Moving towards centralization, standardizing operations and using more tax technology solutions: The race to redesign tax operating models is well underway. Executives and tax leaders around the world are driving transformation in general and especially for tax.
Keeping pace with unprecedented pressures, disruptive technological advancements, heightened compliance obligations and more – the pressures on tax functions are mounting and forcing companies to rethink their original set-ups.
While tax authorities and stakeholders are asking for greater transparency, tax leaders are becoming more able to articulate how their departments add value to the business while contributing positively to society. Mastering this balancing act will occupy tax functions in the upcoming months and even years.
The future of tax transformation
The drivers of change in large Swiss-based multinational tax functions were the subject of our Clarity on Tax Function Transformation study last year and KPMG’s new Global Tax Benchmarking Survey expands the view to comparable departments and tax leaders around the world.
Looking at how tax departments are evolving worldwide and the changes Swiss tax departments are making, here are some key findings central to effective tax transformation:
- Taking responsibility – Tax strategy: In Switzerland, a third of survey participants say they’d already described their tax strategy and governance policy – markedly less than the number of global participants who report having a documented tax strategy (50 percent). Nevertheless, in Switzerland the adoption of a formulated tax strategy has slowly and steadily found its way to the board of directors. We also see this trend in the global survey as two-thirds of the participants report that a board member is now responsible or accountable for tax. One reason Switzerland may appear slower in this regard, is that unlike countries such as the UK, there are no legal requirements in place or planned for the mandatory public disclosure of tax strategy.
- Moving towards centralization: There’s a clear trend towards centralizing the tax function in Switzerland, particularly in the area of transfer pricing. At the global level, however, many companies are moving toward an even greater degree of centralizing tax resources and activities as transfer pricing is one of the most important tasks performed by the central tax department in the headquarters’ country. Not a surprising result given the upcoming challenges of implementing CbCR under the OECD’s Action Plan on BEPS.
- Standardizing operations: Both the Swiss and global study show that the general level of standardizing tax processes is low. However, it’s also clear that improving this situation tops the list of tax leaders’ priorities for process improvements both globally and in Switzerland.
- Using tax technology solutions: Although survey participants anticipate an increase in the significance of tax technology and IT solutions for tax in the future, they may be missing opportunities to drive efficiency by increasing their use of tax-related software today. We see this particularly in Switzerland, as participants reported relying primarily on MS Office to prepare tax financial reporting and associated notes as well as managing compliance. On a global level, compliance software and provision systems are the most commonly used tax software.
- Locating the tax function: And finally and not surprisingly, both in Switzerland and globally, most tax functions still fall within the finance function and most heads of tax report to the CFO.
What are the key differences between Swiss and global tax functions?
Most of findings were quite similar; showing the same trends with very little deviation. However, in two respects the findings differed significantly:
- Defining value and performance: In Switzerland the effective tax rate seems to be the key performance indicator (KPI) for tax departments while on the global level, companies are using more clearly defined performance measures for quantifying the tax department’s value and performance.
- Governance and risk management: Tax risk and compliance remains under the umbrella of the local tax function in Switzerland. However, the global study shows that many companies have recognized and responded to the need for strong tax governance and risk management frameworks managed centrally.
Assessing today and preparing for tomorrow
Transformation is a continuous process that takes time. Those that view it as a one-off task find their new structures quickly becoming outdated as stakeholder expectations continue to grow. And it’s not enough to satisfy stakeholders, the continuous transformation must also contribute significantly to the quality of decision making across the business.
Tax leaders in Switzerland and worldwide are driving transformation in general and especially for tax. Yet, companies surveyed in Switzerland last year may seem slightly behind compared to global peers.
What should you do to further drive tax transformation in your company?
- Establish a clear tax vision and strategy
- Determine your appetite for risk including reputational risk
- Understand your current tax operating model and develop a new and right operating model for your tax function: implement a world-wide organization and processes including IT systems that will support and add value to the business and deliver the agreed strategy
- Gain visibility and transparency over your global tax data in order to be ready and act fast if needed
- Implement a governance and control framework for your tax function
- Benchmark your tax function and use relevant KPIs to steer the tax function to the right behavior
Participate in the global survey
Benchmarking against comparable tax departments can be a powerful tool. Find out what your peers are doing – in Switzerland and around the world by participating in KPMG’s ongoing Global Tax Benchmarking Survey.
For information on how to participate, please email firstname.lastname@example.org.