Transactions, reporting and securing tax revenue are entering a new era as the systems that tax authorities utilize are being built for real-time, transparent exchange of information. Governments are demanding faster and more extensive access to transactional data to help reduce tax gaps, decrease fraud, and spur economic activity. Modern and compliant management of this ever-increasing storm of data can be a potent strategic asset for enterprises, unlocking tremendous value.
With all this in mind, what role should a Chief Financial Officer (CFO) play in an organization’s tax compliance strategy? Moreover, how can they ensure it’s not just treated as a functional requirement, but seen as a force for business growth? CFOs have a crucial part to play in updating their tax technology and compliance fundamentals. These efforts should consider their team’s responsibilities, technology, trust, and most importantly, innovation.
At a CFO Leadership Conference in October, tax-automation provider Sovos found that only 10% of respondents reported having a dedicated tax team. Over half of the attendees revealed that they divided the tax function among finance team members, sparking the key question – how can finance teams skillfully navigate the challenging tax and regulatory compliance landscape without a dedicated team?
Establishing an effective tax technology team may involve CFOs partnering with their Chief Information Officer (CIO) or Chief Technology Officer (CTO) to navigate tax compliance, associated regulatory demands and to cover departments affected such as legal, sales, marketing, billing, and accounts receivable. The presence of a dedicated tax team within an organization can significantly improve its efficiency, adaptability, security, all the while enhancing data insights and reducing risk.
When it comes to technology, CFOs aim to reduce the time employees spend on compliance management tasks. While doing this, they also seek to gain better visibility into transaction data to inform decision-making, increase efficiencies, and mitigate compliance risks.
Apart from this, within the realm of tax processes management, CFOs and CIOs often prioritize values such as time savings, infrastructure costs, and reductions in audit exposure. The values are key considerations when seeking more value from technology. Equally important is that compliance demands need to reflect four basic criteria:
- Help you connect into an ecosystem of partners, financial technologies, and government agencies and create an accurate, real-time ledger of transactions, inventory, fixed assets, and payroll information.
- Identify and verify each party in the transaction or obligation, determine every transaction accurately and ensure every transaction is compliant in real time.
- Allow you to report immediately, file correctly, and help maintain fidelity between your company’s records and the various tax agencies.
- Support your ability to use compliance data to mitigate future risk and optimize business processes, using it as a strategic advantage to fuel business growth.
Modern tax technology can reap extraordinary business value as generative artificial intelligence advances. Such advancements have the potential to reduce risk, streamline finance operations, and improve insights. For instance, generative AI can be used to study past performance to predict future regulations and generate scenarios using those changes to assess potential business outcomes, preparing CFOs for changes even before they are announced.
CFOs carry tremendous responsibility as primary owners of tax compliance. Tax leakage can result in heavy cash drains and business interruption. For any company that seeks to thrive, it is beneficial to be prepared and make compliance central to their strategic planning.
Kevin Cunningham, the CFO of Sovos and the driving force behind this study, encourages his peers to lead in the modernization of their companies’ tax tech and foster compliance with dedicated tax technology teams.Read his full views here.