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Solution Architect A&T, TMF Group
01 August 2023
Read time
6 minutes

Direct your digital ambition towards direct tax technology

Business partners working late at night on laptop for making digital transformation

TMF Group’s tax technology expert explains why it is important to embrace and prioritise digital solutions and to stay abreast of industry developments. Finding efficiencies through technology will save time and money – and will ensure you don’t get left behind.

Within an organisation’s field of digital innovation, finance is often playing catch up behind other departments, such as operations. Within finance, tax usually lags behind treasury or payables. And within tax, direct tax is almost always behind indirect tax when it comes to pushing the digital agenda.

Looking at some actionable tips from successful global projects we have undertaken might help direct tax leaders to close this digital gap.

Mind the gap

In their recent report, Cognizant identify some common features of “finance superheroes”, or finance organisations that have realised their ambitions around cost, control, business outcomes and influence. The key element is a finance superhero’s ability to defeat internal organisation silos. Identifying the silos within the CFO office can be a good first step to starting the finance superhero journey.

As a case study, we’ll look at a challenge faced by Mary, a senior direct tax leader at a large global organisation. She felt there was too much working in silos. During the global rollout of a travel and expense (T&E) system, the project team – led by internal control and IT – only invited indirect tax colleagues to be part of the project quite late on. Mary and her direct tax team were neither consulted nor informed at all. The result was that the tedious manual process of separating deductible and non-deductible bills within expense reports continues to be necessary. So the new system brings virtually no benefits to Mary’s side of the house; things could have been different had Mary’s team been involved from an early stage.

And the T&E system project is just one of many examples. When a global cloud ERP system was rolled out a few years back in Mary’s organisation, direct tax-related aspects were moved into a second phase of the project – a phase that never materialised. Mary’s team continues to work mostly outside of the ERP: long after the transaction is recorded in accounting books in the ERP and is tax coded for indirect tax.

Mary’s ultimate boss, the group CFO, often brings visuals into their strategic conversations. One of them is the visual of a gleaming car stuffed with last generation technology and moving with a mind-blowing speed. And this shiny car is the metaphor for the CFO office. Mary then immediately recalls multiple spreadsheets used locally to calculate direct tax. And the monstruous group tax package spreadsheet with dozen or so tabs to translate all local complexities into one global format. All spreadsheets are populated manually and flow into a macro developed by a tax enthusiast around the beginning of this millennium. It’s better not to look under the hood of that shiny car then, thinks Mary, recalling an article she came across recently.

Direct digital ambition

The gap in digital maturity exists even when compared to the indirect tax team, who started their digital journey long before and now run a tax engine that helps them with tax determination, e-invoicing and declarations globally. Mary herself ran a global RFP for a global direct tax tool, however, the offer on the market was lacking in either geographic coverage or flexibility. Mary has also looked into some interesting outsourcing options and has even considered repeating some ‘citizen development’ success stories shared on tax events. Irrespective of the choice, sending two of the direct tax team members to obtain a recently launched Diploma in Tax Technology seems to be a priority for Mary.

Mary did her own list of ‘what worked well’ – after talking to her peers who achieved good results in the realm of global direct tax technology. Her favorite three are these:

  • It’s a business case after all

Start with a compelling business case, and address the two types of benefits. The first type is inward looking – how the technology makes the process smoother, adds visibility, increases accuracy and saves hours of work for direct tax team. The second type of benefit considers the wider context. Describe (and assess, if possible) how the project brings direct tax closer to the rest of the CFO office in terms of digital maturity. Describe how direct tax having better and more timely data points might help others – for example controllers – in their budgeting simulations.

  • Remove the ‘mystery of tax’

We all get it – direct tax is complex. It’s judgement intensive. And the local complexities might overwhelm anyone. For example, calculating tax in South Korea for an incomplete period involves a series of steps, such as proportioning, adding, multiplying, applying tax rate and finally proportioning back. Many local tax experts around the globe happily will share similar complexities. Avoid speaking the ‘dialects’ of local tax complexities – speak the ‘Esperanto’ of tax data points instead. Speak about deductible, non-deductible, tax difference, tax rate, permanent and temporary, fiscal loss, tax risks, and so on. The local story behind the resulting data points might be complex – however it should not crush the simple design, based on global tax concepts. Starting with common data points will also help demystify the local tax story.

  • End to end, not just a bolt-on

Keeping the ugly local spreadsheets and using a global technology just to visualise the results late in the tax calculation process will not cut it. This approach would again be reminiscent of a shiny ‘next gen’ car running on an aged and rusty internal combustion engine. Revisiting the business case objectives is helpful in this situation - as such a construct would hardly achieve most of the stated objectives.

The painful process of getting local tax experts on board and adopting the tax data points language is hardly about technology. It’s more about the process and the change management. Once those boxes are ticked, technology can be rolled out. Such an end-to-end approach will equip direct tax leaders with powerful insights. For example, knowing the deductibility rate for intercompany expenses in country X might clearly impact certain operational decisions.

Final thoughts

In our previous article we discussed the sense of urgency for tax transformation projects and potential use of outsourcing that might help to close the technology maturity gap. Direct tax is a great candidate for a tax transformation programme and the best time to start is now. Tapping into experiences of those who have realised similar transformation projects will de-risk the initiative. Direct tax is demanding to direct the digital ambition its way.

TMF Group

TMF Group provides comprehensive accounting and tax services that ensure compliance with both local and international standards.

We’re here to support you at every stage of your finance transformation journey. We offer a broad range of services, including transactional accountancy support, local statutory accounting and tax support, and accounting and tax consultancy solutions that can be tailored to your organisation’s requirements.

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