Navigating the intricate terrain of tax compliance has never been more crucial for corporations, especially in the dynamic landscape of evolving regulations. The heightened scrutiny on governance by tax authorities across the globe, urges corporations to transparently demonstrate how their tax positions align with their disclosures. Simultaneously, the changes introduced by the Organisation for Economic Cooperation and Development’s (OECD) BEPS Pillar Two framework indicate a substantial increase in reporting requirements, demanding meticulous attention to approximately 230 data and calculation disclosures distributed, across jurisdictions, impacting how the tax department and other functional units of multinational organisation’s govern and manage the risks, compliance and reporting of BEPS Pillar Two.
The challenge lies not only in the sheer volume of data but also in its diverse origins, often dispersed across different segments of an organisation’s ecosystem. This accentuates the pressing need for digitisation and automation within the system to efficiently coordinate and consolidate this global compliance and reporting requirement.
In this complex landscape, large multinational corporations find themselves at a crossroads, contemplating the selection of a software tool that aligns seamlessly with their current needs and anticipates future demands.
The decision often reprises of choosing between an effective specialised tax software solution or developing a custom add-on as part of a broader technology platform or Enterprise Resource Planning (ERP) system, for example. Data suggests that high performing companies use 45% more tools than relatively lower performing companies. Suggesting a well-considered technology investment often enhances a potential lift in performance.
As corporations grapple with tax technology decision making, it is imperative to delve into key considerations that will shape the evaluation between these two alternative options of effectiveness versus convenience. This article explores some of the critical factors that should guide corporations in making informed choices to align with both, their immediate requirements, and long-term strategic objectives.
1. The balance of control and agility for sustaining tax system integrity
While an in-house solution may seem to provide a higher degree of control over maintenance activities, it concurrently places a significant responsibility on businesses to "own" the solution's compliance, governance, and risk management with ever-evolving tax laws. This ownership entails the need for agile teams capable of swiftly incorporating necessary and often complex changes in response to updates in tax legislation.
The challenges may extend beyond legislative modifications. Vigilance is required to prevent unintended consequences stemming from changes in other areas of the enterprise data that may inadvertently affect tax modules, particularly in interconnected systems. Moreover, preserving intricate knowledge of the system within the business becomes crucial, necessitating robust succession planning strategies to mitigate adverse effects due to attrition.
In stark contrast, specialised tax software tools assume a proactive role in designing and maintaining solutions, effectively managing these risks. While this approach may mean less control over the build process, the result is a heightened agility in adapting to the latest developments. Leading vendors in this space engage in widespread customer consultations and discussions, regularly introducing new features and content onto their tax platforms. This not only helps businesses stay abreast of industry trends but also eliminates the need for extensive reconfiguration or tweaking of existing systems.
Tax software vendors function as custodians of the solution. They keep detailed plans in place, which significantly reduces the need for succession planning and lowers the risks linked to employee attrition. As a result, businesses can concentrate more on their main tax-related tasks without sacrificing the flexibility and compliance assurance of their tax management systems.
What to consider:
- How will legislative changes be reflected in the system and what will be the frequency of updates?
- Is the selected option able to be changed internally or would external support be required from vendors?
- How onerous are annual roll forward and maintenance tasks?
- How is the key person dependency risk being managed?
2. Navigating data dynamics to adapt to changing requirements
In the realm of tax compliance and reporting, an often underestimated challenge lies in the integrity and multitude of data sources essential for accurate calculations. The complexity of data is amplified in multi-jurisdictional corporate landscapes featuring disparate ERPs, varied data origins and often manual reporting processes. Consider a scenario in a multinational group marked by frequent acquisitions, introducing new ERPs into the mix compared to a more organically growing business with a consistent ERP structure. Additionally, nuanced tax requirements such as managing carrying movement values for Fixed Assets across tax versus accounting or handling tax installment payments, contribute to the complexity of data considerations.
For tax teams contemplating the construction of an in-house tax management tool within an ERP, the critical assessment involves understanding the diversity of required data and its disparate locations. This consideration is especially pronounced when dealing with data stored outside the ERP system, necessitating the integration of such data before initiating any subsequent workflow tasks. The creation of linkages or workarounds under these circumstances can prove to be both time and cost intensive, let alone the data quality and integrity issues that may arise if not done adequately – which could in turn raise doubts around confidence in the system.
Conversely, specialised tax tools positioned themselves on the other end of the spectrum by being ERP-agnostic. Crafted for widespread use across businesses with varying systems, these tools offer the flexibility to upload data from various sources. This is achieved through automated polling of data or the direct upload of ERP-generated reports. The result is an efficient gathering of tax-specific data, not only for calculations but also for subsequent record-keeping, accomplished in a targeted manner with comparatively lower time and financial costs.
What to consider:
- What are the data points required for a specific purpose and where is this data coming from (i.e. from an ERP system, from a business area external to the tax team, etc?
- What is the current method/ process followed with such data?
- Are there any incremental costs to bring the data sitting outside the ERP into the system?
- How flexible is the system in being able to firstly setup for ingestion of data from different sources (ie, integration across different data sources) and then be modified as additional data sources and formats are required?
3. Balancing tax technicality and technology expertise
Be it at the organisational level or within individual teams, the efficiency of any process is intricately tied to the capabilities of the team executing it. The prospect of implementing an in-house tax system brings to the forefront the challenge of assembling a team proficient in both, tax intricacies and technological nuances. This unique blend of skills is a rare find, often leading to the practical scenario of dividing responsibilities between two distinct sets of personnel – one well-versed in tax intricacies, and the other adept at handling technology. It is also important to acknowledge the potential impact on workload capacity and challenges of time management that may cause staff to deviate from their crucial business as usual activities.
Contrastingly, specialised tax software providers significantly alleviate this challenge by assuming the technological responsibilities, allowing businesses to concentrate on internal governance, processes, and technical aspects. This not only streamlines the operational structure but also frees up resources within the organisation. Moreover, leading software service providers actively stay abreast of shifting market trends and evolving requirements, incorporating these insights into regular product updates and enhancements.
What to consider:
- Does the team have capacity to take on responsibility in addition to their business-as-usual activities?
- If not, are their resources available to hire additional personnel for tax and technology processes? If so,
- Do they operate within the same team or as part of a task force employed within different teams/parts of the wider business?
- Set-up of reporting hierarchies and objectives – does tax report into IT or vice versa?
- Ownership of the end-product – does it sit with tax, Finance or with IT?
- How will responsibilities and KPIs be assigned, along with measures of success?
- Does the selected option provide opportunities for knowledge updates for staff around the changes to be made at the system level from a legislative as well as best-practice standpoint?
4. Navigating upfront and ongoing investment considerations
Embarking on a journey to implement a new software system involves a multifaceted process, encompassing everything from requirement gathering and solution development to user acceptance testing and change management. However, the decision-making process extends beyond the initial steps, and corporations must carefully evaluate the upfront and ongoing investments associated with different approaches.
The implementation of bespoke software solutions, brings its own set of considerations. While the tax department input is essential for successful implementation, their existing and future ongoing responsibilities must be weighed against the new tasks associated with the build and implementation process. Although it may seem initially convenient, especially if packaged as one-single-integrated solution of the wider ERP system, understanding the potential impact on business-as-usual operations is crucial.
Alternatively, specialist tax tools are equipped with pre-set modules and data flows, meticulously designed with the tax department’s compliance obligations in mind. These tools available in the market often boast front-end configurability, streamlining the initial implementation process and consequently reducing costs. This not only accelerates the implementation timeline but also ensures flexibility to cater to evolving tax team requirements without incurring the onerous costs associated with bespoke configurations.
What to consider:
- What is the budget available for implementing a tax software?
- Does the current team have the ability to manage existing responsibilities in conjunction with implementation of a new tax management tool?
- If not, what are the resourcing requirements and ability to hire extra personnel or contractors to assist with build and implementation?
Choosing between in-house tax systems and specialised software involves a nuanced evaluation of control, agility, and expertise. While in-house solutions offer control, they demand adept teams and vigilant ownership of compliance. Specialised software provides streamlined solutions, sacrificing some control for agility and expert maintenance.
Organisations must strike a balance, considering their unique needs and the evolving tax landscape. The decision shapes not only compliance but also the overall efficiency of tax management processes. In this dynamic landscape, finding the optimal path requires a thoughtful consideration of the advantages and challenges each approach presents.
Your technology partner
As BEPS Pillar Two regulations evolve, Wolters Kluwer is simultaneously building the CCH Integrator BEPS Pillar Two solution and working with BEPS Pillar Two experts from multiple global service firms to ensure accurate tax technical application. Wolters Kluwer will enable organisations to use its Pillar Two module to help manage the impact of Pillar Two.
Find out more - www.wolterskluwer.com/en-sg/solutions/cch-integrator/beps-pillar-two