Stacey Berkman explores the new paradigm for tax and three key ways in which tax functions can improve their tax governance and performance to both deliver value and meet these expectations.
Globalisation, regulatory changes, new technologies and increased pressures on the tax function are disrupting the tax landscape. As a result, expectations of tax functions are rapidly changing, both in terms of demands for better tax governance and risk management and also their ability to deliver value to the broader business.
Australian organisations now more than ever, need to be able to demonstrate a robust tax performance and governance framework to address these needs.
Here are three areas in which companies can improve the way they manage and improve their tax governance and performance.
Transparency, attention from public interest groups, the media and the ATO’s justified trust initiative have all highlighted the need for organisations to identify and manage their sources of tax risk, including reputational risk through the development of tax governance and tax control frameworks. Tax risk includes risk across your people, process and technology. Tax leaders should look to work with frameworks than can enable benchmarking against peers, past performance as well as the regulator’s view of best practice.
The ATO is looking for demonstrable tax governance frameworks with reference to the ATO Tax Risk Management and Governance Review Guide with a gap analysis and remediation plan as a first step. A large proportion of tax risk arises outside the tax function as a result of business activities and decisions and is often an area that is overlooked (for instance, when expanding into new markets, have potential permanent establishment risks been considered? Are local tax registrations and filing requirements being managed? Are there internationally mobile employees presenting global mobility tax risks?). This risk needs to be identified fast to reduce errors and drive value. Furthermore, tax functions are moving towards the business front line to improve upstream compliance. Building stakeholder engagement and demonstrating value is at the centre of this movement.
Similar to, and in line with the management of broader enterprise risks, it is the ATO’s view that the board is now accountable for tax risk and oversight of a tax control framework. This adds a new dimension to the Head of Tax role, which is to engage the board in a conversation on tax risk and provide confidence that the risks in relation to tax are effectively managed. The KPMG 2016 Global Benchmarking Survey shows that around only 27 percent of clients report to the board on tax matters under a framework which had been set by the board.
Increasingly the board and other business stakeholders are engaging in conversation on tax and this presents an opportunity for the tax function to shift from pure compliance focus to value creation. Tax leaders can use technology solutions to enable them to transform insights into impact for not just the tax function, but also the c-suite and board. Digitising your tax data for analysis, will also allow you to make better informed decisions focussing on what matters and take action.
Complex forces of transparency, governance, technology and business transformation are creating a new tax paradigm. On top of this, we know that tax functions are being squeezed and expected to achieve more with increasingly limited resources. For example, the KPMG 2016 Global Tax Benchmarking Survey showed that 35 percent of clients were focused on achieving standardised processes over the next five years. Leveraging technology solutions can streamline, simplify and create consistency across your organisation for tax processes.
Achieving balance between cost reduction, internal capability, efficient processes and effectiveness controls is critical, as it ensures that change is embedded in standard ways of working and business culture, through a holistic understanding of the organisation and the integral role of the tax function.
Investing in tax technology can be a daunting decision. Recognising how to make the right decisions today without knowing what the future holds requires completely new ways of thinking.
KPMG Tax Control Room can guide your broader tax technology agenda, help streamline your processes and free up your tax talent to focus more time on value-adding activities.
Combining technology with Tax Transformation services, this cloud solution helps organisations measure, demonstrate and benchmark tax performance and governance. As tax authorities increase their focus on robust tax control frameworks globally, this solution provides a basis of decision making by producing a comprehensive gap analysis (against regulator standards) that helps organisations manage and mitigate tax risk. The tool also provides a prioritised action plan to help a tax function leverage leading practices and keep pace with evolving regulatory standards and their peers.