloud and digital transformations
• Operational reinvention across borders

These are data-dependent objectives, and today’s C-suite executives expect the tax function to have this information at their fingertips. Tax may be expected to deliver prompt, ROI-enhancing insights that can refresh assumptions and reaffirm analysis quickly as business objectives evolve. A well-crafted data strategy gives tax professionals the solutions to do this, think beyond compliance and innovate, and enjoy a better work experience.

Spend time on your data structure now for potential future audits

Siloed data processes and ad hoc, non centralized approaches may have been sufficient historically to perform core reporting tasks. But there are significant reasons to rethink that approach and look across many data needs to solve multiple problems at once. While there is no single fix such as having an ERP system spit out precise data, defining data once — such as through a data dictionary that feeds many downstream processes and calculations — is a critical goal. Here’s why:

• Focusing on the data needs of one specific process at a time can be highly inefficient because it can result in many different processes and workflows to source data. This typically yields jurisdictional and process inconsistencies, making ongoing regulatory change challenging and expensive — sometimes near impossible.
  
  In addition, needed data sets are beginning to overlap. Data necessary for tax compliance has commonalities with ESG and sustainability reporting — as well as Pillar Two — making centralization even more important.

• Data discrepancies between calculations arise when teams aren’t using the same data source. Tax authorities target these inconsistencies during an audit. Examples may include revenue data used for both state sales tax and state income tax apportionment, as well as fixed asset data typically utilized for a variety of tax calculations. The burden is on the taxpayer to resolve, so it’s not surprising that many tax functions leverage centralized data sources to reduce this risk.
  
  And it’s not just about data consistency. Tax authorities around the world are embracing digital solutions such as AI and data analytics to match data with multiple sources — audit assessments are sent faster, often in real time — and they expect taxpayers to have similar capabilities to submit more underlying source data and respond to audit requests more quickly.

• Audit readiness is no longer just focused on having audit-ready files. Key person dependencies can create risk when audit processes require people familiar with the filing to support. Removing this people dependency by leaning more on data strategy is critical to being resilient during a rapidly shifting controversy landscape.

Tax data quality will likely affect your ability to take advantage of GenAI

A solid data infrastructure can be a springboard for emerging tech such as GenAI, which has the potential to help streamline almost every aspect of the tax function and achieve major, rapid ROI through the technology’s scalability. Pre-trained GenAI solutions can embed a company’s specific financial data and help answer prompts and requests from tax professionals, helping the tax team grow capacity and work better.

The quality of output that advanced automation solutions can generate depends on the quality of input. The more tax has its data well-managed and segmented by purpose, the more it’s going to be able to monetize GenAI. And when tax has core processes using similar data sets — by leveraging advanced approaches such as ERP sensitization, cloud platforms and other downstream solutions — the more it’s going to be ready to use emerging tech.

How to get started

It’s no longer a lofty goal to obtain navigable, reliable, and holistic data — it’s what’s expected. Tax functions should build a sustainable data strategy that not only helps alleviate reporting burdens and risk, but also informs enterprise-wide business decisions. It can start with a candid assessment of the following:

1. Where you are now. Trace your data from source to reporting outputs, including data sources, relationships and processes. Who owns the data and what is its integrity, completeness and quality? How is tax working to find potential anomalies and what are the assumptions?
2. Your blueprint for the future. Analyze what data profiles and qualities are critical for the tax mission. What common data models meet your tax function where you are? What are the most pressing components, such as ERP sensitization or centralized data platforms? And what capabilities with respect to analytics and modeling can better serve the business?
3. What hurdles may stand in your way. Deploying data strategies can involve crafting a roadmap for change that includes execution as well as transition. It should also include what ongoing maintenance and support are needed to sustain continuing benefits.

Precise data from a single source may not be possible, but you can develop a scalable strategy for curating data that offers a solid foundation to help deliver greater value to the business and meet whatever challenges arise for years to come.