New regulatory requirements, growing government requests and increasing demands from internal and external stakeholders for greater compliance… The pressures on tax functions are mounting, forcing companies to rethink their operational set-ups.
The drivers of change in large Swiss-based multinationals’ tax functions are the subject of the latest survey “Clarity on Tax Function Transformation” by KPMG Switzerland in collaboration with the University of St. Gallen (HSG). The survey shows that while some early adopters have already made progress in redesigning their tax organizations and streamlining related processes, most companies are only just starting out on the tax transformation journey.
As businesses face the pressing need for change, the survey homes in on findings that are central to effective tax transformation.
Successful tax management: Beyond minimizing tax payments
Shifting the focus from an adequate effective tax rate to ‘taking the load off’ operational management with regard to tax-related matters can help tax departments become more successful.
Taking responsibility: The board should define the cornerstones of tax strategy
Two thirds of companies in our survey do not currently have a formal tax governance policy. For those that do, it is mainly the CFO and/or head of tax who is in charge of defining the strategy. Respondents expressed a desire to see the tax function’s main strategic direction to be developed at board level.
Towards centralization: Tomorrow’s global tax function structure
Centralized and decentralized models are generally equally applied in organizations in Switzerland. As strategic examinations of the operational tax function take place, it can be assumed that consequent adjustments will see a move towards a centralized structure as companies seek to realize the benefits of a coordinated approach.
Standardizing operations: The growing role of tax technology solutions
Respondents generally rated the standardization of their tax department as low. The major role played in tax-related matters by MS Office applications outside the regular financial systems is seen as lacking in with regard to traceability and risks. Against this backdrop, respondents expect technology and data support to almost double in the future to support the tax function’s development. Major steps forward are anticipated through implementing tax technology solutions.
The number one topic: Transfer pricing documentation and analysis
With new OECD requirements and the need for country-by-country-reporting, transfer pricing is one of the central tax department’s most important tasks. The general consensus is that there is great potential for improvement from an organizational, procedural and technological perspective.
Continuing on the journey
Restructuring and reorganizing tax operating models has historically been a low priority. Although this is beginning to change, companies must recognize that transformation is a continuous process that takes time. Those that view it as a one-off task will find their new structures quickly becoming outdated as stakeholder expectations continue to grow. Crucially, the successful evolution of the tax operating model will not only stand a better chance of satisfying stakeholders, it should also contribute significantly to the quality of decision-making across the business. These benefits alone should urge slow-movers to pick up their pace.