Tax Transformation Success: Set a Plan and Sidestep These Pitfalls
While systems-driven digital transformations deliver outsized benefits related to operational efficiency, risk mitigation, and cost-reductions, successfully executing these endeavors can be challenging.
A McKinsey analysis indicates that organizations capture less than one-third of the value they expected to gain from digital transformation endeavors. The trick is to get transformation right. Doing so requires an effective game plan as well as knowledge of common pitfalls that should be avoided in all forms of digital transformation, including those involving tax automation. Systems-driven tax transformations also pose some unique challenges that tax leaders should take extra care to address.
Happily, this is an exciting time to plan a tax transformation: leading tax automation has caught up from a functionality standpoint, and tax engine integrations with ERP systems have never been better.
Successful tax transformation planning typically begins with four crucial steps:
- Identifying tax department challenges and inefficiencies;
- Mapping the right solutions to solve those challenges;
- Leveraging ERP transformation as vehicle to reach tax goals; and
- Securing funding via a compelling business case.
As project teams progress through that work and get started on the technology implementation, they should recognize that several tax-related pitfalls commonly arise during ERP and tax migrations. The following oversights are relatively common and should be avoided:
- Insufficient tax involvement: The tax stakeholders are not involved in the early planning stages of the ERP migration or excluded from key meetings. The migration’s efficacy is also at risk when tax specialists are not involved in the review of new ERP functionality and features that have tax compliance implications.
- Implementing the tax system in a “vacuum”: Tax systems are really a component of order-to-cash, procure-to-pay and financial processes. This interaction is becoming more relevant with the adoption of real-time validation requirements, such as e-invoicing are adopted. Accordingly, the approach to tax transformation should be cross-functional. Implementing tax systems at the expense of other functions is the fastest path to failure.
- Overlooking external systems: External systems are frequently overlooked or insufficiently addressed from a tax impact perspective during ERP migrations. Many different types of external systems that are part of the ERP ecosystem perform transactions with tax determination, calculation and compliance implications.
While tax transformations and the systems migrations that propel them require extensive efforts, crafting an effective plan and taking time to recognize, and sidestep, common impediments will go a long way to ensuring that these efforts deliver far more than a fraction of their expected value.
Again, this value is substantial. The McKinsey research finds that top-performing companies are more likely to leverage digital transformations to strategically uplevel their core business with digital technology while ensuring future competitiveness.