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FEI Daily spoke with Kate Barton, Americas Vice Chair, Tax Services at EY, about digitizing tax compliance, preparing for the House Republican blueprint, and the growing trend of tax outsourcing.
FEI Daily: There is massive reform coming, what should companies be doing to prepare now?
Kate Barton: There are the four things companies should do now. The first is to understand and model the House Republican blueprint for your specific situation. The second is to execute “no regrets” planning strategies prior to enactment of any legislation. The third is to plan your voice campaign – in other words, an advocacy plan for your company. How should you educate your legislators? What do you want to see happen? Should you lobby in an industry group or by yourself? The fourth is look at digitizing your tax function by using software bots and other automation technology to conduct routine tasks. Many tax processes are ripe for automation—preparing and filing returns, validating and checking work, and reconciling data.
FEI Daily: How is digitization affecting tax planning?
Barton: There is a huge opportunity to use digitization for tax planning, not only for data collection and analysis, but to help set strategy as well. Accelerated by technology, digital is a disruptive trend that is enabling real-time access, real-time analytics and heightening the expectation for real-time visibility and driving standardization at an accelerated pace. Responding to this, the tax function needs to increasingly operate across several fronts. Organizations must ask how technology can be leveraged to help build an operationally more effective tax function and meet the requirements of real-time data and analytics on significant volumes of historical data to identify patterns which can lead to more opportunities for tax planning.
At the same time, Mexico, Brazil and many other countries are digitizing tax compliance, using technology to create fully automated systems to boost tax collections. By improving the connection to both financial systems and historical transactions, technology can provide the foundation for real-time data that tells the most accurate tax story to both the organization and relevant tax administrations. It can help to provide more robust predictive analytics and help organizations better address global requirements around issues such as transfer pricing and initiatives like OECD BEPS.
FEI Daily: Is the automation technology in place or do they need be built?
Barton: This is a question that many companies are addressing today as they look towards what is needed for success tomorrow. There are new technologies in place, such as Blockchain, Robotics Process Automation, Artificial Intelligence, which can offer a new era of visibility into transactional data and unlock value, help manage risk, improve efficiency and provide critical business insight. Many companies are looking at these technologies and need to decide if they should build it themselves, or work with another organization that can provide a holistic and integrated solution.
Blockchain, for example, creates an environment in which every transaction is public, verified and available in real time. Its application in tax has the potential to move the function from retroactive analysis and historical financial information gathering to a position where transactions, expenses, assets and liabilities can be recorded in real time and publicly scrutinized. Mistakes, risk and fraud could, in theory, be eliminated and data validated by trusted sources.
RPA is another step in the evolution of business process bundling, which enables a virtual workforce of software robots to work faster, more inexpensively and more accurately and drive greater standardization in organizations. TaxBots are already being used to transform tax function operations – helping the tax provision, corporate and partnership tax compliance and indirect taxes like sales and use tax and property tax compliance and many other areas.
The benefits of RPA promise to be significant and universal for both companies and professionals. The promise of companies achieving faster services allows professionals to shift the work paradigm by being able to focus on value-added efforts and contribute more strategically.
Similarly, Artificial Intelligence (AI) is delivering many benefits for the tax function, such as improved decision-making and predictive modelling. AI tools will be loaded with information such as tax codes, case law and administrative guidelines, and will be able to make certain decisions by applying “judgement” based on historical patterns and answers.
FEI Daily: If they don’t currently exist, what resources are required?
Barton: Considerable time and resources are required for any organization to build out automation technology capabilities. Companies need to evaluate if they have the right talent and budget in place to build something themselves, or if it would be more efficient to co-source with an external partner.
FEI Daily: To what degree will these functions be outsourced?
Barton: The level of tax outsourcing is estimated to stand at about $25 billion in 2016 and is expected to grow as much as five percent per year through 2021. We are certainly seeing more companies hire organizations like ours to handle tax, internal audit and many other business functions they have often done internally to continue to leverage our specialized skills, process standardization and excellence, global reach and scale. We think this is a trend to watch in 2017 and is the direction things have been moving in for quite some time now.