Tax transformation with cloud ERP

A blog post by Jennifer Deutsch, Partner, Global Tax Management Consulting, Deloitte Tax LLP.

As enterprises assess their evolving business needs and embrace digital transformation, Tax stands at the cusp of delivering transformational business value. Tax departments can leverage their enterprise’s digital transformation projects as a spark to reimagine the Tax function and integrate Tax with other business processes. Further, digital business transformation, enabled by cloud ERP, creates an opportunity for Tax to achieve the changes necessary to meet future compliance challenges, manage risk, and provide insight into global tax positions.

Drivers of new-age Tax transformation

Tax is transforming itself in response to several drivers that have developed in the last few years.

• A fundamental shift in the ways of tax reporting: Tax authorities and governments across the globe are producing mandates at a vigorous rate to drive efficient tax collection. They have quickly adopted digital technology and are utilizing its potential to keep up with—and stay ahead of—changing business practices. Also, tax reporting is not necessarily a year-end financial activity. It is more real time, perhaps, than ever, with authorities having deeper visibility into business activities. Tax departments must level up their digital transformation to manage current and future requirements in the compliance and regulatory arena.

Deloitte’s latest report, Tax transformation trends: Technology in focus, shows that 70% of the Tax leaders surveyed predict that revenue authorities will have more direct access to their systems within three years.¹ 

• Globalization and new business models: As enterprises enhance their global footprints, the dynamics of a changing environment can make it challenging to gain a competitive edge and mitigate risk. For Tax, it’s a dual responsibility to evolve the business while maintaining compliance. Tax must redefine its role from compliance management to become enterprise strategic advisors. When used properly, technology can be an effective aid in the transformation of Tax processes.
• Sustainability and climate change: With a global focus on enhancing sustainability and reducing the world’s carbon footprint, higher expectations for change affect all stakeholder groups—from CEOs, employees, and consumers to investors and regulators. In encouraging enterprises to take responsibility for environmental impact, regulators are introducing new sustainability regulations, such as plastic taxes and emissions certificate systems. Tax professionals need to be ready to comply with new reporting requirements that will come with these regulations.

Cloud ERP transformation as catalyst for next-gen Tax processes

For years, cloud ERPs have been critical in an enterprise’s business transformation journey. Tax must collaborate with business functions to join the transformation journey. Tax is often viewed as a back-office process, which may undermine its potential to derive business value and cost savings. Moreover, in many business digitalization cases, ERPs have not been optimized for compliance, which has created the need for stand-alone tax technology solutions operating alongside ERP systems but not fully integrated with them.

Cloud ERP solutions are reimagining tax compliance to reduce the time lag between business processes and tax operations. Through cloud transformation, tax departments can showcase their business value and find new ways to be compliance ready through real-time insights into tax risk and predictive analysis to support future business decisions. 

The future of Tax: Leveraging cloud to derive strategic value add for enterprises

Enabling business transformation 

Cloud-led digital business transformation presents an opportunity for tax departments to embed tax requirements into business processes and create a sustainable foundation that can adapt to future compliance needs.

At the core of cloud lies a universal journal that becomes the single source of truth across financial, direct tax, transfer pricing, and management accounting data. This foundation, reconciled by design, supports direct tax needs from internal business requirements to actuals, consolidation for income tax preparation, and predictive analytics. Multiple tasks can be executed in real time (for example, intercompany, currencies), providing ready-to-refer data for Tax without waiting for lengthy closes.

Leveraging ERP opportunities

Cloud adoption can help mitigate the risk of data misalignment in records needed for compliance and audit requirements. It can also help Tax to “go digital,” helping to create business value and be ready for ever-changing compliance requirements. The Tax function can leverage cloud to enhance operational efficiencies and to generate data while adding strategic business value.

Tax: Entering a new market

Cloud adoption for Tax can help businesses gain the much-needed agility to enter a new market. A market expansion can bring significant compliance challenges, which may increase the lead time to market, thus potentially jeopardizing business growth. With customized cloud features like document and reporting compliance, businesses can build a scalable model that allows seamless global compliance with local regulations as the business expands. Tax technology can support management of all types of mandates, enabling a streamlined path for adoption of regulatory reforms while reducing costs and efficiently providing transparency. Cloud enablement for Tax can also help with compliance to address the latest environmental regulations and limit the ecological, social, and economic impact of businesses.

Unlocking measurable tax value through business transformation

Many organizations find that by including Tax at the beginning of their digital transformation projects, they can unlock benefits that support the overall positioning and business case for the business transformation itself. There are both quantitative and qualitative benefits:

• Potential quantitative benefits
  • Reduced tax leakage and enhanced cash savings via improved data capture within business processes, which can enable more accurate calculations, invoicing, and reporting.
  • Time-savings via reduced time and operational effort spent for compliance and execution of tax policies 
  • Reduction in future cost through Cloud ERP models that are customized for Tax, equipped with predictive analysis, and that can reduce future costs and help meet ever-evolving complex tax compliance mandates

• Potential qualitative benefits
  • Increased visibility that can lead to actionable insights via access to better quality data that aids in real-time decision-making and planning
  • Improved compliance through the ability to more deeply analyze data, which can help protect brand and reputation
  • Enhanced risk management via cloud-enabled transformation for Tax that can help improve risk management through better data transparency and reporting methods 

A Tax success story

Finance transformation enabled through cloud adoption. A large consumer organization underwent a digital transformation for its Finance process. The company estimated that 30% of ROI would come from tax-related benefits. As part of the effort, Tax worked with the business to implement cloud practices and technology solutions that support a sustainable and agile business across various tax types, such as indirect tax determination, compliance, operational transfer pricing, group tax reporting, and corporate income tax. The result? The transformation enabled the company to generate and use data in a more strategic and value-added way, which helped them address their tax compliance needs with increased efficiency. 

Cloud-enabled ERP helps Tax lead the way forward

Tax is undergoing a paradigm shift as compliance becomes more real time. Cloud adoption can allow enterprises to gain immediate tangible benefits, improving compliance and increasing efficiencies to enhance the tax compliance strategy, readily adapting to future needs. Cloud-enabled business transformation can help streamline compliance and empower Tax to become a strategic advisor for the business. Implementing cloud-enabled ERP solutions can also provide a tax-sensitized, single source of truth to improve controls over transactional data, leveraging harmonized data and automation to simulate scenarios and address tax considerations.

To learn more about transforming the Tax practice with ERP, read the full report, Deloitte and SAP: Transforming Tax Together

Endnotes

1 Deloitte, Tax Transformation Trends: Technology in focus, 2022.