The global pandemic served to highlight the inefficiencies of business processes that rely on manual work, including those that underpin tax and transfer pricing. And despite the impact of COVID-19, the OECD maintained its timeline to continue its BEPS initiative to bring reform to global systems. This is supported by widespread sentiment for companies to pay their fair share of tax needed to rebuild economies post-lockdown.
In a new whitepaper by insightsoftware experts, we explain the current state of play for tax and its close relative: transfer pricing software. We also examine the uncertainties that lie ahead in international tax regimes, the power that automation and analytics will deliver to tax teams, and the outcomes of implementing tax software, which will enhance the strategic contribution that tax teams are able to make.
The purpose of tax and transfer pricing software is to solve the problems faced by teams who are still managing processes, such as forecasting and preparing year-end tax results using manual methods or spreadsheets.
The importance of such software has risen to the fore in recent times for several reasons:
- The worldwide trend to reform tax regimes and regulations, supported by a growing demand for stronger governance in business.
- A general move towards transparency and real-time reporting within the finance function.
- Demand from leadership teams for accurate data to support decision making.
- The digitization and automation that is provided by modern technologies, including easier ways to gather, categorize and analyze multiple data sources as a ‘single version of the truth.’
- The post-COVID requirement to build more resilience and certainty into forecasting, within tax and transfer pricing specifically, but right across the board.
The Great Global Tax Reset
All these trends are fueling what Deloitte is calling the ‘global tax reset’. They write that: “The ‘global tax reset’—the environment of altered tax rules and public expectations spurred on by initiatives such as the OECD’s Base Erosion and Profit Shifting (BEPS) project—is causing tax leaders and other executives at multinational corporations to reassess their organizations’ approach not just to tax, but to how they choose to conduct business.”
The BEPS project includes more than 135 countries and jurisdictions. They are collaborating on the implementation of 15 measures, which will improve the coherence of international tax rules and ensure a more transparent tax environment.
Another driver for global change is the OECD’s Forum on Tax Administration (FTA), which has published a discussion document called Tax Administration 3.0: The Digital Transformation of Tax Administration. “Digital transformation of tax administration is a journey that will take many years,” says the FTA, “and requires many pieces to fit together to realise the full benefits. This includes co-development of many of the building blocks of future tax administration with other parts of government, with private sector actors, and internationally.”
What Does This Mean for Tax Teams?
Just as modern Finance Departments are assuming more responsibility for elements outside their traditional remit, so tax and transfer pricing teams will have an excellent opportunity to add greater value than just preparing forecasts and reports. Some of the ways they can do this are to:
- Reduce risk in the tax filing process, whether that’s fiscal or reputational.
- Improve overall financial reporting and forecasts.
- Standardize financial information to enable real-time reporting and access.
- Support advanced analysis by senior leaders.
Yet as Luis Coronado, EY Global Tax Controversy and Transfer Pricing Leader, writes in his report ‘Five ways tax risk is rising – and how the C-suite should respond’: “Despite the recent surge in C-suite interest and oversight of tax being fully warranted, many companies are unprepared to respond to higher tax enforcement: just 24 percent say they have full visibility of all their tax audits, disputes and litigation globally, and less than four-in-ten are protecting themselves against transfer pricing risks and extra costs.”
There’s a real role to be played by tax teams to explain the benefits of investing in tax and transfer pricing software, especially to those large organizations that have yet to move ahead with implementation projects. A good place to start is with the fact that talented professionals in the team may not be using their time to their best advantage.
A recent survey by EY of 100 of the largest multinational companies found that while tax functions are planning to invest heavily to close the data and technology gap, most companies surveyed still spend 40-70 percent of their time on data cleansing. The three most common tasks undertaken as part of data cleansing include: splitting accounts, cost centers and profit centers; making central group to local subsidiary GAAP adjustments; and splitting data into correct locations or jurisdictions.
The right software platform could help tax teams and the companies they work for transform the tax function. Armed with the right software, tax teams can ensure that they are in the best possible position to prepare for the future and to attract the skilled professionals they will need to exploit the capabilities of new technologies. It’s why Longview Tax enables companies to:
- Close faster while reducing dependencies on other departments.
- Eliminate the costly consequences of error-prone manual tax management.
- Establish a single source of truth that promotes consistent, strategic analysis.
While many of the initiatives outlined in our white paper have yet to be revealed in all their detail, one thing is abundantly clear: significant change is on the way, and being as prepared and as flexible as possible will pay huge dividends.
Contact us to find out more about Longview Tax and Transfer Pricing from insightsoftware, to download our new white paper or to arrange a demo.