As 2021 gets underway, and everyone is looking forward to a brighter year, we took the opportunity to catch up online with Toby Gallington, Head of Germany and Austria, Tax Technology, and Jeroen van Asch, Sales Specialist Nordics, from Thomson Reuters. We wanted to speak with them about the challenges facing tax professionals, how that relates to technology, and more specifically tax engines.
If you’ve not come across the term before, a tax engine is a cloud-based platform that integrates with all your financial transaction systems, such as ERP’s, P2P and O2C systems, to not only automate tax calculation on transactions, but is continually maintained to support regulatory changes, such as tax rates or rules, and other tax policy changes to be integrated to a clients system’s centrally and applied throughout the organisation.
So, take a few moments out of your day to read what they say, and think about whether it resonates with what you are seeing.
Thanks, both for taking the time to talk with us today for this blog interview. To get us started, here are a few questions:
- What are the growing internal and external challenges around Indirect Tax you’re seeing with clients?
- Toby: Externally, tax authorities are demanding much more access to the data that underpins tax returns, and cross-referencing that with other sources such as intrastat, transfer pricing, and corporation tax. As we have seen in other parts of the world there is also pressure building for real-time reporting, even at the point of invoicing, in the form of e-invoicing. Internally, tax teams are also under mounting pressure to make sure their needs are represented properly as part of digital transformation programmes.
- Jeroen: For all the reasons that Toby pointed out, there is huge pressure to make sure that tax is right the first time. Whilst that can be achieved natively, it is a complex process as there are so many technical and human interdependencies. A central tax calculation service streamlines this process. For downstream compliance, organisations that are still relying on tools such as Excel, or other disconnected systems for tax management, are going to find adapting to the digital government requirements very hard, as going forward the time available to validate tax submissions, is only going to shrink.
- What are the causes of these challenges? How do they interplay across the business?
- Toby: Across the globe, Governments have realised they must start closing the gap on their indirect tax deficits. EU members lost €151.5 billion, or more than 12% of the total revenue forecast from VAT in 2016 due to tax fraud, evasion, and avoidance, according to the European Commission. The move towards increased transparency and using digital platforms is a key component in that strategy. There is also an increased appetite to come down on corporates harder and faster, which underpins the need to get tax right from the start. Achieving that means treating tax as part of every activity, not a business afterthought.
- Jeroen: Multinationals have traditionally had a poor approach to calculating tax, relying on recalculations when returns are due, which is inefficient and costly. Tax departments are a business stakeholder, just like any other department, and need to fight for a place at the digital transformation table, so they can influence the decisions made about the systems and processes impacting their role. Automation, for example, can make a huge difference in the role of tax professionals, allowing them to focus on higher-value tasks. Digital transformation matters to people coming into the industry now: no graduate is going to want to spend 60% of their time rekeying data and working with archaic systems – they’ll soon move on. It is one of the reasons so many seek out roles with the big four, rather than going in-house.
- What has been the traditional approach to solving these challenges?
- Toby: Rather than deal with the root cause of the problem, the focus has been on wheeling in tax advisors or increasing the resource in the tax compliance teams to fix the errors after the event, or to focus on the volume of work. Of course, the problem with this is that it does not stop errors being made at source, nor elevate the role the tax department can play in the business.
- Jeroen: Organisations often get into a cycle of outsourcing the problem, then bringing it back in-house with some fixes, only to find find out they are unable to efficiently and effectively manage the process. And so the cycle continues. As one CFO put it to me once a few years ago, all he was worried about was getting the signature from the local CFO on the returns and rubber stamp them so they were delivered to tax authorities to the deadline. He was not in a position to declare full transparency & insight. This of course has changed rapidly in the last few years.
- What is a future-proof way to solving these challenges?
- Toby: Technology offers so many opportunities to improve the way tax is managed end-to-end across organisations, from the moment a transaction is started. There is a lot of potential for tax departments to add real value to the business, but not if they working in excel spreadsheets, constantly firefighting, recoding tax rates, and become quite frankly, drained by the monotony of these low skill labour-intensive activities. Digital transformation offers an opportunity to standardise data, systems and processes across the business. This creates a foundation from which automation can do so much to reduce errors, improve accuracy and ensure compliance with ever-changing international tax rules, allowing the Tax Professionals to deliver on what they spent years training for, delivering high skill value add to the business.
- Jeroen: At its core, success requires a change in mental approach: moving away from fixing the problem at the end of the tax process, to making sure they are right from the start. It’s a cultural change, that needs buy-in from the CFO down. The tax environment is changing, and the risks of hefty fines and investigations from tax authorities is a mobilising factor for many of the companies we speak with. The starting point for this is to understand the full internal processes.
- What options do clients have?
- Jeroen: From a technology perspective, there are point solutions to help with specific tasks, such as e-invoicing or digital tax reporting, but they only solve one problem, in one region. What happens when you want a solution for multiple regions, or to fix a new problem? It can very quickly become a very complex mess, with every vendor working to its agenda. Maintaining systems in-house also becomes uneconomical, and fraught with danger, as the IT team cannot be expected to be across global tax legislation, and neither can a tax professional.
- Toby: Adopting a solution based on a centralised tax engine is by far the strongest and most strategic solution for the long-term – they are designed to accommodate the rapidly changing indirect tax environment covering all the new rates and requirements. A cloud-based solution means that you no longer need to worry about implementing new tax rules, as they will have a research team focused on doing this in every region. A well-implemented tax engine will also integrate with all your transactional systems, such as the ERP platforms, CRM, P2P and e-commerce systems, meaning that tax is applied, calculated and validated correctly, wherever it is in the business.
- Can you give some examples of customers, businesses or industries that have adopted a tax engine? What were the benefits?
- Toby: We worked with a large pharmaceuticals company that made a big difference to its global operations with ONESOURCE. They were able to consolidate tax calculation and decisions across multiple ERP landscapes, multiple business units and regions. The final solution removed a huge amount of complexity and firefighting, but also ensured that whatever tax changes take place around the world, everything remained compliant across all their systems landscape.
- Jeroen: An area we see benefiting, again and again, is accounts payable. Most companies know what they are selling, but not what they are buying. Customers we have worked with often see a positive impact on their cash flow, because rather than paying too much tax and then struggling to get recoup it at a later it back, smaller more accurate payments were being made at the right time. Whether your business is national or multi-national, cashflow matters and the impact of tax can often be hidden
- On the Accounts receivable side we see more and more focus on a compliant tax calculation in complex supply chains including local registrations, bonded and non-bonded warehouses, free trade zones, triangulations from manufacturers like Automotive or High-tec companies.
If you think it’s time to learn more about how a tax engine can benefit your business, then you visit our Thomson Reuters ONESOURCE Determination pages to learn about how we can help your business.