TAXATION has shifted in such a big way that the typical tax function of yesterday that mainly focused on compliance is not the main emphasis, but key for the future of tax function is being more proactive in business decisions and understanding the tax impact on the business transactions.
This means taxation plays a role for future business decisions rather than an afterthought or merely to meet compliance obligations.
Managing tax affairs is a matter of perception
How an organisation manages its tax affairs may give a perception to their external stakeholders on how the organisation addresses the impact of taxation to the business transactions and decisions undertaken. Being able to manage tax risks and addressing the issues upfront will give a good image and confidence to the public.
Stakeholders such as investors, customers, vendors, the media and the general public will be interested to understand how the company adapts to the changing tax landscape such as new rules, new ways of doing business as well as any future direction of the business that may attract additional taxes or the impact to tax costs.
When an organisation is able to address any tax impact as a result of the business decision, it will give a positive impression and create confidence. On the other hand, any unsettled tax position will create uncertainty and may deter a positive impression on the business tax-readiness.
Incorporating governance in managing taxation
In recent years, there are various new tax regulatory measures such as transfer pricing requirements, record keeping requirements, country-by-country reporting amongst others. These, together with the various tax obligations requirements, require organisations to have proper controls and processes that need to be managed. Tax functions need to provide an assurance to the stakeholders that the controls are in place to enable the good management of tax risks.
In other words, tax functions need to move away from compliance driven but looking forward to look into processes to manage tax issues upfront. Tax functions in modern organisations need to transform quickly and be current, having the ability to keep abreast with the latest tax rules, regulations and practices, forecast, scenario planning depending on the business issues and outcomes and quickly adapting new technology.
New technologies and tax functions
The emergence of new technologies disrupt the way businesses operate. The ever-changing trends in businesses mean tax function is required to provide insights to support business decisions. There are also greater dependencies on tax software and tools. This means digitalisation, data analytics and information will enable greater understanding of how the decisions made by the business will impact taxation and how best to manage this upfront as part of the business process.
This means tax is being thought concurrently throughout the decision-making process and not as an afterthought where the business transaction has occurred. For example, the tax benefits or tax implications on the decision to expand production and purchase of new assets can be considered upfront.
The digitalisation and automation of data used in a tax function is a unique journey for every organisation. It is important to note that this trend needs to be adopted by the tax function to ensure that the information is current and key decisions are made after taking into consideration the tax risks and benefits.
Business operating models and evaluation of tax functions
In the modern world, businesses continue to review their operating models and tax functions can play a proactive role. There is a need to see how the tax function is fit for the future. Tax authorities around the world and the Organisation for Economic Co-operation and Development have introduced various measures to ensure organisations are “paying the right amount of tax”.
As the authorities are focused on transparency measures, real time reporting, audits and investigations, there is a need for tax functions to be future-ready in the ever-changing landscape.
It is more important now for businesses to ensure the tax profile remains healthy and increasing tax burdens are being managed upfront and do not dampen organisational growth.
Tax function of the future plays a vital role in organisation’s performance. Post Covid-19, organisations are focused on building their businesses, accelerating digitalisation, transforming their business, new processes, and identifying potential opportunities.
Tax function plays an important role within the organisation and acts as a bridge to the important business divisions by linking business decisions. The early identification of opportunities, managing tax risks upfront and understanding how the decisions may impact the tax profile of the organisation are the results of having an effective tax function adopted at a strategic level.
Farah Rosley is the president of the Chartered Tax Institute of Malaysia and Malaysia Tax Markets Leader at Ernst & Young Tax Consultants. The views expressed here are the writer’s own.