The winning tax transformation trinity Data, technology and operations
Panel Moderators Daryl Blakeway Director South Africa Tax Performance Advisory Anthony Davis Executive Director EMEIA Tax Performance Advisory Page 2
EY Global Tax Performance Advisory Practice We help companies improve end-to-end business processes that drive tax performance Effective and controlled processes Efficiencies through automation Aligned strategy, operating model and metrics Income tax Indirect tax Transfer pricing Statutory reporting Enable change Value and quality of tax data in financial systems Our approach allows us to speak the language of your tax, finance, IT and business professionals, which is necessary to drive enhanced tax function performance Page 3
Global tax risk and controversy surveys Key findings from EY s 2014-2015 Tax Risk and Controversy Survey Series provide insight into the concerns of the CFO and Tax Directors of top global organisation Four types of risks faced by tax and finance executives: Legislative Reputational Enforcement Operational Operational tax risks arise from people, process and technology To mitigate them, companies should have clearly defined strategies in respect of all three elements Page 4
Global tax risk and controversy surveys (cont.) Legislative Risk 94% Enforcement Risks 68% of the largest companies having an opinion on the matter think that global disclosure and transparency requirements will continue to grow in the next two years. of the largest companies report that they feel tax audits have become more frequent or aggressive in the last two years. Source: EY s 2014-2015 Tax Risk and Controversy Survey Series Reputational Risk 89% Operational Risk of the largest companies surveyed are somewhat or significantly concerned about the media coverage of the taxes some companies are paying or their seemingly low effective tax rates. This is up from 60% in 2011. Conversely, just 9% say they are unconcerned now, compared to 40% in 2011. 75% cited insufficient resources to cover tax function activities 57% cited lack of processes or technology 45 % of large companies globally have complete visibility over open tax audits and disputes globally Page 5
Tax transformation challenges and opportunities Challenges Lack of clear tax transformation vision and strategy, and prioritized focus areas Upfront dedicated tax resources and proper understanding of business transformation initiatives Effective change management and communication Secure a seat at the table and establish tax executive governance group Clear and up-to-date mapping of existing tax processes who, where and how Implementation of flexible and scalable solutions, not just a technology Tax Technology Strategy Operations Resource efficiency and processes effectiveness Tax transformation Tax strategy and policy Data Implement right and early Quality, integrity and accessibility of data Implement right right and and early early Enablement to maximize effectiveness of operations and data Technology Change management and continuous improvement Opportunities Update and align group tax strategy and policy to respond better to internal and external pressures Position tax as a true business partner Redesign and enhance your existing processes to bring further efficiencies and improved performance Improve data quality and drive automation through tax sensitization Embed and enhance internal controls to reduce risks Enable and implement technology for tax Page 6
Identify risks, value and savings opportunities Risk Mitigation Reduced exposure to deficiencies, misstatements, executive liability, reduction in audit cycle, etc. This is typically viewed as an intrinsic value not represented by monetary valuation Tax Value Value realised by increased or accelerated deductions, increased tax credits and incentives, reduced penalties, interest driven by enhanced business data quality and sustaining existing tax position through audit by access to quality data Efficiency Dividend Value realised through tax or business process efficiencies driven by improved data quality and accessibility of data Better leverage of resources focusing on higher value tax activities and business support Page 7
Tax transformation critical success factors Leadership and executive commitment Tax Transformation Steering Committee Tax transformation Honest assessment of costs, time frames and resources needs Change management strategy Road map and prioritization of tax transformation initiatives Business, tax and technology infrastructure alignment Plan and effectively manage partners and vendors Page 8
Global tax risk and controversy surveys Source: EY s 2014-2015 Tax Risk and Controversy Survey Series Page 9
To what extent are tax processes and operating procedures formalised and standardised across your organisation? Page 10
Transformation readiness Why? Increasing pressure on tax functions driven mainly by: External legislative/ regulatory changes Increased internal reporting needs Higher efficiencies and improved performance pressures Wider business/ finance transformations Policy Data Performance measurement Organisation People Process Technology How? Benchmark current tax operations against leading practice and global market trends to: Identify current gaps and challenges to be consolidated and prioritized into the tax transformation roadmap Enable integration to the wider business transformation initiative When? Prior to designing and implementing future-state processes and technology as part of a phased approach to transforming their tax function to: Identify requirements and objectives Align with wider business strategy and vision Identify and prioritize key focus areas Page 11
Optimise investments and costs associated with Tax function Drive business strategy by quantifying your Tax function Understand Quantify Compare Using survey results and company data, leverage EY s American Productivity Quality Center (APQC)* to calculate cost associated with survey results Conduct survey to understand where and how much time employees are spending on specific Tax activities Compare results across industries, processes, and revenue sizes using APQC benchmarks *APQC (American Productivity & Quality Center) is one of the world s leading proponents of global business benchmarking, best practices, and knowledge management research for over 30 years. It encompasses one of the world s largest databases of benchmarks and best practices, with focuses on Financial Management, Human Capital Management, Knowledge Management, Supply Chain Management, All-Inclusive, and Professional Services. Page 12
What information and data do we need to have readily available and how do we present it? Page 13
Importance of data readiness for tax and transparency Due to the ever-growing transparency demands on tax, the data needs of the tax function are required to be integrated into the underlying business process and finance systems that generate the information. Data should ultimately be viewed as an asset that drives control, value and efficiency to support the operations of tax and the organisation as a whole. Ever-changing tax landscape Regulatory reporting requirements Efficiency pressures Increasing internal and management reporting Higher global profile of tax Increased volume of tax relevant data More time spend managing data Non-tax sensitised environment After data quality review Less time spend managing data Tax-sensitised environment Page 14
Typical data flow scenario no integrated tax requirements 71% of enterprises have more than 1 ERP systems for financial information Only 12% of tax functions report being integrated with the enterprise s ERP system(s) MAPI 2011 Tax Function Business Units Finance Functions Data Flows Page 15
Target state after embedding tax-aligned requirements Tax function Finance functions Business units Data Flows Page 16 MAPI 2011
Why is big data critical the way the tax function operates? ERP system ACC PLM SCM Approximately 80% of the data needed to support the production of tax deliverables can be derived from either an ERP or a financial consolidation system. CRM ERP data needed for tax deliverables SRM HR Virtually every business flow and transaction carries a tax implication, making tax one of the largest consumers of data in the company. Financial consolidation Tax data needs Value from the tax function comes from having sufficient time and quality of information to identify tax planning opportunities. Page 17
Does your company have an organisation-wide tax technology vision/ strategy/ roadmap? Page 18
Developing a tax technology roadmap A clearly defined roadmap for tax outlines how to best leverage existing investments in infrastructure and identifying technology alternatives to meet tax objectives This should maintain a focus on short and mid term data and technology initiatives to align tax and the broader organisation goals and objectives Business / functional goals that the technology should enable Possible and practical technology choices Benefits Value Risk mitigation Efficiency Current State Assessment Outcomes and objectives Process and other changes that need to be in place for the technology to be successful Business case for enabling change Costs Resources Funding Strategy and Roadmap Page 19
What do we mean by tax technology? Workflow Visibility of compliance status and tracking of compliance activity completion Management reporting Dashboard and management reporting to enhance governance and KPI measurement Data analysis Data analysis capability for exception reporting, error detection and data query Tax determination Fully automated indirect tax decisions; use of native ERP or tax engine Business Intelligence Source & Repository Compliance and reporting Dedicated solutions to streamline data collection, consolidate and prepare returns Information storage Tax data warehouse; tax information and document repository Data quality Access to appropriate and accurate data for tax reporting and analysis ERP sensitization Tax-sensitised COA and embedded tax controls in financial processes Page 20
Tax technology in the ever challenging environment Enhancements to existing technology Additional functionality and features built onto existing products to meet changing tax demands Development of new technology solutions New products developed to drive further automation and efficiencies Focus on control and integrity of data Effort made to improve the quality and integrity of data and developments made to analyze and visualize data Additional compliance functionalities, i.e. e- Filing, XBRL, etc. Increased automations through integration with other systems Enhancing ad hoc and flexible reportingg, e.g. CbC reporting Workflow and governance tools Automated tax determination and reporting Looking beyond tax statutory accounts automation Drill-through to source data tax data marts Data analytics exception reporting and what if? scenarios Business Intelligence dashboards and mobile visualisation Page 21
Tax data and technology initiatives Challenges Non-integrated calculation, storage and reporting processes Reliance on Excel and manual intervention increases error risk ERP system(s) not sensitised, resulting in determination errors Tight financial close cycle and often late changes Tight resourcing, with majority of time spent on data gathering or manipulation to get into a useable form Limited error detection and exception reporting Limited audit trail, visibility and transparency Value delivered Deliver a timely financial and tax close process by standardising and automating processes Enable flexible and scalable reporting for management purposes as well as data analysis, planning and forecasting Enhance the ability and effectiveness of transitioning commodity tasks into shared service centres Free up resources to focus on value-add activities Accurate transactional tax decisions 3. Tax sensitization 4. Tax data analytics automation 5. Tax reporting 1. Data quality initiative Record Gather and analyze Report Tax engine Market units SSC ERP Expense system Other Excel or CSV Data warehouse Exception reporting Compliance software Process and controls Work papers CT returns VAT returns CbCR reports Other efiling Retention and archiving XBRL 2. Tax determination 6. Tax governance and control Page 22
Wrap up - Putting all the pieces together Questions? Page 23
EY Assurance Tax Transactions Advisory About EY EY is a global leader in assurance, tax, transaction and advisory services. The insights and quality services we deliver help build trust and confidence in the capital markets and in economies the world over. We develop outstanding leaders who team to deliver on our promises to all of our stakeholders. In so doing, we play a critical role in building a better working world for our people, for our clients and for our communities. EY refers to the global organization, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. For more information about our organization, please visit ey.com. 2015 EYGM Limited. All Rights Reserved. EYG no. DL1399 This material has been prepared for general informational purposes only and is not intended to be relied upon as accounting, tax, or other professional advice. Please refer to your advisors for specific advice. ey.com