Digitalization – Opportunities and Challenges for the Tax Function

The digitalization of functions and processes in the finance division of large corporations has been a trend in the last decades and continues to be a megatrend for all major companies. Historically the tax function has not been as affected by processual change related to digitalization compared to other transactional corporate finance functions. It can be expected that this will certainly increase with higher intensity in the near and mid-term future.

Tax digitalization will ultimately lead to automated end-to-end processes ensuring tax compliance and ad hoc tax reporting as well as supporting tax consulting and management. As an example, tax departments will be enabled to implement automated tax validation routines (e.g. for VAT purposes) utilizing corporate mass data (“big data”) and gain a high degree of transparency and increased abilities in managing tax requirements and tax risks. With regard to the variety of the different taxes (e.g. indirect taxes, wage tax, corporate tax, and international tax) it will be necessary to implement a holistic tax IT-strategy with individual functionalities for the different taxes. An important step in the digitalization of tax departments will be the evaluation and selection of applications according to the overall strategy and the implementation of a digitalization roadmap. In addition to the technical implementation of IT applications, the tax processes and organization of the tax function will need to be adjusted. The high speed of digitalization of corporate processes offers both opportunities for the tax function as well as challenges:

Opportunities

  • Automation of tax processes by using automatic data interfaces and intelligent tax tools 
  • Create efficiencies in tax consulting by using intelligent digital support in allocating and answering tax related inquiries from the business, back offices or external stakeholders (e.g. tax auditors, tax authorities)
  • The use of artificial intelligence to secure quality and improve services of the tax organization 
  • High transparency and quick response time by tax management reporting on relevant numbers, risks, workflows, etc.
  • Central steering of tax processes and deliverables by using management information systems to centrally manage in real time the activities and results from the different digital tax processes
  • Sustainably secure compliance and quality in tax under consideration of more digitalized and automated business processes
  • Full central real-time access to tax relevant digital enterprise information and on the global activities of the tax function

Challenges

  • Digitalized tax relevant processes and systems generate automated big data, which then must be processed by Tax
  • Tax controls and tax governance on this big data must be secured to ensure correctness of Tax deliveries
  • Digital business models and the related quick change of the business and processes require a fast reaction from the whole organization. This includes the tax function, which must be able to quickly provide consulting and information to not be considered as a "block for corporate digitalization"
  • New digital business models create new tax questions which must be solved efficiently and the resulting tax consequences must be derived quickly - therefore the tax function must become agile and flexible and cannot be slowed down by manual processes
  • New technology and analyses are applied by external stakeholders such as tax authorities. Tax authorities expect the tax function to secure the legal tax requirements also in highly automated digital processes by implementing sufficient processes and controls. Additionally, the tax authorities increasingly require digital tax compliance activities (e.g. electronic tax declarations, electronic supplemental information)

In this environment it is crucial for the tax function to take a proactive role in the area of digitalization and become a major stakeholder in digitalized corporate processes. Additionally the tax function must also change its own ways of working and organizing to be able to manage the challenges and benefit from the opportunities of digitalization in its own inherent processes.

Practically this means for the tax function

  • Establishment of know-how, resources and organizational structures to face digitalization
  • Getting involved in digitalization initiatives in all relevant corporate functions
  • Implementing digitalized processes and tools in its own activities


More Information on digitalization

Related Service
ITax - IT Tools for Tax

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