Five Reasons Tax Departments are Transforming

Fewer tax departments are stuck in “the shadows of transformation.”

This good news – and vivid language – appears in a Deloitte report that examines tax transformation. One section of the report explains why tax functions are transforming.

Here’s the premise: For years, tax departments remained on the sidelines while many other business areas – finance and accounting, sales and marketing, and the supply chain, for example – underwent massive changes. Tax was overlooked because it was commonly viewed, the report notes, as a “black box of arcane rules and requirements.”

But that perception is changing. More and more tax departments are transforming into strategic business partners as an increasing number of organizations become what we describe as “tax-aware companies.” Why? According to Deloitte, there are five drivers:

1. Globalization: As more companies enter new markets around the world, tax considerations become crucial. The report indicates that companies “increasingly are transforming their global tax-related processes from a decentralized approach to a standard global approach, often integrating tax operations into shared services centers, standardizing technology platforms, and integrating with globally standard financial processes.”
2. Growing regulation and business complexity: Tax Matters readers are familiar with the challenges posed by increasing regulations, such as the OECD’s BEPS initiative. As tax authorities throughout the world pass new laws and intensify enforcement actions, business complexity increases. As a result, the report argues, “tax executives need to be at the table informing business choices about potential tax costs and [provide] insights about possible tax risks.”
3. Tax technology’s evolution: The Deloitte report credits breakthroughs in tax automation and the expanding scope of tax management systems’ functionality as a valuable facilitator: “These new technology approaches enable wholesale process change and, in turn, become a catalyst for re-engineering tax department professionals’ roles and responsibilities.” (We humbly agree.)
4. Growing competition: Intensifying competition is driving more companies to introduce new strategies, business models and structures – many of which have major tax risks and opportunities.
5. Tax talent: The report describes a virtuous circle in which the tax department’s growing use of tax data drives a need for tax professionals with advanced technology and business skills; and these professionals help make the function even more technologically advanced.

Welcome to the limelight, tax departments! The glare of transformation will pose challenges, but it sure beats lurking in the shadows.

Please remember that the Tax Matters provides information for educational purposes, not specific tax or legal advice. Always consult a qualified tax or legal advisor before taking any action based on this information.