The Rise of Tax Technology: How Tax Can Optimise its Investment in Cloud Solutions
As new tax rules proliferate and governments call on companies to demonstrate greater tax transparency, corporate tax functions need to strengthen their tax determination, tax data management and tax reporting capabilities. This need drives more chief tax officers to weigh investments in cloud-based tax technology solutions. Getting the highest returns on cloud tax technology requires mutual understanding between information technology (IT) and tax, a strong business case and a careful approach to evaluating vendors. When it comes to investing in cloud technology, it’s time for tax professionals to understand the value these solutions can provide to their organisations.
In recent years, automation software and related applications have gobbled up a growing portion of enterprise cloud technology investments. However, increasing tax compliance complexity along with a growing global demand for higher levels of tax transparency are driving the need for more sophisticated, cloud-based technology within tax functions. As tax ascends the technology investment pecking order, it is important for chief tax officers (CTOs), chief information officers (CIOs) and other organisational leaders to recognise what drives the need for more robust tax technology and how tax and IT should collaborate to make the best investment decision.
While the vast majority of companies have invested in some form of cloud computing, many tax functions have, until recently, lagged behind other functions in cloud adoption. Not too long ago, many tax functions fulfilled their responsibilities while relying on native Enterprise Resource Planning (ERP), tax rates, a mix of spreadsheets and highly manual data collection through tax workbook processes. This traditional approach no longer suffices – not by a long shot, given the daunting combination of regulatory, political and business disruptions bearing down on tax functions.
The OECD’s Base Erosion and Profit Shifting (BEPS) initiative and its comprehensive tax reporting rules place substantial new tax data management on tax functions. The Brexit vote and the recent US Presidential elections have driven companies to engage in data intensive scenario planning to evaluate the revenue impact and tax liabilities of potential strategic decisions they can make in response to global and regional economic shifts playing out in the wake of these political upheavals. Since January, leading CTOs at global companies have been busy tackling complex VAT compliance and audit challenges, while preparing to support VAT SAF-T filings and the new Spanish SII changes.
As a result, tax functions are hungry to reap the same benefits that other organisational functions have derived from their cloud technology investments: lower technology costs, faster implementations, greater decision-making agility, more time to devote to high-value activities, quicker access to system improvements and upgrades (including those that deliver on cutting-edge data analytics capabilities), and more.
IT Collaboration and Other Considerations
Tax and IT generally have a collaborative relationship due to the heavy reliance on the ERP, systems by tax. Much of the data needed by tax resides in the ERP systems, and that data is extracted to support computing direct and indirect taxes in support of tax compliance activities. Cloud based tax technology can further strengthen this partnership by reducing the tax function’s reliance on IT for software application maintenance and prolonged system implementations. Tax executives whose cloud tax technology investments deliver the highest returns tend to employ the following practices:
- Understanding how IT acquires technology: Central IT functions continue to play a leading role in the selection of cloud technology as they can help the tax executives negotiate cloud services and necessary security requirements the vendors must meet according to the rightScale’s 2017 State of the Cloud Survey. Before evaluating vendors, tax executives should clearly define the problems that cloud-based technology will address, learn about business case requirements (typically established by the finance function), understand all IT-related requirements, and identify which other stakeholders typically provide input on the technology investment decision.
- Creating the business case: Specific requirements for a formal business plan should be identified (again, often in thorough consultation with IT and finance because, regardless of where they are running, the tax solutions have integral connections to the business data residing in the ERPs used by finance and supported by IT). Most business cases clearly outline the problems being addressed, identify the measures that will be used to monitor progress toward those objectives, calculate the time and total costs (including any training and support) the investment will require, and present a clear timeline for deployment.
- Evaluating vendors: Once tax teams have identified their own functionality requirements, internal IT requirements and what the business case requires, they should learn from vendors about their offerings’ implementation, integration and technical requirements. Once a company has settled on a short list of cloud tax technology options, references should be checked. Whenever possible, discuss vendors with client companies of similar size who operate in the same industry. When checking references, find out what amounts of training and support are required.
- Considering training and consulting investments: Training for cloud-based tax technology solutions is typically less intensive and expensive than training related to traditional on-site software implementations because the support needed from IT to run the systems is not needed when the vendor can run the solution in the cloud. It is still important to understand what training is recommended by vendors, what form it takes (classroom-based, on-site, etc.), and who should receive it. It is also important to identify what other support (e.g., related consulting services) is available and how these services can help optimise the cloud-based tax technology investment.
Optimising the value of cloud-based tax technology requires tax professionals to collaborate with IT and finance colleagues to create a crystal clear business case. Tax leaders who work proactively with their IT functions to understand the value of cloud computing stand to gain the most. The importance of these collaborations – and this business-case clarity – will increase as more companies move to realise the benefits of cloud-based tax technology.
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