Why including Tax within the Finance Transformation is an imperative for CFOs

Key Highlights

Including tax in a finance transformation brings numerous benefits for the tax team; but how does it benefit the CFO and wider finance function? What benefits will accrue to stakeholders outside of the corporate tax department?

Much has been said for Heads of Tax about the benefits of ‘getting a seat at the table’ in a finance transformation. CFOs also generally know that they should include tax, but how and why they should do this is less clear. Some of the incremental benefits that a finance function can expect if tax is included are:

• Significant reductions in manual processes and a corresponding decrease in the total cost of complying;
• Faster turnaround from tax for financial reporting;
• Increased transparency over tax numbers;
• Improved governance and control and thus less risk of non-compliance.

Bringing it in - what’s the value?

Traditionally, finance teams provide raw data to tax, and receive tax journals, tax note disclosures and some summarised working papers. In theory, cloud based tax engines have made the detailed calculations and logic more accessible, but there is complexity with these systems that needs to be worked through.

With tax included, tax data is where it should be, in the same context as all other financial data, available for the same analytics and visualisation. No more separate CFO Tax Pack. 

Using a tax sensitive Chart of Accounts, a tax non-leading ledger, and custom tax fields will enable basic tax calculations to be completed within an ERP system. This means complex tax provision processes can be automated by configuring modules in the ERP, which integrate natively with the general ledger. 

In addition to faster reporting and better insights into tax data, bringing in tax also allows tax to leverage the inherent extensibility of these tools. Revenue authorities around the world are trending towards mandatory real-time electronic filing and tax based electronic invoicing and we expect most OECD countries to adopt forms of this in the coming years. This means tax calculations, particularly VAT and GST, need to be calculated correctly in real time, at the point transactions are posted, so that the right amount of tax is included on invoices and sent in data files to the regulator. Businesses will not have the luxury of 21 days after month end to adjust and analyse GST and VAT data before reporting to the revenue authority. If tax is left out of the ERP transformation, then the roll-out of real-time electronic filing will mean an additional point solution in every jurisdiction, costing more over the long term and taking up more of the finance team’s time when a tool needs to be integrated or updated.

If done right, a CFO can also benefit from significant cost savings by including tax in the ERP transformation process.  At a minimum it can noticeably slow the increased cost of a tax department for a large organisation that needs to stay compliant with ever-growing regulations in multiple countries around the world.

Lastly, there are worthwhile qualitative benefits to be gained. Heads of Tax and tax managers often know what the CFO and finance managers want but have little time to produce it after finalising calculations, journals, and tax note disclosures. Giving them the opportunity to leverage these tools and cut down on manual processes will give them time to work on those additional, ‘nice to have’ deliverables that make it easier to understand and analyse tax outcomes and their impact on overall financial performance. 

If your organisation is planning an ERP upgrade or finance transformation and you’re yet to consider tax requirements and automation opportunities, please contact any one of us below to start a conversation.