Digital tax transformation: tax teams in a digital age

Over the past 10 to 15 years, the Internet and further digitalization of society have enabled new -more tech-oriented- routes to market and globalization of commerce.  

This evolution in technology has generated amazing opportunities for businesses to innovate in various forms, such as creating vertical marketplaces, pivoting from supplies of goods to services, introducing omnichannel retail and manufacturers exploring selling direct-to-consumers (DTC) rather than relying on resellers.  

These innovations have fundamentally changed the ‘flow’ of commerce and where trade takes place around the world.  

The rise of digital tax transformation

As the world of commerce changes, so does the world of indirect tax.  

In response to these global shifts, tax authorities are transforming the collection of consumption taxes. Taxability of sales changes from the country where the vendor is established to where consumption occurs, liability shifts from individual vendors to platforms facilitating the sales and collection and reporting are moving towards digital and real-time, supported by advanced technologies such as AI and advanced analytics. A great example of this transformation is the EU VAT in the digital age (ViDA) proposal.

These changes in the way business transactions are flowing, and how they must be reported to tax authorities, and has a significant impact on tax teams as change or transformation means tax teams are juggling a lot. This is all in addition to their usual day jobs.

There is no doubt that tax professionals today have a tough role on their hands - one that requires purpose-built technology and specialist services to support it.

Tax technology and transformation - an opportunity for tax

At the same time, we’re witnessing one of the biggest tech refreshes of our generation within businesses. Many are moving to the cloud and consolidating previously siloed systems into one singular cloud-based offering. This offers a more efficient, holistic experience that meets the needs of end users, enhancing insights across the business in real time while reducing operating costs and removing redundant processes.  

Many tax teams must adapt, but this is also a great opportunity to reimagine and refresh their business processes. The move to real-time forces tax teams to Introduce robust tax controls in core finance processes to ensure first-time-right tax calculations. This also requires tax-oriented frameworks to manage business-wide compliance-related data more centrally. This puts tax teams front and center rather than at the end of the business and reporting cycle.  

But perhaps the biggest, more immediate benefit is the opportunity to move away from heavily customized, complex and unstable decentralized indirect tax management environments we often see in ERP systems, in favor of a more efficient, future-proofed set-up.    

Waving goodbye to customized environments

Traditionally, most businesses needed to develop their own customized solutions for VAT determination within their ERP system. As the business and tax landscape evolved, solutions are bolted on like patchwork and the ERP is customized even further.  

However, it’s difficult to keep up with changes and remain compliant within this heavily customized environment. These environments often have errors that have compounded over time as staff leave and take their valuable, undocumented knowledge of this patchwork with them. Fear of causing more issues results in continued ad hoc code built around the existing structure, creating an increasingly unmanageable and error-prone system where mistakes stay below the radar until an audit occurs.  

With a system where tax content and settings are less up to date, there’s an increased risk of corrections and penalties in each tax jurisdiction. The shift to new cloud ERPs promises evolution from these inefficient, antiquated ways of working, allowing for a more centralized implementation and management approach. This could deliver increased centralized tax controls and more agility so that businesses can move faster, and make better, more informed decisions using the data residing in their ERPs.  

The new ‘best in class’ for tax teams  

Tax teams should have two key desired outcomes from an ERP refresh.  

1. Clean master data is the driver- Having accurate and complete master data is key for any tax team to achieve accurate indirect tax compliance.  
2. Accurate and repeatable determination- Tax leaders want business users choosing accurate data that feeds tax determination. They don't want them choosing the tax treatment or the determination itself and therein lies the key benefit of automated determination.  

A key pillar of success for digital tax transformation and tax teams within these projects is creating a robust tax control framework to ensure a strong change management process. In reality, no matter what tax software solutions you adopt, if you don’t have this in place, the tax team will not achieve the accuracy and efficiencies it is aiming for.  

Tax teams also require a level of, preferably automated, controls around their end-to-end process to remove the risk of human error. During an ERP refresh, they should seek a solution that facilitates automation and drives efficiencies across various processes, from master data entry to reporting.  

To start off on the right path, when selecting a software vendor, tax teams should obtain and review a copy of their implementation methodology and familiarize themselves with their processes. From here, they can begin building and prioritizing a list of their tax requirements in advance.  

Ensuring tax have a seat at the table

It’s important that tax teams get involved in the ERP refresh process early on, and find a voice in key conversations, to ensure the right setup and tax technology are selected with tax compliance in mind.  

Top things to consider:  

• Most ERP vendors and systems integrators publish their methodologies. Get a copy of these and familiarize yourself with their process. This will allow you to build out the requirements for the tax function in advance of an ERP project and present them in a way that the internal and external teams can easily consume and understand.  
• Investigate your own business systems and processes. Tax should also investigate their current business systems and processes and map the critical end-to-end data points. This will allow you to understand your data streams, current inefficiencies and potential risks. If there are blockages or errors in obtaining data from certain parts of the business, it’s important to make a log of these – and the financial impact they may be having.  
• Start building out a success log -if you are creating efficiencies or savings for the business ensure that you are documenting these successes as it is invaluable to supporting a business case for your tax function needs.  
• Start engaging and building connections within the business. A great place to start is with a Change Advisory Board. Every business should have one. Work to get your tax teams plugged into all the talk tracks around the business which affect VAT. That includes gaining line of sight of potential business projects coming down the track that you may not have been informed of but may have an impact on tax compliance. That includes building relationships with any department that may have determining factors on tax compliance, whether that be billing systems, invoice scanning tools or ecommerce platforms. Make sure that you have a seat at table to analyze any risks or changes to those systems.  
• Set the precedent in advance of an ERP migration/upgrade project taking place that tax must have a voice so that it's almost status quo that VAT will be in those conversations. The advice here is to try and find ways to get into those business conversations. Don’t wait for an ERP-tax transformation project to start to develop that cadence within the business.  

It is important to have someone in the room that can advocate for VAT and required tax technology requirements when there is an ERP tech refresh happening. But often, these system implementations are taking place without any tax consideration. Sometimes tax technology is not even listed as part of the Statement of Work, even though it is a core part of the business.  

Having the correct expertise to get it right first-time round is crucial. The reality is, the more we introduce technology into the tax team, the more that we need to shift to a mindset of managing a service through technology for the business. You need to ensure you have a certain level of capabilities here to sustain those technologies in such a way that they are ensuring compliance while at the same time supporting real-time business processes without being a blocker.  

Becoming best in class

So, the tax team has found their voice, worked alongside other departments to select the right ERP system and tax technology setup, and is ready to embark on digital tax transformation. What next?  

As businesses, tax authorities, and core platforms continue to digitize, you need new skill sets, people with diverse backgrounds, and enhanced capabilities to drive progress over the next 10 years as we navigate this cycle of change.    

The next time an ERP generational change happens, the world will look widely different again. If your ERP refresh is done right, it will elevate your business. It is important to remember that an ERP refresh or implementation is not the end of the journey for tax, it's the start of a whole new exciting one.