In a global economy which is constantly evolving, businesses have an increasing need for tax functions be able to navigate complex and changing tax landscapes. The traditional approach to tax has become outdated, with businesses struggling to keep up with digital transformation, globalisation and shifting regulations. It calls for a reframing of the tax function, a fundamental shift in how businesses approach their tax strategy and compliance.
In this article we will explore the main trends and challenges that tax functions will encounter in the next few years, look at how they are currently organised, and provide some recommendations and best practices to help tax functions adapt and add value to their organisations.
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Megatrends: what has changed and what is the way forward?
A number of megatrends are reshaping the tax landscape and will have a profound impact on the tax function of the future.
First and foremost, tax developments are no longer limited to local jurisdictions. The global nature of today's business environment necessitates a comprehensive understanding of tax regulations and policies worldwide. Headquarters must be able to oversee and navigate tax landscapes across different countries, ensuring compliance and mitigating risk.
Swiss companies must adopt a broader perspective when it comes to tax matters. Current and upcoming topics such as Pillar 2, EU public Country-by-Country Reporting (CbCR) and Australia's public CbCR should be given careful consideration. It is crucial to understand and respond to these developments, even if some of them may seem unrelated to the Swiss tax landscape at first glance.
Another critical aspect to consider is the long-term consequences of a single decision. In a rapidly changing tax environment, decisions made today may have adverse impacts in the future. Therefore, tax functions must adopt a forward-thinking approach and consider the potential consequences that may emerge three or five years down the line.
The globalisation of the world economy, coupled with increased geopolitical instability in many regions, will lead to additional challenges for tax functions in the future. For example, the preparation of contingency planning in the event that a key shared services centre location may be unable to provide key tax deliverables due to political, social or military unrest is another possible topic to consider.
Finally, technology is revolutionising the way businesses approach tax. Automation and digitalisation are streamlining tax processes and enhancing accuracy, thereby improving tax audit efficiencies. Embracing innovative digital tools and leveraging the opportunities presented by artificial intelligence will be essential for tax functions to stay ahead of the game.
Charting the path ahead: what is the perspective for the tax function?
We have given this question a lot of thought and come to a definitive conclusion – the tax function is bound to undergo a radical transformation in the future. With growing compliance and reporting responsibilities (such as Pillar 2 and sustainability disclosure frameworks) as well as radical technological changes affecting the way both businesses and tax authorities operate, a new paradigm is emerging, reframing the way businesses approach their tax functions.
The tax function has an important journey ahead of it, as it must seek to establish its rightful position and embrace a proactive role. It must navigate between efficient production processes and creating value-added contributions.
Answering the challenges with a dual role of tax: compliance and reporting versus tax advisory
Broadly speaking there are two main areas within tax function, namely (i): tax compliance and reporting, and (ii) tax advisory. In both cases, the challenges faced by tax functions can include keeping up with constantly changing tax regulations, managing large volumes of data, integrating tax technology solutions and dealing with complex cross-border transactions. The connection between the challenges faced by the tax function and its operating model lies in the resource allocation. Different roles may present specific challenges, but ultimately it is essential for tax operations to address these challenges in order to be able to fulfil their responsibilities effectively.
Tax compliance and reporting is widely seen as repetitive, inefficient and a non-value adding production process. Organisations often find themselves in a situation where a significant portion of their workforce (Full-Time Employees, or FTEs) is consumed by the manual tasks of data collection and return preparation instead of utilising technology solutions. This calls for a transformation in the way compliance and reporting are managed, highlighting the need for organisations to adopt sustainable and technology-driven solutions. By implementing such solutions organisations can streamline their compliance processes and enable FTEs to focus on more value-adding tasks, which ultimately enhances overall efficiency, employee well-being and productivity.
We also cannot forget that given the latest developments on the regulatory and compliance front and the way that tax authorities are using the technology, compliance will look very different in years to come as, for example, real-time reporting becomes more prevalent. The key will be for the tax function to master the technology as well as to capture and track quality tax data and make it available in order to add value to the business. This will require innovative approaches, collaboration, co-sourcing skills and adopting new technology.
Tax advisory, on the other hand, is a more strategic role that can add a lot of value to the business. Given their pivotal role, tax functions have the potential to help create and harness immense opportunities for the business. By actively collaborating with other departments and stakeholders both within and outside the organisation, tax advisors can contribute to informed decision-making processes, enabling strategic planning that takes tax implications into account, possibly limiting tax compliance obligations and mitigating possible tax risks. This approach paves the way for more efficient and effective business operations, as well as identifying opportunities for tax savings or optimisation.
Unfortunately, tax functions are not always accorded a status that this important advisory and strategic role would merit. While many companies in Switzerland have the head of tax directly reporting to the group CFO, in some cases there are signs of a trend towards “downgrading” the role to make the head of tax accountable to the group controller or head of finance. We would argue that this move is based on a lack of understanding of the true extent of what the tax function can bring to the table and the value it can add – and the even greater value it will be able to add in the future. It is time that tax leaders take concrete steps to make their organisation aware of this value.
What is the actual challenge?
The dilemma arises when organisations are faced with the question of which challenges to address first. This situation puts decision-makers in an increasingly difficult position, as they must carefully balance the need for improvement and innovation with limited financial resources. This often leads to a tendency to maintain the status quo, as this may appear to be the safest option in the short term.
Complicating matters, organisations may also have conflicting priorities that add further complexity to the decision-making process. However, it is essential for them to recognise that maintaining the status quo may hinder their ability to adapt to changing market conditions, and as a result they may miss out on potential opportunities coming from tax advisory.
To navigate this dilemma successfully, organisations must carefully weigh the potential benefits against the financial limitations and make informed decisions that align with their long-term goals in a sustainable manner.
The way forward
Tax functions that want to move more towards tax advisory and business partnering have to do two basic things. They have to transform the “strategic” side of the tax function and put resources into shifting towards a more advisory role. On the other hand, they have to set up their day-to-day tax operations in such a way that they require fewer human and financial resources to achieve compliance, but are also capable of managing and supplying the data that will enable the tax function to fulfil its new value-adding role.
One obvious option for fulfilling the compliance and reporting role more efficiently and thus freeing up resources for more value-adding activities is outsourcing. Of course there are many different options, ranging from full outsourcing to the outsourcing of selected tax production processes. It's important to recognise that there is no one-size-fits-all solution, but all solutions ultimately have the same goal: ensuring the organisation is tax-compliant in all relevant jurisdictions in the most efficient manner. By handling the production side of tax more efficiently, you can create a solid basis for transforming the value-adding side of the tax function and taking it to a new level of relevance within your organisation.
Furthermore, a crucial part of achieving effectiveness in daily operations and enabling real-time insights for the purpose of decision-making is effective data management. To master this challenge it’s important to see data management as an end-to-end process, encompassing the way tax data flows from local accountancies to the group as well as the processes of usage, storage, leverage and keeping it safe – not only until it is submitted to the tax authority but all the way until the statutory expiration date.
Another key component of streamlining tax operations is technology integration and the ability to harness the latest advances in areas such as AI, data analytics and automation to improve efficiency, accuracy and reliability. These technologies are as relevant to the tax function as they are to any other area of the business. Tax authorities are continuing to invest heavily in these areas to transform their approach towards analysing and interacting with taxpayers.
At PwC we combined the above components into an approach called “connected tax compliance”, which enables companies to streamline their tax processes as well as enhance accuracy and mitigate risks. We call it connected tax compliance because it involves integrating various aspects, including data and technology, across a number of different tax compliance obligations.
Where do I stand?
In this article, we have tried to show why it is important for tax functions to take a more proactive approach in order to tackle routine tasks more efficiently and how to free up resources for more value-adding work. Tax functions have the potential to drive efficiency, transparency and sustainability. Their success in doing so will have a significant impact on the role of the head of tax and the way the function is perceived and valued within the organisation. We encourage tax leaders to work out how they could be getting more out of their resources and expertise.
We are here to help companies take the necessary steps. To get a clearer idea of where global and regional headquartered Swiss groups stand in terms of the evolution of the tax function, we are doing a survey in which you are warmly invited to take part. The feedback you receive on the findings will give you a more accurate assessment of where you stand compared with your peers.
Please note that the results of the survey will be anonymised and shared in an aggregated manner.
