Today’s tax functions have the potential to be critical assets to their organisation—drivers of transformation and pioneers of a connected, data-first culture. How can they best communicate this potential? Tax leaders need to hone their ability to communicate their vision; however, a recent survey conducted by Industry Dive, a top journalism company, in conjunction with Ryan, a leading global tax services and software provider, revealed a great divide between CFOs and company tax department heads.
The poll showed that while senior tax executives viewed the tax function as generally effective, a large percentage of senior finance executives have a very different perspective, with nearly one-third viewing the tax function as ineffective in optimising tax recovery and identifying the tax consequences of major transactions. One in four finance executives also viewed the tax function as ineffective in containing costs and communicating with the finance department.
The survey results point to a larger underlying problem for tax department heads. They face a steep challenge in demonstrating to the C-suite the strategic value the tax function can contribute and securing investment in the tax function to build out that strategic value. Given this reputation deficit, how can tax departments enhance how they are perceived by C-suite and finance leaders?
What’s Causing the Divide?
First, tax practitioners should understand the cause of the perception divide. “The survey results aren’t all that surprising,” says Suzanne den Breems, Principal and VAT Recovery Practice Leader at Ryan. “Tax teams tend to focus on risk mitigation in areas that can lead to the biggest problems, leaving team members siloed as they devote their bandwidth to this integral but low-level work.” Tax can, in this way, become disconnected from the priorities of finance and finance leaders rarely see evidence of the high value a tax department can bring at its best.
“Most often, tax is focused on compliance as opposed to optimisation because a tax audit is what keeps them up at night,” den Breems says. “Being able to work on recovery or strategy or transformation is a luxury of time they don’t have.”
Five Steps Tax Executives Can Take to Reinforce Their Reputation Among CFOs
While it may be a daunting task, the following five steps can be a simple start to a longer journey that culminates in a forward-looking and forward-solving tax department.
- Communicate and advocate
“Tax executives have two choices: persist in the status quo or build a compelling business case for change,” says Andrew Burman, Tax Transformation Principal at Ryan. “Without a clear vision and commitment of resources, tax professionals will be stuck in a low-level, repetitive compliance loop where they’re so busy with compliance and auditing tasks that they don’t have time for strategic work.” To avoid the compliance loop, tax heads need to communicate their vision and advocate for tax transformation that will allow their departments to become strategic profit centres for their companies.
- Find efficiencies
Bringing in outsourced, best-in-class expertise to assess the tax department can help identify gaps—improving processes and systems through the use of automation, for example—and ultimately break the compliance loop. “Working with a tax partner can help by first uncovering the material savings to allow for investment in tax transformation technology, as well as free up time for tax professionals to perform higher value-added work,” says Scott Fowler, Client Services Principal at Ryan.
- Improve data
Tax heads should cast the tax function as an advocate for—and practical implementer of—improved data quality and transparency across functions, even beyond finance and tax departments. Data quality has to be maintained from its origin if it is to be used strategically, so the tax department must proactively work to understand how other company functions collect and work with data. Tax heads also need to coordinate with IT on how the company’s systems collect and manage the data, as well as evaluate what existing tools and technologies are available and could be better utilised within the organisation.
- Become an internal resource
Senior tax executives can and should become an internal resource for the CFO and others in the C-suite for understanding the future of tax regulation and its business implications. By taking on this role, tax heads can contribute to the strategic planning for the company and to its profitability, while building the tax team’s reputation.
- Maximise VAT recovery
Tax heads can also contribute to company profitability by assessing their VAT ecosystem. A VAT review can identify and help rectify any transaction gap with a detrimental economic impact. The tax function—along with finance, accounting, operations and IT—is responsible for ensuring data quality, timeliness, reporting structure and reliability. Therefore, an outsourced tax partner performing the VAT review can serve as a cross-functional bridge, maximising not just VAT recovery, but also the organisation’s understanding of its tax responsibilities.
Tax heads face a steep challenge in bridging the perception divide between themselves and CFOs and they’ll need to face that challenge head-on to secure investment for building out a strategic tax function. To accomplish this, tax heads need to communicate the need for change; find efficiencies with the help of outsourcing if necessary; improve data quality; and become an internal tax resource for strategic planning and maximising VAT recovery to contribute to business profitability.
To read the full findings of the recent survey of tax and finance executives across Europe, download our new white paper “Building a Case for Change — How to Amplify the Strategic Value of Your Tax Function” now.