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September 2015
Tax functions
Reshaping for the future
Why your company’s tax function should evolve today to meet tomorrow’s
challenges
• Emerging global tax regulations, increasing compliance requirements, and stakeholder demands for increased
transparency are forcing companies to consider how their tax function operates.
• Historically, those in tax functions have spent significant time manually collecting, analyzing, and validating data.
As data requirements continue to grow, companies will need to explore ways to automate processes to gain
operational efficiencies. Additionally, tax professionals will need to broaden their proficiencies to include skills
that focus on analyzing data and using technology.
• Determining how to evolve your tax function requires an analysis of the current state to develop a roadmap for
transformation. Each company’s roadmap will be different depending on their current state, desired future state,
and scope of feasible changes.
• Enhancing the capabilities of the tax function will drive strategic value throughout the organization, as it will allow
for real-time tax reporting, trend analysis, forecasting, and modeling of planned business activities.
The changing landscape for the
tax function
The tax function plays a critical role in tax reporting and
compliance. However, many tax functions are grappling
with long-standing inefficient and manual processes,
resulting in significant time being spent on getting data
in the right form or at the right level for tax purposes.
At the same time, tax departments’ tasks and
responsibilities are increasing in volume, becoming
more complex, and simply taking more time.
Organizations are being impacted by evolving
regulations, increasing global compliance requirements,
and, notwithstanding their compliance with tax laws,
public scrutiny of whether they are paying their “fair
share” of taxes.
In addition, global megatrends are providing an
impetus for change. The shifting of trade and
investments to developing countries, demographic
changes impacting the availability and location of
professionals with necessary skillsets, and technological
breakthroughs (e.g., systems with new tax calculation
features) are impacting the tax function. These trends
have created a growing need for companies to re-think
the governance, data flow, technology, processes, and
professional skillsets of the tax function.
file). Lastly, companies would be required to report
separately to each country where they operate with
business and tax information about the local entities
and operations in that country (local file).
What does all of this mean for companies? Some can
expect to incur hundreds, potentially thousands, of
hours to comply with various proposed global
requirements. Companies will also need robust,
repeatable processes to meet emerging compliance
requirements and be able to assess their impact on
business operations.
Data and technology
The tax function is often one of the largest consumers of
data in an organization, with virtually every transaction
having a potential tax impact. However, tax functions
have historically spent significant time manually
collecting, analyzing, and validating data. To gain
efficiencies and enhance data quality, many companies
are exploring ways to eliminate manual processes, such
as by transforming their enterprise resource planning
systems to “tax sensitize” the information, creating tax
data hubs, or outsourcing data analytics and reporting
to third parties.
Global legislative and regulatory landscape
The Organization for Economic Cooperation and
Development (OECD), sponsored by the G-20, is
engaged in a multi-step plan to reshape international
tax rules and protocols for international cooperation by
taxing authorities. Referred to as the Base Erosion and
Profit Shifting initiative, this project may spur the most
significant changes to the taxation of international
business in nearly 30 years.
The OECD will be finalizing its recommendations
through December 2015. Separately, some countries
have begun implementing changes that may further
complicate reporting for multinationals. For example,
the UK recently enacted a diverted profits tax, which is
a 25% tax on profits that are considered to be artificially
diverted from the UK. The legislation was effective for
profits arising after April 1, 2015.
The proposed OECD rule changes ultimately would
require annual reporting to tax authorities at three
levels. The first level, which taxpayers would generally
need to provide for fiscal 2016, would be a “country-bycountry” report that gives a detailed picture of business
results for each country. For the next tier, companies
would need to provide an overall picture of their global
business, aggregating data from all countries (master
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CEOs believe data and data analytics
is the area in which digital
technologies have created the highest
value for their organization.
PwC 2015 US CEO Survey
The ability to analyze data in real time has a significant
impact on a company’s business performance and is
quickly becoming a necessity for those in the tax
function. A well-integrated tax data and analytics
environment can help improve tax accounting, general
tax compliance, and the resolution of tax disputes.
Professional skillsets
The skillsets tax professionals need are expanding
beyond their proficiencies in tax regulation and
reporting to include skills that focus on the utilization of
technology to analyze data from a broader vantage
point. Understanding how tax risk is being managed
across the business and how that aligns with the overall
goals of the organization is becoming more important
for tax professionals to make effective business
decisions.
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Charting a course of continuous
transformation
How to get there from here
The value proposition for change
So, how does a company chart an effective course to
evolve its tax function? One way is to develop a
transformation roadmap—a detailed plan with
measureable objectives and timelines that addresses
process and technology needs and risk management
objectives.
The potential benefits of transformation can include
reduced operational and tax costs, and improvements to
company-wide risk management, tax governance,
resource management, and recruitment processes.
A critical first step in developing a transformation
roadmap is to assess the tax function’s current
capabilities in governance, data, technology, process,
and people.
The assessment will provide key inputs for the
development of the transformation roadmap. Each
company’s roadmap will be different depending on their
current state, desired future state, and scope of feasible
changes. Typically, a plan will cover multiple years with
varying options. Developing a roadmap cannot be done
by tax in a vacuum. It will take an integrated, holistic
approach that is cross-functional, involving governance,
data, technology, and professional skillsets.
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The capabilities of the tax function can also be
enhanced to drive strategic value by engaging in data
analysis and benchmarking with peers. Enhanced
capabilities can allow a focus on key performance
indicators, such as effective tax rates and cash flows,
and reducing tax-related variability in earnings—
allowing management to adopt a “one step ahead”
rather than a reactive compliance mind-set.
Conclusion
The need for change is undeniable given the challenges
tax functions are currently facing and those on the
horizon. The return on investment can also be
significant. Transformation involves multiple
organizational components coming together behind a
common goal. Transforming the tax function is not an
easy endeavor, but it is imperative in today’s rapidly
changing global business environment.
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Questions and answers
Q: Is there a recognized model for assessing the
effectiveness of a tax function’s current capabilities?
A: Yes. One way to do this is by using a tax function
maturity model. A tax function maturity model provides
a standardized way for companies to benchmark the
maturity level of their current capabilities against a
framework to identify areas that may need
strengthening. The model consists of five levels, which
are based on Control Objectives for Information and
Related Technology (COBIT), an internationally
accepted risk management model:
The maturity levels are general guidelines only, and no
conclusions should be drawn from the descriptions. The
optimal maturity level for an organization will depend
on many factors, including the organization’s overall
risk tolerance, and should be based on the company’s
specific facts and circumstances.
To learn more, visit PwC’s tax function of the future
page by clicking here.
Q: What cost savings can an organization expect from
transforming its tax function?
Level 5: Optimized – Processes are efficient, based on
best practices, and continuously monitored for
improvement. Deliverables are high quality and the
organization is able to adapt quickly. Technology
crosses functions with advanced automated workflow,
embedded controls, and analytics.
A: Potential cost savings will depend on the specific
facts and circumstances of each organization. If the
current operations can be made more efficient to handle
additional tasks, costs can remain neutral at a
minimum or, at best, cost savings can be attained. In
some cases, savings could result from:
Level 4: Managed – Processes are actively monitored,
continuously improved, and deviations are detected in
time. Technology tools are aligned with the overall
organization and integrated, providing some predictive
analytics.

the elimination of hours performing certain
compliance requirements

lower staff cost to prepare tax returns (e.g., if cosourcing with a third party vendor is utilized)

the reduction or elimination of software costs (e.g.,
license/support fees) or other recurring expenses

a decreased risk of penalties
Level 3: Standardized – Processes are standardized,
documented, and communicated. Deviations from
written procedures may remain unnoticed. Minimally
acceptable internal controls are followed. Technology
includes a mix of licensed software plus a tax sensitized
ERP or tax data hub(s).
Level 2: Informal – Roles and responsibilities are
mostly informal. There is no formal training,
communication, or standardization. Licensed software
is used with limited integration.
Level 1: Initial – The organization is mainly incident
driven. Basic software is used, but not integrated and no
internal controls are in place.
Contact Information
To have a deeper discussion about
our point of view on the tax
function, please contact:
Q: What can companies do to be better positioned
regarding emerging global compliance and regulatory
changes?
A: Multinational companies should monitor global
developments closely to understand how they may be
impacted. Companies should understand what the
positions are of various governments and regulatory
bodies, and look at their structures to better understand
potential risks. Companies should also seek out
opportunities to put forth their positions to influence
the direction of future changes.
Beth Paul
U.S. Strategic Thought Leader
National Accounting Services Group
Phone: 973-236-7270
Email: [email protected]
Michael Shehab
U.S. Tax Reporting & Strategy Leader
Phone: 313-394-6183
Email: [email protected]
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information purposes only, and should not be
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