Gunjan Tripathi: Welcome to Tax Matters, a Vertex podcast! I’m Gunjan Tripathi, Director of Solutions Marketing at Vertex.
Tax professionals throughout Europe and the EMEA region have grown all too familiar with compliance risks and difficulties. But what about the challenges that their partners in finance and IT face? And how do those issues affect tax groups and their digital transformations?
IDC Senior Research Director: European Enterprise Applications, Tom Seal, addresses those questions with Business Writer, Eric Krell, in this episode of our series on tax transformation.
Tom begins the discussion with an overview of regulatory trends and compliance pressures, including e-invoicing.
Next, Tom looks at the challenges finance groups are grappling with … including the need for efficiency and technology modernization. Tom and Eric Krell wrap the episode with a look at IT priorities, and how tax groups can assist their technology partners.
Now, I’ll turn it over to Eric and Tom…
Eric Krell: Tom, given the current pace and scope of business and regulatory changes, what should tax groups be aware of as they adapt and respond?
Tom Seal: Well, I suppose the first thing to be prepared for is continued change. The legislation that’s coming into force now is going to evolve -- there is already discussion ongoing within the European Union about the next phases of e-invoicing. I think we have to be prepared for more and more change. And I suppose the other thing we need to recognize is that our own businesses and our own technology platforms will also change. We’re dealing with a very dynamic environment here, both from a tax point of view and from a technology point of view -- never mind any business transformation that organizations may have ongoing. There’s this real need to think carefully about how things may evolve and play out and just make sure that the decisions being made today don’t hold us back in the future, and I think that’s one of the overarching themes here. Organizations want to invest in tax technology, particularly to help them grow more quickly or to sustain their growth. They don’t want to hit these barriers and then have to pause, modernize, update or otherwise find a fix to these tax challenges. They want to be able to grow rapidly, capitalize on opportunities as they arise.
Eric Krell: Beyond regulatory issues and some of those high-level business drivers that have changed, what other major challenges are companies and tax groups contending with right now?
Tom Seal: Well, I think tax is just one part of a much larger modernization of finance within the enterprise. So, if you’re a Chief Financial Officer, tax is, of course, a critical consideration -- possibly one of the most critical parts of running a finance function to get right. After all, the tax authorities are almighty and we need to pay the right amount of tax, and we want to do that in an efficient manner. But the CFO is also dealing with other pressures within the business, so they need to modernize the finance function such that they can deliver the information that managers need to make critical decisions. So, the CFO is trying to, on the one hand, meet these regulatory needs, but they’re also trying to fundamentally change the way that their finance function operates. They’re trying to drive efficiency, and provide better, more powerful information to stakeholders across the organization.
Eric Krell: Are you seeing CFOs and the heads of tax contending with talent-related issues, skills gaps, and resourcing challenges?
Tom Seal: Yes, I think attracting and retaining talent within the finance function is a challenge, and I think that applies to the accounting industry as well as businesses recruiting accountants for roles within the finance function. And there also are certain expectations when staff joins a business, they expect to have access to the right tools to do their job. They don’t expect to work with paper an outdated technology, they’re want the right tools for the job. Only then will they feel that they are making an impact and making the most of their time while driving their careers forward.
Eric Krell: On that note, do you see any differences in terms of the processes and capabilities that finance and tax is choosing to manage internally versus what they’re outsourcing?
Tom Seal: I think most organizations are revisiting the activities that they consider to be core or non-core. Of course, one of the key determinants of that is whether something can contribute an advantage to your business. Now, I think tax would be considered critical, but not necessarily core, so we shouldn’t be too innovative, I would say in the way we record and report our taxes. There’s a right way of doing it, and a best practice, and we want to apply that. So that’s a reason why an organization would quite often determine that managing tax would be non-core and therefore they’re going to look outside of their business for someone to help them execute that. And there are a few options there… But of course, we are in the digital-first age and many CFOs and business leaders will be looking to technology quite often a SaaS -- Software as a Service -- application to provide that capability.
Eric Krell: Do you see any differences in how tax groups that are viewed as profit centers respond to these challenges vs. the way that tax groups that are viewed more as a cost center respond?
Tom Seal: Yeah, that’s a good question. The finance function is under pressure, I would say, to become a driver of value, an agent for change, an enabler of growth. And if you were an organization under that sort of pressure, then you are going to be very focused on removing barriers to growth. And a potential barrier to growth is the capacity to deliver on tax and particularly the expansion into new markets. So, if you were a CFO really focused on growth you’re going to be looking at how you remove those tax barriers and enable the business. If you are seen more as a cost center and you’re looking to keep costs low, yeah, you might expect you’re going to be putting the brakes on…and maybe explaining to parts of the business that want to support that that’s going to be expensive if we operate in that jurisdiction.
Eric Krell: I know tax can operate in a bubble at times like all parts of the organization, but tax groups also tend to thrive when they have healthy relationships with their IT counterparts. What should tax leaders know about the priorities IT groups are working through today?
Tom Seal: Well, I suppose the first thing that tax professionals should understand is that IT functions are of course themselves under pressure, they are operating in an environment where inflation is quite high, so inflation is impacting the costs experienced by IT departments. And of course, IT more than potentially any other function, is under pressure to transform as well, so there is the need to implement new technologies, innovate much more quickly than has been done in the past while always considering the security and resilience of the business.
Eric Krell: Is there anything that tax should know about current approaches to ERP systems?
Tom Seal: Well, I suppose the first thing that they should keep in mind is the fact that we’re going through a revolution at the moment. We are in a period where many organizations are shifting from an on-premise ERP system, and they’re very often migrating to the cloud. That’s the direction of travel. It’s going to be a consideration for the years to come, organizations are gradually migrating to cloud technology. I think it’s important for tax professionals to recognize that their technology needs are going to, in one way or another, have to slot in with this much larger and very significant transformation that’s underway.
Eric Krell: Is there anything that tax groups can do to help reduce IT’s burden, especially when they’re looking to invest in new tax technology?
Tom Seal: Well, I think advance warning and early involvement would be key. As I’ve indicated, the technology function has an enormous workload on its plate, and it needs to plan, it needs to schedule in resources, it needs to understand the future demands on the infrastructure on applications, the implications for data as well. So yes -- it’s that early warning.
Eric Krell: Thank you very much, Tom.
Tom Seal: Thank you.
Gunjan Tripathi: Thanks for listening to Tax Matters and our series on tax transformation.
This transcript has been edited for clarity.