Highlights | KPMG | Malta
Indirect Tax Benchmarking

Highlights

Highlights

Indirect tax functions today

Priorities and performance

  • Many organizations stand to see a significant working capital benefit from indirect taxes. However, many indirect tax leaders view the impact of indirect tax on their cash situation as negative, suggesting that their indirect taxes could be managed more effectively.
  • Only a minority of organizations have established metricsto measure the effectiveness and results of the indirecttax function’s performance. Given the huge amounts ofworking capital tied up in indirect tax processes, the relativeabsence of specific key performance indicators may becausing indirect tax teams to miss opportunities to improvecash flow, reduce costs and enhance the bottom line.

Accountability and visibility

  • A rising proportion of global organizations have centralized accountability and governance by appointing a global head of indirect tax. A more recent trend has emerged toward the appointment of regional heads of indirect tax to enable specialized local coverage, improved partnering with the regional business units, and better relationships with local tax authorities.
  • In most organizations, indirect tax now clearly comes under the purview of the broader tax function, rather than finance or other functions. This shift mirrors the higher profile given to tax in general in recent times among governments, tax authorities and the broader public. It also may reflect the worldwide emphasis on transaction based taxes and the diminishing nature of corporate income taxes as statutory income tax rates have declined worldwide during the past 2 decades.

Risk and controls

  • In the area of risk identification and controls, indirect tax functions increasingly say that they have identified key indirect tax risks across regions. However, a sizable minority have yet to identify their exposures to indirect tax risk in the Asia Pacific region or Latin America, which could adversely affect their cash positions.
  • More global organizations are taking steps to verify the effectiveness of internal indirect tax controls embedded in their underlying business processes. Self-assessment is the more common approach, while a few companies are gaining the deeper insights that come with an independent external review.

Evolving compliance models

  • The past several years saw a trend toward the centralization of indirect tax compliance activities for transactional taxes, driven in part by the latest round of finance transformation projects aiming to cut costs and boost efficiency.
  • With this phase of finance transformation nearing completion, many organizations are taking a closer look at their centralized activities to assess which of them to keep in-house and which to outsource. A majority of organizations say they plan to re-orient their compliance models over the next 3 years to rely significantly more on outsourcing.

Investing in technology and resources

  • Over the 3 next years, indirect tax leaders say they intend to make technology their top priority for investment. This shows indirect tax functions are recognizing that technology is becoming ever more critical as governments move toward digital data delivery and direct access to organizations’ tax and financial accounts.
  • In the near future, technology could offer one of the only viable solutions for verifying the accuracy and completeness of transaction-level data. Embracing tax technology, automation and data analytics can enable indirect tax leaders to bring a more evaluative understanding to their organization’s risks and opportunities for adding value.

Trade compliance functions today

Priorities and performance

  • With trade compliance functions still evolving, only a minority of them have set metrics to monitor their performance. As a result, global trade functions may have difficulty making the case for future investments in technology, automation and processes.
  • For those functions that have established metrics, duty minimization and cost reduction are cited as a priority most often. A more balanced range of metrics that also covers compliance and qualitative measures seems needed to help trade compliance functions articulate the strategic value they contribute.

Accountability and visibility

  • Organizations are continuing to move to a more global approach to trade compliance, as shown by the rising number of organizations that have a global head of trade compliance.
  • A clear view of local costs and activities is a key to realizing the benefits of central leadership, but it appears that many organizations have not yet developed the systems and processes needed to enable effective global oversight over their trade compliance data.

Risk and controls

  • Organizations that have identified risks also tend to have embedded processes and controls in underlying
    business processes to manage them. However, just as global trade compliance functions lack visibility over local activities, many of them lack knowledge of risks in the various regions.
  • To verify the effectiveness of these processes and controls, the trend toward internal peer-to-peer selfassessment is increasing. Recent years have also seen a rise in the number of organizations engaging in internal\or external audits to gain assurance that their controls are well designed and effectively deployed.

Evolving compliance models

  • Despite the increase in global heads of trade compliance, compliance models among these functions are still predominantly driven locally, although survey respondents expect a shift toward more centralized models, including shared service centers.
  • Looking ahead, there is an expectation that companies will move toward a more outsourced model in the next 3 years. Doing so will allow them to exploit the technology investments and economies of scale of third-party service providers and focus more on strategic pursuits and adding value.

Investing in technology and resources

  • Only a small majority of larger organizations with over 20 billion US dollars (USD) of annual turnover say they use global trade management software and technology to manage aspects of their import/export activities. However, technology tops the list of priorities for investment in the next 3 years, followed by investments in processes and data and analytics.
  • Most companies say that they have not been able to invest in technology because they lack the budget or organizational support to do so. Trade compliance leaders can benefit by positioning any proposed systems implementation holistically with cost reduction in mind as a way to transform the trade compliance function and drive value.