European CEOs and tax leaders are transforming their tax departments through technology to support broader organizational goals, according to KPMG’s latest Global Tax Department Benchmarking Survey.
Launched at this week’s 2019 KPMG EMA Region Tax Summit in London, the report on the changing roles and responsibilities of tax departments holds some interesting parallels with the findings of KPMG’s Global CEO Outlook, released in May. Together, the two reports show the opportunity for tax leaders to leave behind their operational roots and become a more strategic partner to the CEO.
Barriers to growth
According to the 2019 KPMG Global CEO Outlook less than 1 percent of CEOs in Europe identified tax risk as a barrier to growth. Mindful of this potential `blind spot’ among chief execs, tax leaders have a responsibility to remind them that while they may be relaxed about the impact of tax risk on their growth plans, the most commonly identified barriers to growth will all have tax implications: the return to territorialism (18 percent of CEOs), emerging and disruptive technologies (18 percent) and environmental and climate change (17 percent).
“It is vital that tax leaders are informing their CEOs about the risks relating to tax in these areas and across the business,” said Jane McCormick, Global Head of Tax & Legal, KPMG International. “Today’s tax leaders need to be able to speak to their CEOs about tax in a compelling way that goes well beyond providing technical expertise and compliance oversight. Organizations need their tax leaders to step up as overall strategic thinkers for the business and its reputational goals, going beyond their traditional responsibilities.”
Transforming the tax department
CEOs are showing a healthy appetite for innovation, and KPMG’s tax research suggests that tax leaders in Europe and around the world are primed to support their plans by driving transformational change. Using technology to improve processes, exploring outsourcing and co-sourcing opportunities to gain efficiencies, and investing in new skills for their workforce are three areas of particular focus for tax departments.
About half of respondents expect a moderate increase in their use of co-source resources from tax providers (49 percent) and finance Shared Services Centers (52 percent). Almost as many respondents (43 percent) plan to increase their use of centers of excellence for key functions such as transfer pricing and transaction support.
While these kinds of operational changes are in line with the types of innovation CEOs are seeking, there may still be a disparity between what tax leaders are seeing and their CEOs’ awareness of the complexities, risks and opportunities relating to today’s tax environment and the tax function itself.
Tax leaders of the future
The tax benchmarking survey also shows some emerging shifts in how tax leaders in Europe see themselves and their ability to add value within their organizations. In addition to helping their leadership teams and boards navigate the demands of today’s tax environment, the survey suggests tax leaders recognize the need to develop new skillsets within their departments in order to help deliver more value in ways that reflect their evolving roles as business leaders and the changing needs of their organizations.
Alongside this call to expand the capabilities within their functions, tax departments in the region continue to operate in a challenging environment, rife with uncertainty. Adding to the challenges facing tax leaders is the rapid growth in the development of digital strategies employed by tax authorities.
“European tax authorities are leading the way in areas such as real-time reporting and e-invoicing,” said Chris Scott, Head of Tax for the KPMG EMA Region. “This is going to require heads of tax — and their organizations more generally — to reconsider the importance of technology to tax, to tackle data challenges and to adapt and develop their tax practices and processes for today’s realities. They also have to rethink what good performance means in this new world. If you’re traditionally judged by the timeliness of your tax return, this means little in relation to where the true risk might lie when data is sent in real time. Instead, the measures will become more about factors such as data integrity, coherence and completeness.”
This observation seems to align with what CEOs indicated as the top performance measure for tax departments, namely:
- Tax function is aligned to support the corporate strategy (14 percent)
- Tax risks are managed appropriately in line with organizational values and objectives (13 percent)
- Results of tax jurisdiction audits are as expected (13 percent)
- Tax function effectively manages its department’s resources (13 percent)
- Tax function generates cash savings for organization (13 percent)
- Tax compliance deadlines are met on schedule (12 percent)
- Business units are satisfied with tax services provided (12 percent)
- Accuracy of returns and avoidance of penalties (10 percent)
These findings suggest that CEOs are expecting strategic, broadly focused tax leadership, going beyond the traditional realm of compliance activities. In contrast, when tax leaders were asked to rank the same criteria above in terms of how they expect leadership would prioritize the tax department’s performance measures, the clear frontrunners were around the effective management of tax risks (54 percent ranked this as highly important), and the accuracy of returns and avoidance of penalties (43 percent ranked this as highly important).
Using data driven insights
Document management systems are currently the most commonly used type of tax software. Almost a fifth (19 percent) of companies that now use it plan to change or enhance their current software, while a similar number (21 percent) of other companies plan to acquire document management software in the next 5 years. Compliance software, off-the-shelf provision systems and workflow tools are the next most commonly used software. However, there appears to be little enthusiasm to change tools or increase usage among current users of these technologies.
“Many tax leaders in the region today are better equipped to deliver more data-driven insights to their organizations than they ever have been in the past, but there is still more that can be done,” said Melissa Geiger, Partner and Head of International Tax for KPMG in the UK. “They can go further by bringing their experience in evolving the tax function for real-time data collection to help other areas of the business do the same. This is one way tax professionals can take more of a leadership role in helping their organizations overcome the broader business challenges they face.”
In the short term, tax leaders in Europe may continue to struggle to balance compliance imperatives with broader business priorities, including enhanced data analysis, effective reputational management and better risk mitigation. However, emerging trends suggest the transformational work that tax leaders are beginning to take on today, investing in technology and improved processes, fostering new skillsets and continuing to pursue a place for tax at the leadership table, could yield meaningful opportunities in the longer term. The result will be a more efficient, more engaged tax function — creating a richer experience for the modern tax professional and eliciting further trust from the organizations and broader societies that they serve.