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Audi. BMW. Daimler. We know what business these companies are in, right? But look under the hood of any major automaker these days and you might be inclined to call them technology companies. In August 2015, a consortium of German carmakers bought Nokia’s digital mapping unit for about US$3 billion. With tech companies like Alphabet (the parent company of Google) pushing aggressively into the automotive space, “traditional” car companies need to reimagine themselves to compete in a rapidly changing environment of information-based systems and connected devices. You don’t need to look far to find examples of how this process of “digital transformation” is reshaping business models and operations and blurring the lines between industries.
So, what do these technology-driven disruptions have to do with tax? The answer is, quite simply, everything. An essential job of any tax department is to characterize business activity and transactions in all their complexity – similar to the finance function - but often reflecting different calculations. Regardless, the numbers must accurately reflect the underlying reality. As business activities move to the cloud and across sovereign boundaries, tax professionals need to understand the technical intricacies.
In addition, companies around the world face a host of new regulatory requirements aimed at increasing tax transparency that require them to implement new data management systems and supporting technologies. Some authorities are already able to plug directly into the raw transactions data and ERP systems of large companies to perform automated, real-time audits. Such advances pose an urgent challenge for companies to invest in new systems to comply with emerging regulatory requirements. Tax departments must acquire the technical skills needed to keep pace with these changes.
These two trends — digital business models and processes, and use of automated systems by governments — will fundamentally alter the work and the skills required of tax professionals to include more than business, accounting and legal expertise. The new generation of business needs tax technologists.
Having spent my entire career as a tax professional, I am quite aware that not everyone automatically associates tax with rapid change and leading-edge innovation. The common perception is still colored, perhaps, by the largely reactive role that tax people played in the past.
The call for well-rounded, business-minded tax technicians
Over the years, however, the more complex and global nature of business has demanded a corresponding shift in the role of the tax function. Tax has become a more important element of strategic planning, as the recent wave of mergers in the US often incorporates business profiles with tax benefits. It occupies an increasingly central role in the management of the business, and top tax executives today typically hold a more prominent seat at the table in strategic decision-making. And many of these business changes rely increasingly on new technologies for revenues.
Tax organizations and their advisers have therefore acquired a much greater depth of technology expertise in addition to a fundamental understanding of business and accounting.
What we now see emerging is another tectonic shift in the profession driven by the technological demands of the businesses we serve. While tax professionals have always needed a strong understanding of underlying operations, the demand for people who can handle technical and scientific details and can act as true partners and advisers to the business is stronger than ever in today’s complex enterprises. That’s one reason why we revamped the skill sets that we use to recruit into our organization. In the past, less than 5% of the degrees held by Ernst & Young LLP tax professionals in the US were in the STEM (science, technology, engineering and math) disciplines. This is changing rapidly as we look to develop a cadre of well-rounded experts who bring the full perspective of tax, accounting, legal and technical acumen to bear.
Technology empowers the tax function
Another factor is the rapid change in the tools becoming available to tax organizations and professionals. Processes required manually wading through thousands of lines of data or paper invoices are becoming increasingly automated. Driven in part by the reporting requirements of regulatory authorities, fragmented corporate data systems are being integrated to provide an up-to-date picture of business activity using common data formats and will require organizations to invest thoughtfully in new tax technology systems that have the potential to produce vastly more useful, real-time tax information for managing the business.
This digital disruption of the tax function itself is where truly exciting opportunities lie. Automated systems that reduce the mundane tasks of data manipulation while increasing the accuracy and velocity of information will enable professionals to change their focus to more sophisticated analyses that add value and decrease risk for the enterprise. An example of this is the growing use of dashboards that apply data analytics to uncover patterns or anomalies in data gathered in real time. These visual systems allow users to identify potential risks or tax-saving opportunities. Analytics can also be used to model the potential impacts of business scenarios. These kinds of value-adding processes would not have been possible just a few years ago, and they represent game-changing advances in the field. Recognizing the possibilities enabled by this novel use of technology, we at EY created a EY’s Tax Technology and Transformation (TTT) network, which has become the fastest growing part of our practice. Here, too, we are actively recruiting and developing professionals with STEM background, those who combine deep technical and scientific proficiency, expertise in mathematical analysis and information engineering, and an understanding of the tax and business context.
Even beyond technology — for those starting their careers in any of the STEM disciplines and who might never have considered tax as a profession of choice, it may be worth taking another look. After more than 30 years in tax, I cannot recall a time of such dynamic change and opportunity for people with the right skills entering our profession. We encourage ambitious and imaginative individuals in a STEM field who have a curiosity about business to explore the possibilities the profession can offer to tax technologists.
Kate Barton is EY Global Vice Chair, Tax.
The views expressed are those of the author and do not necessarily represent the views of Ernst & Young LLP or any other member firm of the global Ernst & Young organization.