The 2019 Thomson Reuters European Tax Technology report, based on a survey of 438 companies, paints a compelling picture of a high-pressure environment for corporate tax departments.
In fact, with the role of corporate tax departments expanding beyond simple compliance and into more crucial areas of risk mitigation and reputational management, there are concerns — reflected in the responses in the report — over whether corporate tax departments can continue to meet the objectives they and their corporate parents are setting out for them.
“While scrutiny and workloads are increasing, the evidence suggests that there is still a significant gap between what the department knows it needs in order to deliver and its capability (and the backing to lean on technology) to do so,” the report states.
The survey of respondents found that the top challenges facing those departments are i) keeping their companies in compliance with tax laws in all the jurisdictions in which they operate; and ii) staying ahead of new regulations. And the job is getting tougher. Last year, only 16% of respondents said keeping up with new regulations was a key challenge. This year, the number spiked to 36%.
You can download the 2019 Thomson Reuters European Tax Technology Survey, for free here
“The year ahead seems to hold no let-up in pressure, with the implications of Brexit on the UK and its trading partners… and uncertainty around indirect tax and future reporting requirements,” the report says.
The other heightened challenge cited by respondents is the need for greater efficiency in the management of internal processes and workflow. Last year, 18% called it a key issue facing their tax departments. This year, 30% did.
While corporate tax officials said they struggle with compliance and efficiency, three-fourths of them said their companies’ directors and C-suite executives have become more focused on tax compliance and planning. Two possible drivers of this scrutiny are the reputational risk of being seen as overly aggressive in pursuing tax avoidance and the need to respond to Making Tax Digital, the UK’s initiative for digitizing its tax system.
“However, it is not immediately clear,” the report notes, “if this (increased oversight from the boardroom) is being backed up with the support and expertise needed to help departments transform or adapt enough for their future commitments.”
There is evidence in the survey that tax technology is seen as part of the solution. Indeed, 60% of respondents said their organizations intend to increase their spend in this area over the next 12 months — with roughly half of this group planning to increase spending more than 10%.
“The general trend is towards greater tax technology adoption and competency,” the report says, “but at this rate, it will take more than a decade before the general market has moved away from manual processes and spreadsheets.”
Tech adoption lags, but paths to success remain
The report is rife with signs that tech adoption is lagging:
- Nearly 90% say tax technology is strategically important, but only 39% have a roadmap for deploying it;
- Fewer than half of respondent reported operating a shared service center to manage tax processes across multiple jurisdictions or subsidiaries;
- Fewer than half say their traditional tax data and process silos are being eliminated;
- Only 13% describe their adoption of tax technology as advanced; and
- Only one-third have a tax technology specialist on staff.
“While scrutiny and workloads are increasing,” the report says, “the evidence suggests that there is still a significant gap between what the tax department knows it needs to deliver and its capability to do so.”
Indeed, the report found that the future success of corporate tax departments may be determined by their reliance on three key strategic objectives:
- Knowledge — Being aware of what is going on within the organization, the industry, and the regulatory environment.
- Connectivity — Working locally while envisioning globally to ensure consistency and confidence in the department’s data, work process, and decision-making abilities.
- Efficiency — Handling ever more data with greater complexity, while working toward the goal of real-time reporting.
Steven Smith, Director of Product Management & Commercial Strategy at Thomson Reuters, said in the report that these challenges are formidable, but not insurmountable, and enabling stronger technology adoption is a key to overcoming these challenges.
“Understanding whether or not the tax team is able to scale and adapt across multiple jurisdictions and still meet the objectives of an increasingly attentive board, is a challenge that needs to be considered carefully,” Smith said. “Put simply, the digital world is expanding, and the tax department cannot afford the risk of being left behind.”