Even as talent concerns still loom, corporate tax leaders first need to think about their data situation and how to address the challenges there
Among the top concerns for leaders of corporate tax departments were keeping up with tax reform and regulatory changes, developing key talent, and improving effectiveness, according to the Thomson Reuters Institute’s 2022 State of the Corporate Tax Department Report.
Therefore, it’s no surprise that in this recent released survey of tax officers from KPMG these concerns have not abated. Indeed, close to 50% of chief tax officers report that they continue to struggle to find talent and more than 60% believe the changes to U.S. and international regulations (for example, around BEPS and Pillar 2) will significantly impact taxes.
Thinking about data
Before there can be any discussion about technology and how to use to it to solve for the challenges mentioned, it is necessary to first understand the data situation. The corporate tax department is one of the few departments within the company that gathers massive amounts of data from across the organization. How tax departments go about acquiring this information is a challenge, but most would say the bulk of their time is spent gathering data.
Succinctly put, tax data problem can be “defined as the inability to identify, collect, and leverage data to efficiently and effectively support compliance planning and opportunity management within the tax function,” according to a recent KPMG webinar.
The typical tax department is challenged in numerous ways, such as how it:
- keeps up with regulatory changes and provide information faster to regulatory bodies;
- gathers data;
- determines the quality of the data; and
- assesses the limitations of current technologies.
To solve for these challenges, corporate tax departments can look to build an ecosystem to manage their data. Doing so creates a repeatable, clear way of processing the data needed for their various uses. A data ecosystem is a platform that combines data from numerous sources and builds value through the use of processed data. The use of the term data ecosystem is often used and understood in technical terms, and it most often sits with the IT department; however, tax departments can create a less technical but highly efficient ecosystem. (Of course, this is not to say tax departments don’t need to work with the IT department. They do.)
What are the necessary pieces for an ecosystem?
In the general terms there are four central components to a data ecosystem: data sources, data extraction, data storage, and data analytics. These terms can be specified for use in a corporate tax department in the following ways.
Data sources — Tax departments can catalogue the list of information that is needed for compliance work, strategic business decisions, and advising the company. Next, they will determine where each of the information resides and whether the data is structured or unstructured. Structured data is data that is in a standardized format, has a well-defined structure, complies to a data model, follows a persistent order, and is easily accessed by humans. While unstructured data is datasets (typical large collections of files) that aren’t stored in a structured database format, and most likely needs to be human-generated.
Data extraction — After determining where the various data resides and the format in which the data exists, there will need to be plan for how and when to access this information. Based on the timeliness of the information needed, priorities should be set accordingly. Included in this step should be considerations on how the data will be managed. For example, if the data is unstructured and therefore needs to be downloaded, departments would need to determine the best format needed for where it is to be uploaded and how it is to be used. If the data is structured, (i.e., if it is in an ERP or CRM) then, the department needs to identify how best to move the data into a format that can be analyzed by the tax team.
Data storage — The decision of how and where to store the collected data is the next step in establishing a data ecosystem. Ideally, this is an opportunity to create and use a system that is duplicable, especially when information is gathered from certain departments with frequency.
Data analysis — The tax team is now ready to have the data analyzed so they can do their job. However, this maybe a place where upskilling is required. The ability to quickly access information, make sense of it, and then provide an output can be key to working better and smarter, but it may require specialized training or hiring.
By creating an ecosystem for data, tax department leaders can now sit with their IT colleagues for a robust discussion on which technologies are needed to enhance how the corporate tax department works. The data ecosystems provides the IT team with a clear map, including what the pain points are for the tax group, and what technology or personnel investment is needed to allow the tax department to function at its best level.