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How to Develop a New Five-Year Plan for Your Company’s Tax Department

Businesses should take lessons from five years of transformation experiences to make a plan for the next half-decade.

Every corporate tax and finance function should have a five-year plan, even the ones that have undergone or are undergoing a transformation, say tax executives from Big Four firm EY.

Fundamentally, businesses have the same choices they had in 2018: First, they can build modern tax and finance departments internally by investing in the right people, data capabilities, and technology. And according to a recent EY survey of 1,600 CFOs, heads of tax, and finance professionals across 32 jurisdictions, some have chosen to do so. Second, they can outsource a significant amount of their tax and finance compliance activities. Or third, they can take the hybrid approach— co-sourcing with external providers on some activities while choosing to keep others in-house. Five years later, the hybrid approach has proven to be more popular, according to EY.

“Companies have gone from ‘how?’ to ‘now!’” said Marna Ricker, EY’s global vice chair of tax. “The conversation around transforming tax and finance functions has changed in five short years from ‘is this something we should do?’ to ‘how quickly can I get the most out of a co-sourcing relationship?’”

All of the pressures that initially drove tax and finance functions to modernize will continue to exist over the next half-decade; they will just be exacerbated by additional developments, such as:

  • More legislation;
  • Workforce demographics have fundamentally shifted, perhaps permanently;
  • The geopolitical environment is highly unpredictable; and
  • Technology will continue to make breakthroughs. (According to the survey, 85% of respondents say they don’t think generative AI tools will help drive increased effectiveness and efficiencies within their tax function in the next three years, but EY tax executives say they aren’t as convinced.)

“There is considerably more change coming than I can think of for a long while,” said Dave Helmer, EY Global Tax and Finance Operate leader. “The good news is that companies that have gravitated toward transformation, including co-sourcing, are feeling slightly less pressure because they have many of the data collection, platforms, technology tools and/or processes in place to facilitate what lies ahead. Still, the pressure will never completely go away, so it’s more important than ever to have a plan for the future.”

Companies that are making a new five-year plan for their tax and finance functions should do the following:

1. Adopt a strategic view around talent. The best-prepared businesses need to be able to attract, develop, and retain people who know not only tax but also how to use technology to analyze data in a way that complies with the law and helps deliver insights to the full enterprise. Developing a people model for the next five years is a huge issue for all businesses but a mission-critical one for those in smaller revenue bands.

2. Work with other functions on a comprehensive technology strategy that can integrate with new advances that are coming, especially generative AI. A sound data and technology strategy allows for efficient reuse and will drive efficiencies by helping well-trained people develop predictive analytics. At the same time, achieving more automation also reduces pressure on people.

3. Determine how to identify, evaluate, and implement regulatory, legislative, and transparency initiatives, especially those related to BEPS 2.0 implementation in the coming years. Businesses that lack the right people and systems will especially struggle with all of the legislative and regulatory change that is coming. It’s going to be more important than ever over the next five years to communicate quickly and plainly to the C-suite and board what these changes mean for the larger enterprise.

4. Tax and finance functions should do an even better job of being tied to business change overall. The transformation will better equip tax executives to be thought leaders and help apply their tax insights, including those derived using advanced analytical tools, to long-term business strategies and decisions. But they need to get in the room where those decisions are made.

5. Make space for tax and finance functions to play a principal role in the organization’s sustainability strategy. This allows tax and finance to help manage ESG messaging, educate leadership on tax implications, and evaluate potential risks.

6. Find the right balance of internal and co-sourcing arrangements to solve all of these challenges. An effective co-sourcing arrangement should cover basic tax and finance compliance obligations while providing the agility needed internally to get the most out of a function’s people.

“As a company, you need a view on how you’re going to pull all these pieces together,” Helmer said. “You need this plan to have accurate compliance and drive value in the organization, and you need to do it in an efficient way. Transforming tax and finance functions into critical and trusted business advisors is well worth the investment.”