2021: The Tax Transformation Manifesto

The digital storm is here. New values lead to a better response.

This is now getting serious. It’s more obvious than ever. As the impact of digitalization floods in from all sides, tax keeps coming up short. The current issue of CFO.com reports that Chaos Reigns in Corporate Tax Departments. It must surely be time to fully acknowledge that what is needed is meaningful change to a far greater extent than is typical today.

This is the exact topic covered by taxology and has been for the last six years. Like all good innovation, taxology evolves over time as we continue to uncover better ways of adapting to technology and digitally enabling the tax function. Now that includes simple, practical, yet basic steps to break the impasse, and it starts with a declaration of principles and policy.

The Taxology Manifesto

Through this work we have come to understand the value of:

Collaboration and workshops over presentations and project plans

Vision and user stories over requirements and IT

Data and data literacy over business process automation

Continuous innovation over corporate structure

That is, while there is value in the items on the right,
the items on the left are of far greater value in this space

Taxology also incorporates technical excellence, people, process, & technology, and more besides, but the manifesto specifically addresses the new ways of working that must underpin any such shift. We learned that instigating such change organically is too limited, and results are not forthcoming. Extra impetus is required for recalibration and a rethink.

So, check out Smart Tax Technology and join the ten new persons who have committed to the certification program in the last two weeks alone. Let us be of service to you as we are to them at this critical point in time for tax.

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Conspicuously Absent from Tax Transformation is … Transformation

Instead, the delusion of transformation is rife!

Acknowledgement Simon Butler and his book of the same name

Tax Transformation efforts have become almost ubiquitous, at least in name. Yet, when measured against recognized references such CXO Transform, Digital Transformation People, or the teachings of taxology, they frequently have little or no transformation in them.

This is a shame because it is now a prerequisite for genuine success in the digital realm.

So, why is it missing? Well, for two main reasons. Firstly, it is challenging and hard; and secondly, it is the polar opposite of all that’s familiar (hint: the clue is in the name, “transformation”, that is the end state bears little or no resemblance to the start state).

Surely, it cannot be that different“, the people cry, “It’s still just a project, right!?”.

No, not really – it’s more of a journey than a project, and there are some outlandish aspects to deal with. For example, the more than you learn about it, the more you realize you must take into account that under true digital transformation:

  1. Automation is not the main objective;
  2. A meaningful project plan is all but impossible;
  3. It cannot be mandated or controlled;
  4. The tax SMEs no longer know the requirements; and,
  5. A direct ROI cannot be determined.

These are radical reveals to say the least. Some of the points can be argued but they do demonstrate the depth of the discussion around transformation. However, the following are far less disputed:

  1. It starts with a vision, not a plan;
  2. It is driven entirely by people, process, technology, and ‘data’;
  3. Pre-digital cultural imprints must be broken;
  4. Outcomes are uncertain; and,
  5. It requires leaders and leadership, not managers.

So, what does your current tax transformation effort look like? Is it driven by requirements, process maps, MS Project Plan, KPIs, RACIs and slideware? If so, then discovery, digital learning, effective explore workshops, tolerance for failure, and above all, ‘data’, are all being suppressed, and real transformation cannot take place. It is a delusion and your project should be renamed “incremental improvement”.

In a way this is fine, but it offers no response to digital disruption in tax. That requires new thinking, stout souls, and “unfriending” some old faithful ways that are quashing innovation. Otherwise, you are sure to overspend, underachieve, miss expectations, and probably end up with more problems than you started with. You also avoid creating the new future that the digitalization of tax demands.

In truth, you probably need both for a while, but for the sake your initiative, your organization, your colleagues, your career, and the tax industry as a whole, please take a step back and look again at the true nature of digital transformation. It is no longer an option.

Open Season on Tax Data

Taking aim at Tax Data Quality in Source Systems!

The spring conference season was different this year, and not just because of Covid. An ever-present topic amongst tax professionals was how to deal with digital regulatory environments being introduced by the tax authorities. In response, it seems that every company is coming up with its own approach.

There is no one size fits all solution, or is there?

Yet perhaps this is fitting. With business models, tax footprints, enterprise types, jurisdictional requirements, and technology landscapes so diverse, maybe there is no silver bullet solution to this problem. Experience shows that sometimes messy problems beget messy solutions, and that’s that.

However, a few companies spotted something else. They noticed that as a natural consequence of tax authority digitalization, it’s important that tax data is right first time at source, including in ERP. This makes sense,  given that the option to first cleanse, correct, and enrich data downstream, before submitting to authorities, is fading fast in the face of e-invoicing and other “live” reporting requirements.

The other silver bullet …

Now, most source systems are common platforms that reach across geographies, functional groups, and jurisdictions, with the major ERP solutions able to adapt to almost any organization type and business model. If tax data can be “fixed” in these systems, then suddenly the possibility of major synergies appear – namely, “fixing” it for one jurisdiction means fixing it for many, at least partially. This is how a good platform works in any case, and ERPs already do this for other business operations with global reach.

… and then shooting yourself in the foot with it.

However, there is a problem with executing this strategy. If automation and tax technology are difficult without a degree of tax function transformation involving people, process, and technology, then it is next to impossible once you reach the realm of ‘data’ (see article The Five Laws of Tax Data where Law #5 states, ‘Data’ only exists in a transformed space).

Unfortunately, this is a recurring story. As the non-digital world faces the digital arena, it will instinctively use a multitude of pre-digital mechanisms to try and solve digital problems without first understanding how the digital side of it really works. For example, for ‘data’ they might ask:

  • Who owns the data?
  • How do we create KPIs for the data processes?
  • What is the $value of our tax data controls?

However, finding a data owner is of little help if that owner is unaware how digital data operates. The same goes for a RACI, or KPIs that are unsure of what they should measure when digitalization has changed the rules of the game. Yet, this won’t stop some kidding themselves, sometimes for years, that this is the correct course of action, even as stresses build and evidence to the contrary piles up.

Changing the way it goes

Instead, better questions must be asked, and explored first, before the others. For example:

  • What does data quality really mean in the digital world?
  • How do we know the data is right from first principles, and not just by counting issues?
  • In this context, what does truly effective data governance look like?

However, the answers lie deep in the digital realm, which is no surprise given this is where most tax data resides today. Unfortunately, that realm is still unfamiliar territory for most, yet it is really important that this state of affairs must stop no one from taking action!

Fortunately, when taking action, the first step is a simple one – accept that many of the ways that worked in the past are simply not calibrated correctly to work well in the digital world. You can stick with them for a while, because they’re better than nothing, but at the same time search hard for new knowledge and methods, and ultimately new mindsets, treading carefully as you go. The journey is guaranteed to be well worth it in the end, unlike the alternative.

Putting ‘data’ front and center

It’s not hard to see that tax data right first time at source is an excellent response to the new digital regulatory conditions, even if it’s not the simplest one. However, the case for it becomes even more compelling because of another potentially huge benefit it can bring.

One day, when the tax profession is truly digitally-enabled and properly ‘data’-literate, it can leverage the same data reservoir for data-driven analysis and strategic decision making, and at last realize the long searched for productivity gains demanded of it by rapidly digitalizing organizations.

This is possible because source data is now an accurate digital representation of the entire tax landscape at the organization and, all being well, can be “trusted”. The scourge of garbage in-garbage out is banished, and ‘data’ becomes an asset and the basis for true tax function transformation.

Taxology’s new challenge

So important is this goal that taxology is taking on a new challenge, and that is to solve ‘data’ rather than just manage it haphazardly. After all, digital platforms are based on mathematical and logical models, so why not? Perhaps we can prove tax data is right and correct.

Yet the truth will almost certainly be more complex. ‘Data’ itself is a reflection of reality or something going on in the real world, and that has its own complexities that will not always be describable by solvable equations. However, by bringing in good design principles as well, maybe we can get close.

If this can be done, then it is a mouthwatering prospect, especially given the absolutely fundamental & pivotal role that ‘data’ plays, or should play, in the new world of tax. Therefore, over and above its existing aims, taxology is adding a new mission statement:

“Solve ‘data’, then solve everything else in digitalized tax”.

For the taxologists of this world, it’s open season on hunting down and culling the issue of tax data quality. Watch this space!

Tax Needs Digital-Age Toolsets for Digital-Age Problems

Taxtanic meets digitalization iceberg!

Acknowledgement @Digital Journal

The tide turned during the pandemic. Flood gates are buckling as it becomes clear that the need for action around technology & digitalization is now urgent and imperative. We see it happening across our contacts & network, and the big service providers, specialist industry recruiters, and vendors of software solutions have never been busier. It is an amazing time to be in tax.

However, when you look at the actual work being done, the picture is less rosy. The feverish activity, unrelenting talking shops, endless spreadsheets, tight-but-largely-ignored deadlines, and eagle-eyed oversight are all flashing amber warning signs that something is not quite right. There is a worrying sense that the investment continues only because senior stakeholders have had their hand forced, rather than due to clear business cases, good track records, and solid results.

We believe these are the conditions for breeding less-than-optimal activity in the organizational Petri dish, and a good litmus test for this are the toolsets in use. If they have not been considered during the initiative charter, then this is a good indication that the nature of the digital beast has yet to be fully grasped. Let’s look at some examples of toolsets, starting with the default one:

  • Excel, RACIs, and SOPs*1 based on humans
    Just because these tools have been the stalwart of tax departments for years does not mean they will remain so going forward. They still have a role to play, but the digital tax world is vast and endlessly complex, and they are just not fit for purpose when it comes to the heavy lifting in this space. By themselves, they are too feeble, imprecise, and blunt.
  • Microsoft 365, Agile capabilities, and data tools
    We are constantly amazed at the new toolsets already available at people’s fingertips in many organizations, and dismayed at how ineffectively they are used. For example, SharePoint is used simply to replace the old shared drive without recognizing its capabilities as a full content management platform*2. Data tools such as Power BI or Tableau replace ERP reports without realizing their potential role in supporting ‘data’ literate tax professionals in the 21st century.
  • Robotics, AIML*3, and data meta-information tools
    These technologies are making inroads and are tentatively supported, but are still a long way from the mainstream. They tend to be either regarded with suspicion (need not be true) or blindly seen as panaceas (definitely not true). On the ‘data’ side of tax, the tools needed are still largely misunderstood and overlooked.

Of course, this is just a microcosm of examples and there are many others, but the reality remains that opportunities are routinely being lost. Like any set of tools, they are only as good as the artisan that wealds them – a paintbrush is an entirely different prospect in the hands of Da Vinci than those of the author, for example. While we are not expecting everyone to become the tax digitalization equivalent of a classical artist, we have prepared a few psychographic notes that may help in this crucial area:

  1. Treat technology & digitalization in tax as an opportunity, not something to be suffered and endured
  2. Accept that today is already different and tomorrow even more so. Prepare for some grassroots re-education in systems, process transformation, and ‘data’
  3. Be acutely aware that what worked in the past is highly unlikely to be the same in the new digital space. The goalposts have shifted drastically, and in this regard, toolsets fall under “process” in the fundamental reappraisal of people, process, technology and ‘data’
  4. Look outside your comfort zone and try new sources for innovative, challenging information, and avoid the falsely reassuring and commercially-driven same ol’, same ol’
  5. Adopt a growth mindset, get help, and collaborate, explore, & discover. Know that moving the needle in this realm is best done as a team sport.

Good luck!

*1 – SOP = standard operating procedures, and Google “the RACI matrix” if you need to

*2 – Common tools like SharePoint and Tableau are mentioned, but there are other similar examples

*3 – AIML = artificial intelligence/machine learning.

Shackleton’s Taxologists

Crazy, mad, ridiculous; yet strangly compelling!

Who would be a taxologist today? They have no job description, no proper role, indeterminant skills, are misunderstood and much maligned. Most in the industry don’t know who they are, whether they should get one, or what to do with one if they did.

They are thought of as “IT for tax”, but that is contrary to the nature of the digital transformation pervading the tax world and vastly understates their worth. This creates a frozen, foreign wasteland in which they must operate, not unlike the Antarctica that Ernest Shackleton faced in 1914.

And yet they are the future, and brave souls are needed to break the ice. Plus it is a rare opportunity for adventure, pioneering, and trail-blazing. The potential rewards include the passion and deep satisfaction of taking on a challenge, conquering it, and standing out from the crowd.

Fortunately, it is not necessary to sail a wooden ship into an unknown Antarctic ice-pack to do this. Forewarned is forearmed, and even the less adventurous (or foolhardy), can take gentler steps and seek understanding first. Those that have, found it highly motivating, forward thinking, and fun.

At some point, in a future that is inevitably digitally-driven, it may also help them avoid surviving their misadventures by escaping across the Southern Ocean in a proverbial row boat. Today, Shackleton and his crew are largely remembered for leadership and team, so make a difference and join us.