Align finance with tax to navigate the changing business world

Over the past year, businesses have made dramatic shifts to navigate the changing economic environment and overcome the challenges of the pandemic: moving employees to remote work overnight (and allowing them to stay that way long-term), shifting business models, and adjusting supply chains to keep up with demand. Each of these changes has major tax implications.

With today’s business environment forcing companies to always be in a state of flux, the tax landscape will only become more complex. And there are more potential issues on the horizon that will likely have far-reaching impacts on tax strategy, such as the recent agreement among 130 nations on a corporate minimum tax, the Biden administration’s announcement to increase investments in tax enforcement (e.g., increased IRS staffing), and the continual investment of revenue agencies around the world in digitization to make sure they get their share of corporate tax dollars. In short, the corporate tax department certainly has its work laid out for them. While these challenges are not going away, close alignment between tax professionals and finance leaders can help organizations navigate the volatility much easier.

Increased tax complexities should matter to the CFO 

Corporate tax does not operate in a bubble. Anything that materially impacts corporate tax (and therefore tax accounting) will have spillover impacts on other financial processes within an organization, which is why tax and finance can no longer operate in separate silos for important accounting activities like transfer pricing, tax provisioning and tax planning.

One of the biggest areas of concern for many CFOs is the ever-present goal of shortening the financial close process. Most corporate finance teams are looking to improve efficiency and reduce manual error when closing the books. But increased complexities in tax accounting can throw a wrench into those plans — as tax accounting is a common bottleneck in the financial close process. Additionally, the increased focus on corporate taxation, both internally from the board and externally from tax regulators, will require a greater need for transparency throughout all of an organization’s financial processes.

However, the simple act of understanding the impact of tax changes to the enterprise can be enormously challenging, and disconnected tax accounting is at the root of the problem. Instead of having one book of record for all financial processes, many companies still rely on stand-alone tax compliance systems or spreadsheets to execute important tax accounting activities. While this may have been viewed as a “best practice” 10 years ago, it is now considered slow and prone to human error, and creates “two sources” of the financial truth that constantly need to be reconciled. These old-school processes require tax professionals to spend inordinate amounts of time cleaning up data, reconciling accounts, and double-checking numbers. And as business norms and tax laws continue to change, this “two silos” approach to corporate tax accounting will slow down CFOs’ ambitions for efficiency in corporate finance and accounting.

Technology to reduce manual tax processes

So, how can organizations fix this problem? To do their job effectively, tax teams must have a complete, real-time view of every part of the organization. Cloud-based solutions that integrate with the rest of the organization’s operations can tear down silos and increase transparency in the data.

Cloud technology can help enable the obvious collaboration needed between corporate tax and core finance, such as the tax department needing to work from the latest consolidated data. However, less obvious collaboration between other teams and departments should not be overlooked. For example, effective tax operations require strong alignment with financial planning and analysis teams so quality data can be reconciled back to FP&A plans. And connecting corporate tax with the treasury allows the organization to create a better enterprise cash management strategy and improve cash forecasting. In fact, a recent survey from Financial Executives International found that a large majority of organizations (91%) are using tax planning to support cash management goals.

Once an organization’s finance processes are running cohesively on the same system and the tax department is collaborating with other parts of the business, companies can leverage artificial intelligence and intelligent process automation to begin automating the manual, routine tasks that bog down corporate tax teams on a daily basis. By automating tax processes, these departments can reduce human error to ensure financials are accurate and holistic, better comply with regulations, become more precise with planning, and more efficiently report to revenue agencies. Emerging technologies like machine learning are hungry for quality data — not data silos — so leveraging cloud technology to remove silos between finance and tax will eliminate key obstacles to realizing the benefits of these promising technologies.

From number-cruncher to strategic advisor

Very few people dream about spending their days in a cubicle, elbow-deep in Excel spreadsheets. By streamlining tax processes and passing rote manual tasks off to AI, tax professionals can spend less time on number-crunching and instead focus their time and energy on what matters most: becoming a value-added partner to the company and increasing job satisfaction. This transition is greatly needed right now. In fact, a recent survey from Deloitte found that businesses are seeking more strategic counsel from their tax teams to help navigate digital business models, supply chain restructuring, and sustainability initiatives.

It’s not just tax professionals who benefit, it’s a win for the finance department and improves the agility of the business, too. By tearing down silos and automating manual processes, corporate finance and tax can provide the C-suite with visibility of tax implications for major business decisions like mergers and acquisitions, business model shifts and much more.

In today’s volatile economic environment, businesses must be able to pivot quickly to keep pace with rapidly changing demand. And without a clear understanding of the tax implications around these pivots — which can’t be fully understood without integrating tax and financial accounting — organizations can end up wasting millions of dollars and hundreds of hours of time.