Like any transition, tax outsourcing and other tax operating model transformations should have a clearly defined scope and understanding of the process and timing. Starting with current- and future-state process mapping, planning should be very granular at this stage to limit the risk of tasks falling through the cracks.

After meeting with all affected teams to document processes and responsibilities, you’ll want to categorise what people do on a day-to-day basis and create a comprehensive, itemised list of roles and responsibilities. It is also critical that your tax filing calendar and your tax policy and procedures manual are up-to-date, comprehensive and thoroughly documented. These tools will inform your decision process in determining what responsibilities could or should be met within your organisation and what tasks could be outsourced.

For roles you decide to outsource, you can mitigate the challenges of knowledge transfer by “rebadging” people—moving your team members to the service provider and preserving institutional knowledge and familiarity with systems and culture.

Once you select your future operating model, many service providers can also provide contract personnel or shadowing resources who can work within your organisation. These individuals can provide reinforcements during the transition period while gaining meaningful experience with your issues and systems that can be leveraged post-transaction. Similarly, running pilot or test calculations on higher-risk process areas can help mitigate risk at the time of actual delivery.

Once scope and timing are well established and documented, an effective project management office (PMO) is essential for conducting a smooth and successful transition with limited risk. The PMO can be part of your organisation’s team or an external resource, but they should be very familiar with your priorities and capable of helping identify, create and implement key transition workstreams. Talent, technology and technical tax analysis are common workstreams that will likely benefit from PMO oversight in the form of setting due dates, assigning responsibilities and scheduling check-ins to make sure tasks are on track, problems are identified and addressed early, and the overall transition is progressing as expected.

In particular, broader transformation (outsourcing tax operations completely to another provider, for example) may require co-ordination with peer teams at the service provider on a wide range of legal, independence, technology and HR-related transition issues. The PMO plays a critical role in ensuring effective collaboration between the respective teams: For example, HR teams are working with their counterparts to co-ordinate talent transfers, legal teams are jointly focusing on contracts, and facilities teams are co-ordinating physical moves.

In addition to frequent team meetings, a robust governance structure is crucial to mitigating transition risk by promoting effective communication, transparency and responsibility. The structure and meeting cadence of governance is especially important; committees should be staffed with increasingly senior levels of your personnel and that of the service provider who meet regularly to discuss a range of items, including issue escalation and resolution, scheduling and completion concerns, changes in engagement scope, access to technology and data flows and tax law changes. Governance will require (and help ensure) that the right people are engaged and informed and communication is fluid, from planning to go-live to smooth operations in the new model.

Investing in and reaping the rewards of an effective governance model may increase the trust between you and your service provider, a critical factor in a successful long-term engagement.

As part of the operating model transformation, your classic “build it or buy it” technology options include using the technology of your tax outsourcing service provider. When organisations move tax department staff to Deloitte, for example, they have immediate access to a tax technology platform with the power of automation, digital tools and analytics. This can reduce manual work, increase efficiencies and offer tax professionals the insights and time to think more strategically about their work. For many tax teams, this may be a more viable option than building out these digital capabilities and managing them in-house.

Outsourcing your tax technology platform mitigates significant risks, but you’ll want to ensure that certain safeguards are in place; for example:

• Complete a deep dive at the outset to fully understand the existing technology pain points, as different industries, subledgers and business combinations all present unique challenges that need to be addressed.
• Ensure that you still have the ability to manage data flows and maintain continuous access and availability of data, including data from functions outside of tax and any third parties you might work with.
• Thoroughly analyse and document all cybersecurity and confidentiality risks between your IT department and the service provider’s team.
• Discuss dashboard reporting functionality that provides you with a quick, easy view into your outsourced operations, including the status of returns, hours and flexible reporting options.

With all the elements of transition risk, successfully addressing talent is a critical mitigant in tax transition planning. The tax professionals with the technical and practical knowledge of and experience with your business and stakeholders will play a major role in determining the outcome of your transition. You’ll want to keep them together by ensuring they are motivated, well-trained and on a rewarding career path, regardless of whether they are rebadged or remain in-house. Our next article on talent and culture considerations focuses in more detail on these people aspects of tax operations transformation.