How to prepare for the impact of political shifts in global tax compliance
The emerging tax landscape for global corporate tax professionals is fraught with uncertainty and change. Political alliances around the world are shifting. International tax laws are in constant flux, and countries around the world are implementing various versions of the European Union’s (EU) BEPS 2.0 and Pillar Two rules, as well as the Global Minimum Tax.
To help corporate tax professionals understand the implications of these changes on global tax planning and compliance, Thomson Reuters recently hosted a webinar in which a panel of tax experts discussed the many challenges of complying with Pillar Two, as well as strategies and solutions for adapting to this slippery new global tax environment.
Planning for Pillar Two
As reported in the Thomson Reuters 2024 State of the Corporate Tax Department report, more than half of respondents indicated that their top strategic priorities for the next 18 months are tax planning and strategy (58%) and compliance and regulatory adherence (57%). Evolving international tax frameworks such as Pillar Two are driving these concerns, because clarity about how new global tax regulations will affect individual organisations is hard to come by, and not every tax department is blessed with the technological resources necessary to flourish in this new environment.
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Regarding Pillar Two, the panelists noted that many countries are in the process of implementing the law’s requirements, but compliance is complicated by the fact that not all countries are at the same stage in their implementation process, and not all countries are adopting all aspects of the law.
Panelist John Modzelewski, KPMG’s Chief Data Officer, also cautioned that the incoming administration in the United States is expected to introduce new international tax legislation of its own soon (and is not expected to embrace Pillar Two), which makes multi-year tax planning extremely difficult. Such planning will have to be approached “very thoughtfully and carefully,” he said, and emphasised the importance of pro-active scenario modeling to maintain the agility necessary to respond to whatever changes may occur.
The role of technology and AI
The role of technology and artificial intelligence (AI) in meeting these challenges was also discussed at length. Many tax departments lack the necessary technological resources to adapt, the panelists agreed, and are only now realising the importance of investing more heavily in the technological tools they are going to need to future-proof their operations.
Panelist Pilar Mata, executive director of the Tax Executive Institute, emphasised how crucial it is for tax departments to change their mindset toward technology, not just to streamline processes, but to ensure compliance in a global tax landscape that is going increasingly digital.
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She also offered some advice to managers who have employees who are reluctant to abandon familiar, less efficient, processes. “Technology is going to become a part of everyone’s job,” she said, “so it’s important to encourage people to see it as an opportunity—that exciting new piece that they’re adding to their portfolio of responsibilities.”
Digital tax transformation: the essential strategy for global tax compliance
“Embracing” technology is not enough, however. In a swiftly evolving tax landscape that is increasingly dependent on cloud-based technologies, tax departments need to develop a comprehensive digital tax transformation strategy if they want to keep up.
“The tax department of the future is a more tech-driven, tech-enabled department,” said Elizabeth Duffy, Senior Director of Engagement at the Thomson Reuters Institute. “Now is the time for tax departments to build out the right technology strategy,” she added, noting that such a strategy also involves proper training and the willingness to explore new ways of working.
KPMG’s John Modzelewski emphasised the word “strategy” in any digital transformation plan, because it is important for organisations to understand why they are upgrading their technology and what they hope to gain by it, he said. Otherwise, companies could end up investing in the wrong solution.
“You have to look inward, not just at the technology but at your core function,” Modzelewski advised. He also underscored the difficulty of knowing the impact of any new technology before it is implemented, because “you really only learn it and integrate it once you start using it,” he said.
The perpetual challenge: talent and resources
Upskilling the current workforce and hiring tech-savvy new talent are among the other issues that many companies face on the road to technological maturity. Indeed, respondents to the 2024 State of the Corporate Tax Department cited “talent acquisition” as their most significant challenge in the coming year, and more than half (51%) felt their department was under-resourced, either in technology, personnel, or both.
To address these issues and prepare global tax departments for the wave of compliance changes to come, the panelists suggested that tax departments need to:
- Become more strategic and pro-active in their approach
- Refresh how they view their role in the organisation and work toward having a more strategic role in decision-making, especially when it comes to technology
- Develop a comprehensive digital tax transformation plan (if one isn’t already in place)
- Invest in training and development to get the most out of an investment in tax technology
- Encourage inter-departmental collaboration with tax to share knowledge and achieve better results
- Embrace the inevitability of technological change
- Find trusted advisors who can guide decision-making about tax-tech implementations
- Understand that combining a strong team with the right technology is the key to building a resilient, future-oriented tax department.
“This is an exciting time to be in tax,” insisted the Tax Executive Institute’s Pilar Mata. “We are at a pivotal moment to shape the future of tax departments and re-shape individual roles,” she said, adding that it is important to invest in both people and processes, because one cannot work without the other.
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