These days most of tax executives are asking if they are getting ready for the future of the tax function. They ask such questions as tax departments of multinational enterprises (MNEs) are confronting with various challenging tax developments all around the world. From a tax perspective, the objective of digitalization is to integrate information systems into work processes and to automate tax routine works.
In order to mitigate the risks associated with BEPS arrangements in different countries, the operating model and the structures within the model may be reviewed and risk-bearing areas may be identified. Thus, it may be possible to determine whether or not existing supply chains and the parties that own intangible assets have substance in terms of BEPS. This is called BEPS restructuring. However, another question is that “Is BEPS structuring enough to comply with all tax changes?”.
Potentially, it is not sufficient because implementation of BEPS rules requires better approach. This actually reshapes the function of tax department in a typical MNE. Especially proactive engagement with tax authorities is inevitable thing to cope with the international tax issues of an MNE group.
Changing Tax Function
Increased global compliance requirements combined with inefficient processes and over-reliance on spreadsheets will likely increase tax risks for MNEs. Thus, Companies need to respond smarter way to tax risks than ever before in the new era of BEPS.
Successful change of tax function will require re-evaluate the tax related processes and the final outputs. This should also include an assessment of the current capabilities of the tax function against the recent international tax developments and requirements of tax authorities.
As we consider compliance requirements are increasing and tax authority approaches are changing, tax function should be aligned with the wider group. This would be done by transforming the tax function through technology. The use of technology in a tax function needs to serve beyond merely a compliance purpose but also all stakeholders’ needs including corporate shareholders.
An effective tax function should focus on becoming more efficient and cost effective and seek to deliver more value to their organizations. Changes in modern tax function do not happen automatically, nor do they happen without facing some challenges along the way. Data maintained in ERP systems often contains errors or is incomplete and they do not mostly meet needs of tax executives. This is also a hurdle for tax people when they carry out their daily work.
Compliance with tax legislation in many jurisdictions requires monitoring and managing tax data that is not generally recorded in ERP systems. So, tax data collection should be also a part of tax function. Collecting tax data is something but more importantly conversion of tax data into smart and understandable ways is corner stone for enhancement of tax function within an MNE Group.
Why Tax Function for MNEs should be transformed?
As agreed by many parties, companies should also invest in the tax function. Hiring talented managers may bring in good results for companies. Nevertheless, is this enough for especially MNEs in the ever-evolving tax world? In our experience, even though a business may employ good executives, they still need to invest in tax technology because of the benefits to that organization.
We are certain that the tax landscape will be radically different in the next three to five years. Successful companies should find ways to bridge the gap between their current tax management capabilities and increasing tax requirements. This can be easily accomplished with tax technologies.
It is clear that global tax reporting requirements (e.g. CbCR and similar obligations) will grow exponentially and will have a material impact on the operations of global companies. Accordingly, current tax developments will require companies to provide more information on their global allocation of profit, taxes paid and certain indicators of economic activity among the countries in which they operate.
Considering so called BEPS 2.0 developments and OECD work on digital economy, most of multinational companies will need a technology to collect, verify and report the data requested by country tax authorities. To comply with local tax legislation and assure to authorities and other stakeholders, key areas that should be transformed for tax function will be tax governance, risk identification, controls, communication and monitoring.
How can MNEs be ready for the future tax challenges?
Most senior tax executives know that their tax function must be updated and to meet today’s tax challenges. For this, it is necessary for MNEs to take a holistic approach that is cross-functional, involving governance, data, technology, process and people. A transformation roadmap plays a key role to be ready for the future tax challenges.
In this sense, tax issues of MNE Group might be firstly addressed and handled at the right time and an ad hoc basis. Roles and responsibilities within tax function of company should be determined and training, communication and standardisation should be also provided for the responsible executives. Afterwards, internal controls should follow daily works of country tax managers. Processes in the tax functions are actively monitored and deviations are detected in time so that tax processes are continuously improved.
It’s only possible for the tax function to start the transformation process with the support and collaboration of other departments within the same organisation. Building a multi-year plan that centred around technology solutions together with other departments will also have a positive impact on transformation. There should be also people who can involve and identify tax technology needs in your organization, or process improvements and efficiencies. Beside, all technology solutions require regular repairs and maintenance. Then, IT people in your organisation should also be a part of tax function or closely cooperate with them.
Your tax technology team: Tinvento
Our consultancy deals with multinationals as their strategic tax technology solution partner and adopts as its mission offering services that fit specific needs of individual firms by adhering to professional principles of ethics with our corporate structure.
Tinvento Platform offers you a unique technology that brings finance, tax, transfer pricing and CbCR together. It is a web application which enables entities of your global organization collaborate online. Our team combine their software expertise and international tax expertise together to offer unique solutions for MNEs.
Tinvento Platform also offers premium consulting services to help you prepare for new report types and dashboards, allowing you to obtain optimal efficiencies from your business.