How Tax Contributes to a Successful Financial Transformation

01/12/23

Many organisations are undergoing financial transformations. They are renewing their ERP, moving to the cloud, or changing their value chain model. The drivers are diverse: new technology, new regulations, employee expectations, internal and external reporting pressures. Tax has often been overlooked in these transformations. But that is a missed opportunity because integrating taxation offers numerous benefits for both the tax and finance teams. It creates the opportunity for the Tax function to add value to the Finance function and the entire enterprise. It can also help to identify and mitigate (tax/financial) risks more quickly.

Reframing Tax: The CFO needs to involve Tax

CFOs are increasingly realising that Tax must play a crucial role in financial transformations, especially now that the transparency of tax data is becoming crucial. For example, due to developments on Pillar 2 and the obligation to report on sustainability with the CSRD. In addition, you can also add value to the broader Finance function by including Tax, such as:

Greater control and transparency over tax figures, allowing you to make timely adjustments if necessary;
Faster turnaround time for Tax in financial reporting and month-end closings;
Better governance and control, resulting in reduced risk of non-compliance and associated costs and penalties;
Automation of compliance processes, enabling better control of compliance costs and freeing up employees to focus on value-added tasks;
Better utilisation of financial and tax data for improved and more extensive analysis and insights;
Economies of scale when outsourcing financial and tax reporting and compliance obligations.

The Key to a Successful Financial Transformation

To be successful and contribute to the success of your organisation, you need to answer the following questions in a timely manner and make them part of the transformation:

What are the implications for the Tax function in our finance transformation process?
Is our current tax governance framework effective? If yes, should we incorporate it into our new ERP system or should we revise and redesign it?
How do we feel about sharing information with the public and our clients?
How do I manage reputation risks associated with reporting consistent and accurate tax figures to regulators in all countries?
What do we need to prepare for now and what other aspects should we consider in the future?

"By involving Tax in a financial transformation from the start and including them in important IT design decisions, product selection, and of course implementation and testing activities, you create opportunities for Tax to add value to the Finance function and the organisation as a whole."

Stan Berings

Tax at the Table: The Value for the Organization and the Power of Data

A strong collaboration between Tax, Finance, and IT stakeholders ensures that you identify and capitalise on potential issues and opportunities (earlier), resulting in better and simpler compliance, higher efficiency, and improved risk management. Additionally, a strong partnership between Tax and Finance can lead to excellent data and reporting analyses, as Finance is usually the source of the core data used by the Tax department for daily operations.

If you integrate tax data, it will be in the right place, in the same environment as all other financial data, available for the same analyses and visualisation. No more separate 'Excel Tax Packs'. With a tax-optimised general ledger and custom fields, you can perform or prepare tax calculations within an ERP system as needed. This means that you can automate complex processes for tax provisions by configuring modules in the ERP that naturally integrate with the general ledger. In addition to faster reporting and better insights into tax data, you can also take advantage of the intrinsic expansion capabilities of these tools.

Tax authorities around the world are actively working on mandatory real-time electronic filing and tax-based electronic invoicing. This means that you must accurately calculate certain taxes (such as VAT and Goods and Services Tax) in real time at the moment you record transactions. This way, you can include the correct amount of tax on invoices and send it in data files to the relevant tax authorities. If you do not include taxes in the ERP transformation, you will need an additional solution for each jurisdiction, which will cost more in the long run and take more time from the finance team when integrating or updating a tool.

What does this mean for you?

By incorporating Tax into the ERP transformation process, there are significant long-term cost savings and process efficiency gains to be achieved. For example, due to CSRD reporting obligations, risks need to be quantified, and 'ESG taxes' for carbon, plastic, and waste may be a relevant factor. At the very least, you can significantly delay the future increase in costs of a tax department of a large organisation that needs to continue to comply with ever-growing regulations in multiple countries worldwide.

Additionally, it also provides important qualitative benefits. Heads of Tax and Tax managers often have a good understanding of the needs and expectations of CFOs and finance managers, but lack the opportunity to fulfil them after completing calculations, management reports, and financial statements. By giving them access to these tools and minimising manual processes, you create space for them to focus on those additional tasks that make a difference in explaining and analysing the tax results and their impact on overall financial performance. The era of technology allows you to transform the Tax department from an executive function to a strategic business partner. We call this Reframing Tax. You can utilise tax resources not only to fulfil compliance tasks but also to proactively contribute to the achievement of organisational objectives.

If you have plans for an ERP upgrade or financial transformation and need to consider the tax requirements and automation possibilities, please contact one of us to have a conversation.