With tax rules changing and interest rates set to rise globally, companies need to organize their operations around a new value equation. One of the most important considerations is cash accessibility — the ability of a company to use its free cash when and where it needs it. But most companies don’t have a handle on cash flow because their data collection and reporting functions don’t consider it a priority. The good news is that this can be fixed.
With new tax laws in place in the U.S., there has never been a moment in which so much cash is sitting on the balance sheets of so many companies. As executives are discussing how much to return to shareholders, how much to keep, and whether or where to invest the rest, we know that many will continue to issue stock buybacks and dividends or pay down debt. But the M&A space is another area to watch as cash may fuel an arms race.
Companies’ tax functions face significant challenges in gathering high-quality and timely data, hindering their ability to contribute more strategically to enterprise-wide decisions. For example, data often must be manually reviewed, reconciled, and manipulated to be useful. Streamlining a company’s data collection and management enables the tax function to shift focus from gathering data to analysis, and to participate more strategically within the organization.
This year’s analysis of tax systems in 190 economies uses 14 years of data to reveal the benefits technology can bring — and is indeed bringing — to taxpayers and tax authorities. But the data also shows that implementing new systems and regulations can be time-consuming, and then taxpayers need time to become familiar with them. Proper planning that includes consulting with taxpayers, testing, and phased implementation can ease the transition.
Restructuring the right way is hard enough. Even when executives are on the right track, they too often miss a crucial element: incorporating tax consequences. Whether the changes under consideration are switching locations or adjusting a supply chain, there are implications for the amount of tax a company will pay. Why is such a seemingly straightforward concept so often missed? The people thinking about restructuring are often unconnected to the experts who can properly evaluate tax considerations. The solution, then, is to connect them.
Tax functions are expected to do more with less while complying with increased reporting and transparency requirements. The adoption of digitization and automation technologies — such as artificial intelligence and robotics — and the increased demands of tax authorities are significantly changing how the tax function operates. Roles are being redefined as technology takes on time-consuming tasks. What can organizations do to adapt to these changes? The first step is to understand the new skills the tax function needs —for both today and tomorrow.
Although the world tends to focus on direct taxes, such as corporate income tax, destination-based indirect taxes are being used more and more to generate additional revenue: Value-added tax, general sales tax, customs, and excise duties can make up more than half of the tax revenue many governments raise. Managing the effects of indirect taxes requires both an understanding of emerging global trends and a clear strategy. Leaders need to understand the trends that are shaping value-added and sales taxes, and take steps to keep pace with change.
Business leaders have traditionally compartmentalized tax as a compliance function, a complex specialty ceded to experts. But to assign tax management entirely to a compliance role is to miss an opportunity. This function gathers data on every part of the business and, at least once a year, it delivers a comprehensive accounting of the entire organization. This overarching perspective is increasingly necessary if companies are to communicate effectively with regulators and tax authorities. Further, with all of this available data, it is becoming best practice to view the tax function as a strategic partner, one that helps set priorities and gives the company a competitive edge.
With tax laws changing rapidly around the world, these are complex times for organizations. Both internal and external business challenges require that a company’s tax function be adaptable. Leaders must ask, and be honest in answering, several questions, including are the right people working on the most relevant issues? How can technology address new tax requirements? Does my organization have the right skills and capabilities? The first consideration, however, is understanding what defines success for the tax function of an organization.