Corporate tax departments have lagged in the use of advanced technologies to meet demands from regulators and generate insights for their companies — but the tide appears to be turning, according to a recent report from KPMG.
The report, Technology in Tax, is based on a survey of 300 Chief Tax Officers (CTOs) for large companies, most of whom say they are increasing their spending on robotics, artificial intelligence (AI) and — especially — data and analytics. The survey found that fewer than half of the tax leaders surveyed (45%) strongly agree their departments are keeping pace with technological innovation. Only one-third use data and analytics to make strategic decisions.
To address this gap, 74% of survey respondents said they expect to increase spending on data analytics tools in the next 12 months, followed by:
- Tax systems and applications (73%);
- Enterprise resource planning (ERP) enhancements (68%);
- Internet of Things (61%);
- Robotic process automation (59%);
- Blockchain (55%); and
- Cognitive technologies, including AI (54%).
For more insights into the evolving role of technology within the corporate tax function we spoke with Jeffrey C. LeSage, Americas Vice Chairman — Tax at KPMG LLP.
What is driving corporate tax departments’ increased focus on technology?
LeSage: Ultimately, without adequate processes and systems, CTOs can’t meet the demands from their regulators for compliance information or from the leaders of their organizations for added value.
In the current federal, state, and international tax environment, the demand for data and reporting coming from governments and regulators seems to be insatiable. Tax compliance and planning processes require massive, granular amounts of data from many sources. And CTOs tell us they often have to address these larger burdens with the same or fewer resources.
Perhaps more important, tax departments are no longer seen as a back-office compliance function. They are now considered an important value-add function for their organizations. That means that CTOs are being asked to re-imagine the role their teams can play for the overall organization. They are also being challenged to improve returns by predicting and managing risk and identifying tax savings in areas from trade and customs to human resources.
Without technology tools and skills, CTOs can’t deliver on their traditional demands or on their new remits.
How do robotics, data analytics, and AI help tax departments meet their top priority — regulatory compliance? What do these technologies deliver beyond basic compliance?
LeSage: They can all help tax departments quickly wrangle the massive amounts of data that compliance now requires. Using these tools frees up staff for higher value, judgment-related work. Robotics can help manage repetitive tasks, correct errors, and even find additional data elsewhere in the files if it is needed. More accurate data translates into more accurate reporting — which can mean fewer tax audits, which cost time, and often, money.
Data and analytics, as well as AI and other cognitive tools, also can be used for predictive work — like modeling the impact of a new regulation or gauging likely outcomes from a tax audit based on previous results. This type of information is critical for tax compliance and can bring value to overall company management.
This intersection of science and data is helping companies reduce costs, improve quality, manage risk, and make better strategic decisions. It’s a new, exciting area for tax.
Are CTOs generally seeking operational improvements such as efficiency and accuracy? Or are they focused on identifying strategic insights that create competitive advantage?
LeSage: The short answer is “yes” to both questions. Most CTOs today, regardless of the size of their organization, are looking to a range of technology solutions to deliver the efficiency improvements they need and the strategic insights they want in order to stay one or two steps ahead of their competition. The tools exist, whether they choose to build them in-house, buy off the shelf, lease from others, or a combination of all three.
Are tax departments getting the support they need internally for this transformation?
LeSage: We are hearing from many CTOs that they are gaining the support of their finance organizations to upgrade and align their systems, as the chance to unlock the value that rests in all that tax data becomes more evident.
The conversation in the marketplace is turning the appropriate design of the tax department. So, while CTOs are facing significant day-to-day compliance pressures, that’s not keeping them from focusing on how their departments can do more and be better — and they see that embracing technology is the starting point for that journey.
What guidance do you have for corporate finance and tax departments?
LeSage: We tell CFOs to keep some key points in mind as they re-imagine their tax departments:
- Think Big, Act Fast — Developing a long-term technology strategy is important, but they also should focus on driving value today. How do you do that? Define and launch “value now” projects such as data acquisition, modeling, and robotic process automation in conjunction with “value later” projects — such as including blockchain in the mix of tax technologies, or creating centers of excellence or large global outsourcing projects. The “value now” projects keep excitement and momentum high and help pay for the more complex “value later” projects.
- Don’t Forget the Process — All that new technology can be cool, but you maximize return on investment (ROI) when you implement technology while simultaneously re-imagining your entire tax process. A great robotic process automation project will be used only once if similar processes are conducted in different ways or haven’t changed.
- Address Your Resource Model — CTOs may deliver no ROI from their technology choices if they don’t also address their resource model. The best automation and insight analytics tools will drive no value if the team isn’t realigned or doesn’t change what they are doing. Building a workforce that includes tax professionals who know tech, and tech professionals who know tax will bring the greatest value. For a “tax dream team,” CTOs needs diverse players who can make use of data and analytics, be experts in technology, and be able to provide digital insight.