But, with tax and everyday business processes becoming ever more intertwined – and with post-pandemic issues and infl ation to deal with – SMEs must recognise it’s time for the role of the tax function to evolve into one that adds value to the business, says Peter Boerhof, VAT director of tax technology firm Vertex.
However, navigating tax legislation is increasingly difficult, especially for those businesses operating in multiple jurisdictions, explains Thomas Dews, RSM corporate tax partner: “In these circumstances an external adviser can be invaluable when a business is considering different tax regimes and the potential reliefs which could be available,” he says.
Many large multinational businesses with globally mobile functions carefully analyse tax incentives when deciding to locate those functions, Dews adds, and the tax reliefs available can make the difference in approving a new commercial venture.
Equally, “some businesses view their tax strategy in a way akin to CSR, to demonstrate they are a ‘good citizen’ by paying their fair share of tax and helping to grow the economy, whether locally or globally”.
“It’s clear that tax must become more strategic, leading initiatives to support financial objectives and business growth,” Boerhof says. “With tax getting ever more complex and interactions with tax administrations expected to increase, knowledge about tax regulations, how they connect to business data and how process flows work in a business, become increasingly important.”
Start with people
As Dews says, working with external advisers is a good start, whether they advise on the appropriate tax legislation, best practice – or, Boerhof adds, provide key insights into which software solutions are best for a specific business’s tax needs. From a legislative perspective, companies may want to consider if their approach to tax is appropriate and how they contribute to the economy at large. In terms of external advisers on the tech side, Boerhof says that as every business is different, prudent evaluation by the tax and business functions is required, “especially as some external advisers might benefi t from recommending a difficult implementation or prioritise their own solutions over a more suitable competitive solution.
“Doing your research is key here, as is bringing in advisers with a wealth of global tax technology experience and understanding.” Within the business itself, people skills are important. “Communication is key,” says Thomas Dews.
Use data and tech
For the tax function to add value to the business it is in, it must move away from time-consuming and error-prone manual processes. “The strategic aspect of the tax function is easily overshadowed by routine reporting, invoicing, and filing deadlines – this makes investing in smart tax technologies a ‘must’ for many, allowing the automation of the mundane while providing central visibility of the organisation-wide tax position,” Boerhof says.
He cites the example of VAT and real-time reporting or e-invoicing, which requires very detailed transactional information – meaning “the VAT function in a business sits on a wealth of data that can be used to report VAT, but it can also give valuable insights into the speed of invoice processing, level of accuracy, who and where the biggest customers and vendors are, how much working capital is trapped in VAT, and so much more.”
To unlock this potential, he suggests, routine VAT determination in invoice processing and reporting “must be automated so the tax function frees up time and resources to analyse and strategically advise business, finance and the supply chain. Investing in an integrated tax engine can further cut inefficient manual processes, and the chance of successfully passing tax audits signifi cantly increases as indirect tax determination is accurate and documentary evidence is organised into one repository.”
Additional benefits are that changing rules and regulations can be acted on quickly (with minimal reliance on IT departments); reporting can be done with confi dence in real-time; tax authorities can receive information directly through a system-to-system connection; and tax can react more quickly to changes in business including expansion into new territories.
“As a tax engine does all the ‘grind work’, tax leaders can add value to the business,” Boerhof says. When tax specialists are reviewing their tech strategy, he adds, they must consider the four key areas of data, automation, analysis and outsourcing versus centralisation.
“Tax is increasingly becoming a data play as tax administrations mandate frequent data exchange,” Boerhof explains. “As a result, manual intervention and corrections are less viable and all reporting errors will be visible to the authorities.” To minimise manual errors, he adds, automation is the most sustainable way forward, but “to correct for systemic data issues, automated controls and analysis are needed to correct master data that is incorrect. “Outsourcing and/or centralisation of the tax function is an option; however this safeguards a dedicated tax function rather than people doing tax for only 10% of the time.
