Businesses are under constant pressure to innovate and adapt to changes in the indirect tax landscape in order to maintain their competitive edge. Corporate tax departments are increasingly turning to technology as a strategic partner to address these challenges, according to a recent study by the Thomson Reuters Institute.
Accepting Technological Change
The 2024 report, “Challenges and Opportunities for Indirect Tax and Compliance,” highlights the significant shifts indirect tax departments are undergoing. These departments are evolving from compliance-focused units into crucial strategic business partners. The 2023 “State of the Corporate Tax Department” study characterizes this evolution as a transition from a reactive to a proactive state. This transformation is largely driven by the adoption of indirect tax technology.
According to the survey, an impressive 58% of participants plan to enhance their technological solutions for indirect tax compliance, highlighting the growing demand for sophisticated tools to manage complex indirect tax regulations. Furthermore, 36% of organizations are considering developing or investing in artificial intelligence (AI)-based technologies. These technologies reduce the need for manual labor, streamlining tax-related tasks through automation.
Taking Advantage of Automation
The 2024 study outlines how indirect tax departments are planning to utilize and invest in technology. The top four use cases and investment areas are:
- Tracking Regulatory Changes: Technology is crucial for monitoring the ever-changing indirect tax rates and regulations across different regions. It helps update systems for tax calculations: 58% of the companies plan to modify their technology for this, while 33% are considering new solutions.
- Real-Time Reporting and Compliance: Technology also is proving vital for meeting real-time reporting requirements. Governments are increasingly requiring businesses to report their indirect tax liabilities in real-time. While this can be challenging, technology helps automate and streamline the process: Specifically, 56% of companies intend to update existing technology for this purpose, and 29% are looking at acquiring new technology.
- E-commerce and Digital Adaptation: Many tax departments are integrating e-commerce and digital products into their operations using advanced technology. Currently, 49% of the surveyed companies are planning to adjust their current technology, and 25% are looking to invest in new technology.
- Responding to E-invoicing/Continuous Transaction Control (CTC) Models: As e-invoicing and CTC models gain global adoption, businesses are seeking efficient and automated solutions to maintain compliance and avoid penalties. 35% of surveyed companies are updating their existing technology, and 33% are investing in new technology.
The study reveals a preference among respondents to enhance their existing systems rather than develop or purchase new ones. This preference is reflected in a two-to-one ratio.
Anticipating Changes and Their Impact
Technology-driven changes are poised to reshape how indirect tax teams operate. The 2024 report details how these changes will affect their operations.
Shift Toward Strategic Advisory Roles
- In a shift from preparer to advisor, automation is taking over more routine tasks, allowing tax professionals to transition into strategic advisory roles. This move lets them focus on giving strategic advice on governance, risk management, process design, and business partnering.
- Moreover, tax professionals will also take on customer-facing roles, allowing them more time to engage with internal stakeholders. This interaction provides insights and advice that can influence broader business strategies.
Increased Efficiency and Capacity
- Automation and AI are helping tax departments increase efficiency, reduce manual work, and increase their capacity. Automating routine tasks and leveraging AI allows them to manage their operations more effectively and concentrate on higher-value activities.
- An improved technology stack provides staff with real-time access to crucial tax-related information. This leads to faster responses to regulatory changes and compliance requirements.
Enhanced Compliance and Risk Management
- Proactive compliance management is being leveraged to locate and mitigate potential compliance issues. AI capabilities help predict and proactively identify compliance problems, enabling timely interventions and reducing non-compliance risks.
- Accuracy and timeliness are being achieved through advanced technology, resulting in more accurate and timely filings, and reducing the risk of penalties.
Global Management and Cross-Jurisdictional Compliance
- Managing complexity is made easier for tax departments due to the ability to oversee cross-jurisdictional compliance, thereby ensuring compliance with varying regulations and supporting global business operations.
- Shared service centers are deployed by many large businesses to manage operations across various regions, requiring tax professionals to handle complex tax requirements in multiple locations.
Data-Driven Decision Making
- Advanced analytics are enabled by technology, allowing tax departments to make more informed decisions based on comprehensive and accurate tax data.
- Scenario planning capabilities allow teams to assess the tax consequences of strategic decisions, such as mergers, acquisitions, or expansions.
Upskilling and Talent Management
- Training and development is becoming increasingly critical. Investing in upskilling the current staff to understand regulatory changes and apply the latest technology is crucial. This investment boosts the technical expertise of the tax team and enhances overall efficiency.
- Recruiting technology expertise is being prioritized to support the implementation and management of new systems. This involves a greater focus on recruiting individuals with strong technological backgrounds.
Cost Management
- Reducing operational costs is being achieved through automation and improved efficiency, which helps lower the costs of tax compliance, allowing tax departments to reallocate resources to more strategic areas.
- Minimizing IT support is becoming a reality due to robust technology solutions, which reduce the reliance on IT support for managing tax technology and data requests, letting the IT group work on other projects.
Conclusion
The “Challenges and Opportunities for Indirect Tax and Compliance” report highlights the growing trend of corporate tax departments applying technology to transform their indirect tax operations. The report, based on a survey of 180 indirect tax professionals, explores how these departments are leveraging technology to enhance compliance, boost efficiency, and adopt strategic advisory roles. The use of automation, AI, real-time reporting, and e-invoicing is transforming the way businesses handle indirect taxes. These trends not only reduce operational costs but also optimize resource allocation.
