For many, the end of the calendar year is a time for personal and business reflection on the year passed and introspection into what could be done differently in the upcoming year
For corporate tax department leaders, it can be an opportunity to examine how the department is run, identify any opportunities for improvement, and assess where they may be needed. In the 2022 State of the Corporate Tax Department, leaders highlighted improving department efficiencies as their number one priority.
A tax department operating efficiently can go beyond providing compliance work and instead make the shift to being a proactive business unit that provides the company with tax and business guidance to mitigate risk and improve profitability. However, leaders and department heads must first understand where their department stands before thinking or wishing to become proactive.
For example, how does a corporate tax department leader know whether the department is proactive or reactive?
Being proactive — creating or controlling a situation by causing something to happen, rather than simply responding to situations after they have happened — means that the department should be organized in such a way that even though all external factors cannot be controlled, the mechanism in place can help plan for the unknown or the out-of-left-field happenstance.
The nature of the types of work done by the corporate tax department and how that work gets done is under almost constant change — the recent local, national, and international regulatory changes is just the latest example. The use of technology also has collapsed borders, allowing individuals and companies alike to traverse with ease. Like the individual, many companies can stretch into parts of the world that would have been only accessible by a few large corporations in the past.
Yet, along with this ease of crossing borders, there is a complexity in navigating it, especially for doing business. Companies can grow by reaching customers across the globe, but the cost of doing business brings challenges, such as having to work within the legal and financial systems in which the customer is located.
Corporate tax department leaders must not only navigate the tax laws of a nation, state, and local government but now increasingly must deal with multi-nation rules, especially if their companies have customers around the globe.
Some corporate tax departments might find it hard to believe that they are not proactive simply because part of the nature of this department is to predict their company’s tax liability and ensure it remains tax compliant while paying the necessary amounts of tax.
Of course, there are some telltale signs that a tax department is not operating efficiently and therefore isn’t proactive. Taking a look at these four areas can help department leaders make a proper assessment.
1. Process management
Departments that use a systematic approach to ensure adequate and efficient business processes are in place are engaging in proper process management to better align business processes with strategic goals. For corporate tax departments, there may be different ways in which data is collected, reports filed, analysis provided, and feedback given back to the business that all may seem to work. However, if they rely primarily on manual work and are multi-stepped (to the point that it takes weeks and months to complete), it may be worth asking some questions of the department’s process management.
Indeed, does process management even exist within the department? Can it be articulated clearly, shown to work repeatedly, and stand on its own? Does it only work for the individuals that helped create it, or can someone new step in and have it work the same way? If the answer to these questions is no, proper process management isn’t in place.
2. Data management
How does the department gather data? Does it feel like a version of the Hunger Games that requires seeking, finding, negotiating, and trying not to step on a land mind? Is this a manual process, collecting various spreadsheets from around the business and then entering the information into the department’s management systems? Or, can the tax department software be integrated to extract data from other part of the business? Is it seamless? Manually processing data significantly increases the chances of error, makes it challenging to verify data sources, potentially creates a tax risk, and is time-consuming.
And yet, even when technology is employed, it’s only as good as its users. Leaders should assess whether current technologies are efficient or actually are creating more work or processes for the department. Often staff — whether incorrectly trained or simply preferring to use their own methods — utilize just certain parts of a software program and rely on manual labor to do other tasks.
In these cases, workers time is not being used efficiently. Further, not having proper data management systems in place also causes bottlenecks in the work flow of department as employees wait for pieces of data in order to move forward. These inefficiencies can create a potential opportunity for risk, such as missing or incorrect data that leads to erroneous results.
3. Compliance & reporting
How long does this process take? Quite often, reporting is the final step in the process and as such, can be significantly impacted by how well or how poorly the previous process were conducted. Again, if there are many manual steps here, it will likely result in wasted time and resources while increasing the chance of risky mistakes.
Corporate tax departments have always been an advisory to the business by the very nature of their role in providing tax planning. However, this role has increased as departments are now expected to provide insights into tax implications related to deal-making, mergers, business divestitures, and environmental, social & governance (ESG) initiatives to name a few. For departments that aren’t functioning optimally, leaders will find that they cannot provide useful or beneficial advice to the larger businesses because departments themselves lack the bandwidth and resources needed.
Tax departments and their leaders should strive to manage processes and data efficiently and effectively. By utilizing automation and having a clear mindset about the role of the tax department within the organization, a leader can improve the department’s work process, relieve the stress on overworked employees, and provide invaluable information to the business to make it more profitable.
Indeed, this kind of transformation within corporate tax departments has happened, led by leaders who have recognized and adjusted to the new realities of the business and taken advantage of improved technology and process management techniques.