From the global demand for a corporate minimum tax, to a dizzying array of acquisitions, to macroeconomic changes in politics and economics, tax departments are feeling the heat at a time when the range is already reaching its limits.
Thomson Reuters’ 2021 report on the health of the corporate tax department found that half of corporate tax departments say they are under-resourced. Digitized tax returns, remote work as well as new technology and automation projects have increased the burden and made the dynamics in these departments seem untenable.
That last part may sound troubling to the armies of software and business process automation vendors who call technology the magic elixir for solving these problems. However, as we see time and time again in real corporate tax departments, just because a technology can automate a task in a vacuum does not mean that companies are ready to implement them. Much like building a skyscraper on a bed of sand, trying to install a major technology upgrade in a corporate tax department that has not yet laid a solid foundation on which to base many of these projects will fail in the first place.
And there is a lesson in that. Companies have learned over the past two years that having a lot of technology is not enough; This technology needs to be synchronized and optimized to make it available for a wide variety of use cases. Simply buying point solutions and layering them on top of each other without strategic planning for the interaction of the moving parts can often cause even more work.
Perhaps this is why more than half of the corporate tax experts surveyed described the current state of their tax departments as “chaotic” (21%) or “reactive” (32%).
The fact is that many tax departments faced significant challenges during the COVID-19 crisis because their inventory control systems, tax systems, and finance portals were designed to support vertical functions and specific purposes. Unfortunately, in the decentralized world of company-wide home office operations, many of these systems were either inaccessible, incompatible or simply not functional in time – so the teams had to get by with Excel tables, approximations and gut instinct.
Even companies with some technical know-how often had to cut and paste content from legacy systems, dig up files stored on individual PCs, and spend far too much time on clunky, inefficient workflows.
To get the most out of their technology investments, corporate tax departments need software and a data infrastructure that is flexible enough to meet the changing needs of a distributed workforce and ever-changing regulatory framework.
For many, this means things get much more serious with data. Companies need to track granular, localized inputs and trends in order to make strategic decisions and anticipate necessary changes of direction at an early stage. Company-wide data and analysis functions are no longer a matter of course. The growing burden on corporate tax departments has made it clear that real-time insights are vital not only to avoid costly mistakes, but also to uncover ways to forecast future developments.
Others focus on regulatory compliance and implementing the tools needed to automate the most labor-intensive components of tax collection and reporting. This includes calculating the ever-changing indirect tax rates for states, counties, and local taxes at the point of sale and automatically reporting this information in advance.
As tax departments continue to face stricter compliance requirements, larger workloads, and fragmented employees, it is important in any case that they view new technology less as a transaction and more as an opportunity to transform workflows and future-proof against the next crisis.
Acquiring technology for technology’s sake will no longer fly. Both buyers and sellers of corporate tax software need to realize that we have now entered a world where everything is intertwined. The Texas back-to-school sales tax vacation, the introduction of the new digital services tax in the UK, the intangible income from Switzerland, the payroll tax for a remote worker for a Florida-based New York company – they’re all interconnected, and the corporate tax department needs to be in be able to take them all into account. Real time.
Brian Peccarelli is Co-Chief Operating Officer of Thomson Reuters.