How to build the case for tax department transformation

It is becoming increasingly important for businesses to be in control of their VAT, otherwise attempts to navigate the indirect tax landscape can easily become a minefield. The e-commerce boom in recent years has prompted tax authorities around the world to enact legislation that will help compensate for lost revenue from brick-and-mortar sales.

Sellers trading online and across borders are now under pressure to comply with more local laws and more complex reporting requirements. At the same time, they are expected to have better data skills that can support the flow of accurate information and ensure that their tax control framework discussions shift to include indirect taxation.

As you can imagine, without the right systems and processes in place, managing end-to-end indirect tax compliance can be difficult, exposing organizations to risk of audit failure and missing opportunities during times of growth.

The solution is simple: transform the control function. Many business departments, including finance departments, are prioritizing digital transformation to increase efficiencies and free up employees for higher value-added tasks – and indirect tax should be no different. Investing in a tax engine that integrates with multiple enterprise resource planning (ERP) and other financial systems can:

• Provide more transparency in all departments;

• Reduce data errors caused by human error or incomplete master data;

• Support an influx of transactions; and

• Ensure real-time data compliance for tax authorities.

In addition, your IT team will be relieved as they no longer have to spend a great deal of time updating the systems with the relevant VAT changes. Strict VAT compliance doesn’t come free, however, and since indirect taxes aren’t typically a “sexy” topic to be discussed in the boardroom, selling stakeholders a tax machine can be an uphill battle.

The role of an internal VAT manager is subject to constant change. In the past, meetings with current VAT laws have been attended and lengthy discussions have taken place as to why certain transactions were non-compliant.

This approach has changed, and the focus is now on data, automation and real-time continuous controls with a greater focus on agility. In short, companies must quickly meet several new requirements. As? Bring the control engine into play.

When you want to automate steps in the end-to-end VAT process, stakeholders often ask you to create a business case. This can be a challenging task at first when you start to make transparent the true cost of VAT compliance to your business.

Determining the acquisition costs of a control machine is relatively easy, as these are based on offers from external software and implementation providers. When comparing these offerings, it’s important to note that some stakeholders prefer an investment or investment model, while others prefer a subscription or operational cost model. Another aspect to consider is how these costs should be weighed against alternatives and existing costs. However, the stumbling block of the business case is communicating the benefits.

It is obvious to a VAT manager that a tax engine has many benefits, but these can be difficult to quantify or hampered by populist counterarguments. Preparation is the key here. Before presenting the business case, think about giving your stakeholders a picture of this project before delving into the various benefits and form alliances to get people on your side.

You should also determine who are the decision makers for the project and determine who will be consulted by your direct stakeholders and then focus on their strategic agenda, operational challenges and risk appetite.

The strategic agenda should align with the overall business strategy and provide insights on how to communicate the benefits of indirect tax automation. If, for example, the CFO wants to centralize finances in a few regional shared service centers, local tax knowledge is lost despite the same or increasing compliance requirements. Or if a CIO wants to reduce IT costs, a tax engine can help by minimizing the maintenance effort around VAT adjustment in ERP systems.

A tax engine can also facilitate a solution to your stakeholders’ operational challenges. For example, the CIO might struggle to keep systems current with ever-changing tax regulations. You may also need to spend significant time and resources understanding the business implications of these changes—and outsourcing these issues to a control engine software vendor can minimize that burden.

In the meantime, your chief financial officer may experience a delay in processing vendor invoices, resulting in late payments to vendors. It is likely that this delay was caused by incomplete or incorrect indirect tax invoice details and lengthy discussions with suppliers. Implementing a tax engine provides leverage for accurate tax data management and assigns accountability within an organization.

Finally, consider the risk appetite of your decision makers. For your CFO, what is an acceptable level of pain that a tax audit can bring? What result will affect the company’s income statement and stock price? Only a small percentage of a company’s transactions need to be processed incorrectly to result in significant VAT adjustments. But since these are potential fixes, what are the odds of them? To do this, as a VAT manager, you need to be aware of the results of tax audits around the world and how tax compliance is valued within the organization.

While an indirect tax machine may be overlooked in the context of financial transformation, VAT managers need to speak up and ensure the benefits are heard. Not only can this improve the bottom line, but the right solution can help increase productivity, enable scalability, and ensure end-to-end compliance.

More information on creating the business case for tax transformation can be found here.