Taxology Stumbles and Evolves

The Evolution of Technology in Tax Studies

The nascent body of knowledge required by a taxologist is under fire, despite showing real value spearheading tax into the digital era.

I resent the pseudo-profession that claims to be taxology − it muddies the waters when my focus is meeting customer needs“, exclaims a seasoned consultant. We disagree, but then again, it’s easy to see why he thinks this way. Besides the commercial aspect, the vast majority of people that call themselves taxologists are in fact tax technologists − familiar with specific tax technology products rather than digital environments for tax as a whole − or have only painful experience as a teacher. Either way, it’s not enough.

Never-the-less, 2019 is experiencing a sea-change in this area. Several universities on both sides of the pond have added technology modules to their tax curriculum and students are writing post-graduate dissertations in it. In Amsterdam, IBFD are running a tax technology course this summer as are Yetter in Chicago, Illinois.

Conversely, others are holding back. The idea has taken hold that tax authorities will soon be telling taxpayers what they owe and therefore need only wait. This view is blinkered and, quite frankly, untrue. The authorities may take away a few last-link-in-the-chain computations, but their new business-meaning aware technology will squeeze taxpayers to death if their data is not right.

Others hesitate for different reasons. Maybe robotics (RPA) or artificial intelligence (AI) has magical powers, or finance will fix it with their transformation effort, or cloud, or some other technological fairy godmother. There’s certainly enough confused turbulence out there, never mind current workloads, skills shortages, cost constraints and market obscuration.

Unsurprisingly, universities focus their technology in tax efforts on the legal side. For example, one doctoral thesis explores how AI might sift through mountains of legislation and case law for rapid and new-world discernment of insights. Alternatively, they teach IT 101 to budding tax professionals. These are great developments, but do little to help existing tax solution owners at major companies facing today’s pressing challenges.

Taxology, on the other hand, is distinct and aimed squarely at the corporate tax arena where the majority of us battle on a daily basis. It needs to be quick, easy-to-understand, practical and relevant.

PawPaw Taxology is evolving and now focusing all its efforts on exactly this. That seasoned consultant is unaware of how the concepts, knowledge and vision offered both illuminate customers’ true needs in the digital era and accelerate the value of his own products and services in today’s environments.

Look at it this way − even if customers insist on applying industrial-age thinking to information-age problems (which they frequently do and, of course, must be delivered as requested), it’s still critical to have the difference in your back pocket when they finally get tired of the suboptimal status quo, or worse.

The self-study Smart Tax Technology certification program is that difference, so if nothing else, stock up your storm shelter now.

Embracing Tax Technology – The Full Perspective II

Your impact on corporate tax systems may be far greater than you think.

@Courtesy Michael Sporn Animation, based on original images from Disney’s 101 Dalmatians

Alex has a special skill. He can read systems. This was not a talent he set out to acquire; one day it just happened. Perhaps it started some time ago when he remembers a financial whizz reading a balance sheet. “Your accountant is stealing from you”, the whizz declared to a startled entrepreneur with only the balance sheet in front of him. Alex wanted to learn this skill, but sadly finance at this level was not his forte. He was a systems guy. But then, a few years later, the following happened.

Alex was at a new client evaluating their systems for a major global indirect tax automation upgrade. After a week or so he turned to his tax manager and said, “Your distribution channels are killing you!” The conversation that followed revealed that this hi-tech consumer electronics company, where the average product has the shelf-life of a banana, was entirely focused on R&D and supply chain. They had never sought to negotiate hard with their distributors, and ended up assuming more risk and responsibility through their sales channels than might otherwise be expected, including for tax.

Then, a couple of years later, it happened again at another client. He declared, “You don’t have the support of your senior management for technology!”. This time his tax counterpart, who had made an effort to acquire some tax technology skills, described how a new boss had told him to engage in more tax technical (meaning traditional legally-based) projects in order to save his career. Disappointed but deferential, Alex mused to himself, “turning your back on technology to save a career when it’s becoming so important is debatable at best, but as a service to your company, it offers them no favours at all“.

… and this matters because … ?

Apply some simple extrapolation and it’s easy to see that Alex has stumbled upon something important. His special insight reveals that digital systems reflect the organization and the people that work within them. On further investigation, it turns out that they somehow reflect the structure, culture, mindset and modus operandi of the companies in which they exist to such an extent that it can be detected by a talented person like Alex. Let’s examine how this is even possible in the first place.

Have you wondered why, in the age of Apple products, enterprise software and applications are still so difficult. The cost of getting technology such as ERP (the cornerstone tax tool for most corporate tax functions), tax engines and tax data repositories to work remains extraordinarily high, while for Apple products it’s all but zero. That is because corporate tax tools are just that, tools!  They require skilled workmen/women to construct the final product, a task that is more akin to making custom furniture than self-assembling a flat-pack.

But how much work must they do? The following diagram represents this by tool type:

The diagram represents four major tax tool types. Programming languages are included because of the number of corporate tax solutions that, at least in part, are built from scratch. In this case, the tools (programming languages, a database, user-interface platforms, etc.) are low-level, and IT engineers have a great deal of work to do (represented by the area in orange) before a business-ready product emerges.

Point solutions, on the other hand, are those that solve a single business problem in isolation. They are high-level and can be rolled out quickly and easily. External tax engines and some compliance tools fall into this category (as would most Apple products). But these tools are rarely standalone. They rely on their relationship with ERP and the quality of source data. As garbage-in, garbage-out is pandemic in our industry, this puts a damper on their ability to plug ‘n’ play like it says on the tin. Their connection with ERP frequently ends up needing quasi-programmer skills to meet the required quality levels.

Because of its ubiquity in our profession, Microsoft Excel is a tax tool type on its own. The genius of Excel lies in what can be achieved by a non-technical person without specialist IT assistance. However, it remains a low-level (or generic use) tool and leaves acres of room for errors and intractability. Even according to Microsoft themselves, Excel excels (excuse the pun) at information presentation but not enterprise data management, where it quickly hits natural limits. Here, the very flexibility that makes is so popular in the first place becomes its undoing.

This leaves ERP, which is far more generic and flexible than most people suspect—it needs to be, given the broad Byzantine market it serves. On the diagram, the width of the columns represents the importance of the tool for tax. For most, ERP is by far the most important, creating an orange area large in size. This allows plenty of space to inadvertently paint in your own special quirks into its characteristics and behaviours, creating a dog that looks remarkably like its owner.

So, it’s my fault the corporate tax solutions suck—?
Well, not entirely. ERP and the major dedicated tax tools are beasts, and few know how to tame them. Nobody read the manual because there aren’t any (install guides don’t count). With such a big knowledge gap, there’s a tendency to under-estimate or over-simplify the problem. The industry has not adjusted yet. This also explains why the dream-scenario of pressing a button and out pops a completed tax return is such a forlorn one—because the distance between a multi-purpose, generic set of digital platforms and full, tailored business-solution readiness is so great.

Some wonder why IT can’t do it, especially if they have specific experience. However, traditional IT anchors itself in process and technology management, and the final gap between them and tax business is just as big a mystery from their side of the fence. What is needed is a new level of tax industry professional, and Alex’s ability to “see” systems gives us clues about its nature. Think of it this way—if Alex could define and describe what it is that enables him to read systems, encapsulate it, write it down, bring it to bear, make it repeatable, predictable, measurable, and teach others, we would have a very powerful new capability in the tax world.

Well, it’s here and it’s called taxology, and its protagonists are called taxologists. It neither removes the need for tax specialists or IT skills, but augments both and drives innovation. It offers clarity, insight and vision, the lack of which is reflected in the systems clearly enough to be seen by someone like Alex. They really do match their owners and it’s not the software’s fault.

Historically, there may have been valid reasons for this state of affairs, but that is no longer the case. There are no more excuses but beware the impostor taxologist. Click here for a simple way forward on both fronts.

Microsoft and Excel are either registered trademarks or trademarks of Microsoft Corporation
in the United States and/or other countries.

Tax and Technology – Still WiP?

Married, but uncomfortable bedfellows.

The spring round of conferences is drawing to a close and it’s clear our industry is in robust health. Attendances were good, conversations were unfettered and it’s great to see how technology for tax keeps moving forward.

However, something else stands out. The gap between the capability offered by tax technology and the degree to which those capabilities are capitalized upon effectively by customers is wide, and if anything, growing wider.

There’s no doubt that corporate tax people now accept the role of technology as integral to the function, but they’ve not yet worked out how to get the best from it. They somehow still expect it to work like a smartphone app. It doesn’t. They keep trying different options until it does. It won’t.

How can it? A smartphone app deals only with a single, tiny, personal aspect of a person’s life while tax technology must reach ever further across the complexity and vastness of corporate organizations. Nor does it work like Henry Ford’s assembly line for the Model T or the robotic arms that assemble microchips.

But why not? The answer is data, or to be exact, enterprise data. That enigmatic, frustrating, monstrously potent, ephemeral, technicolor dream-coat that is data, and the root behind the phrase, ‘knowledge is power’ (and after all, tax people are knowledge-workers). Unleashed data can exercise operational control across the globe while you sleep and give you superhuman powers, provided you think and harness it correctly. Few do.

In fact, the degree or lack of knowledge about our industry-specific digital world is shocking, so providing better tools is like offering better golf clubs to someone who doesn’t play golf in the first place. And if vendors then try and create clubs for non-players, the end result is no longer golf.

There’s only one thing for it – tax people will have to learn a few, high-level basics, but like long-time singletons adjusting to being newly married, this takes a little doing. We suggest the answer is taxology in an easily digestible form, along with help from ‘taxologist as a service‘.

Until robots learn to play golf by themselves or understand a digital tax solution in all its guises, there’s no other way to avoid the oppression of unruly systems and data, and step out into the digital sunlight.

Someday in the future, people will look back on this day and wonder how we got by. It’s past time to accept that this enduring work-in-progress relationship between tax and technology is unacceptable and do something about it. Come and join those that already have.

 

Embracing Tax Technology – The Full Perspective

Is Your Approach to Tax Technology Governance Fit For Purpose? 

The litany of challenges facing today’s Tax leadership makes for uncomfortable reading. A quick look into the alphabet soup reveals BEPS, CbCR, SAF-T, SII, AEOI, IFRS and even GDPR, never mind US tax reform, VAT in the GCC, GST in India, changes in China, transfer pricing complexities and taxing the digital economy. However, these are just the external highlights. Within the organisation, the Tax team is being asked to improve its grasp of the numbers, find productivity gains and reach across the entire value chain to better align itself strategically with overall corporate goals.

With so much going on you might expect technology to be on the backburner, but that’s not the case. Also in the Scrabble bag you’ll find RPA, AI, ERP, automation, analytics, digitalisation, data lakes and transformation. With tax now a reputational issue, and the taxing jurisdictions rapidly adopting ‘big data’ techniques, the days when the tax function can restrict its focus to compliance, effective tax rate (ETR) and cashflow optimisation are all but over.

Granted, these opening paragraphs might seem overly simplistic and glib, or maybe just plain scare-mongering, but that’s not the intent. So, just for a moment, let’s forget about all that and get our feet back on planet Earth where the real people live.

The Tax Technology conundrum

There is no doubt that a lot is happening in Tax right now, but we must exist in the world of the possible. Only so much can be achieved in a day, resources are finite, careers matter and the basics come first. Yet, there is still a conundrum around technology, and it goes something like this:

  1. The sands upon which the Tax castle is built are shifting, and Tax professionals are being pulled in directions that don’t naturally fall within their traditional boundaries.
  2. To handle these extra influences, technology needs to feature in the response because:
    1. it is now part of the problem. Tax is increasingly intertwined with the technology that underpins it; and,
    2. there is simply no other way of achieving the productivity, accuracy and efficiency gains expected.
  3. But for many, their experience of technology to date is far from satisfactory. The pitfalls of technology are as hazardous as its promise is soaring. Also, the mechanics of the tax technology marketplace are such that they are causing reluctance and wariness at a time when exactly the opposite is needed.

Yet, technology in Tax is here to stay, that’s clear. What is less clear is the degree to which it will impact the perception of a successful Tax professional going forward. As technology becomes integral to the job, that impact will undoubtedly become more tangible. In the meantime, the effects of technology usage by authorities and elsewhere in the organisation means that Tax departments barely have the time and energy to address technology properly for their own purposes. Herein lies the conundrum.

A legacy of common MIS-experience

So, given these circumstances, how can Tax leaders realistically approach tax technology with more clarity and assurance than they do today?

Note that in some cases this may involve companies stopping what they are doing now because it is not working. Again, this may seem a little glib, but in fact it’s already happening. Many are delaying taking action due to the range of possible options, the difficulty in selecting the best ones, and the downside risks of making an incorrect decision.

Part of the problem is that for historical reasons there is a rather one-dimensional attitude to enterprise IT (or Management Information Systems (MIS), to be more accurate), including Tax Technology. To understand that better you have to look at the track record for enterprise resource planning (ERP), which itself is central to the Tax function within corporations.

Before database and infrastructure software, such as SAP and Oracle, companies were building solutions for themselves, often based on IBM technologies. Then the year 2000 (or ‘Y2K’) happened (the fear that ticking over from 1999 to 2000 would cause calamity for systems that stored only the last two digits of the year). This provided the impetus for a period of frantic third-party ERP implementation and the retirement of home-grown solutions. It was a heyday for consultants – you only had to be able to spell “ERP” to earn crazy rates. But, on the flipside, foundations were laid for problems that would surface later.

During that chaotic period, ERP was often ‘shoe-horned’ in by people with limited experience and a mandate for speed. Since then, the problems with this have become evident when working with Tax Technology products that must interface with ERP, but where there is often a clear difference in quality between those source systems implemented during Y2K and those rolled out since. Once in place, dependencies built up around ERPs are technically, organisationally and psychologically difficult to shift afterwards. The resulting MISs are rigid, their inefficiencies locked-in by barely decipherable compensating processes and structures that incumbents (strength-athletes who hold the whole thing together daily, plus those with a vested interest in the status quo) defend with their lives. The greater the degree of original shoe-horning, the more rigid and un-robust the resulting solution will be to this day.

In addition, the history of ERP since Y2K is hardly cause for cheer. Under pressure from market forces, vendors are continually updating their applications and insisting everyone upgrades. With each new software release, they provide migration paths from the previous version for customers who don’t care for the “improvements”. These “like-4-like” upgrade paths are popular but rarely completely clean. Consequently, each time they are used, technical stresses are introduced into the solution as old structures are wedged into new architectures.

From a Tax perspective, nowhere was this more evident than the Oracle Applications upgrade from 11i to eBusiness Suite release 12, known as R12. In this instance, internal tax engines and third-party management functionality were removed from individual modules like accounts receivable (AR) and accounts payable (AP) and placed into new standalone facilities, eBTax (a tax engine) and TCA (trade community architecture) respectively.

The scale of the changes meant that in this case, “like-4-like” intensified the usual double whammy: namely, a setup not ideal for the new platform, and a missed opportunity to properly leverage any improvements. Yet this was the route most frequently taken. Some have now been through such upgrades multiple times, causing the ERP ecosystem to be more and more out-of-kilter. It’s unhelpful that Tax was one of the last groups to formally come to the ERP party in the first place.

So, why is this one-dimensional? It’s considered one-dimensional when a working solution is regarded as such, and people are loathe to touch it, irrespective of how well it’s working. Unfortunately, the dependency on technology means that over time, this lack of attention has a corrosive effect on primary goal attainment for the group and may cost orders of magnitude in lost opportunity.

However, more and more companies are starting to grasp this and are exploring options for improvement, or even regeneration of the Tax function based on technology.

The new enterprise IT landscape

Consequently, a new era for enterprise IT is slowly being ushered in. One view is that the advent of transformation initiatives, which manifest themselves as digital transformation or finance transformation projects, reflect this. These are based on the idea that enterprise IT, and particularly enterprise data, is a resource in its own right with strategic value rather than just a way to solve a problem in back office. Tax, which has no other end-product besides information, is right up there with finance and marketing as the business functions set to benefit the most. But it is a pity that transformation projects currently have about a failure rate of 75%.

But then again, looking across the industry in general, failure rates around enterprise IT remain far too high. Even RPA (robotics), the latest craze in tax technology, has a 30-40% failure rate, even though its purpose is relatively straightforward. RPA is pure automation, specifically, the replacement of manual tasks with electronic ones. There’s no transformation in RPA, only automation (with an incremental return on investment), so that complexity does not arise.

So, why would any self-respecting Tax person want to risk stepping into the minefield that is enterprise IT? Some never will, but others view it as a growing necessity and an opportunity. Besides the adrenaline junkies (there’s always a few), the rest must know that when stepping into the breach, to be forewarned is to be forearmed.

It’s time for tax leaders to enter the technology maze

Shifting from back-foot to front-foot

One Tax manager recently said that technology is now on the agenda of the Tax leadership at his company, but nobody was sure what that meant.

A well-known firm had told them they can save 50 full time employees (FTEs) or equivalent at their offshore shared service centre by using technology, but three months later and after careful review, that turned out to be no more than five FTEs. In other words, effectively meaningless for this large company. However, it demonstrates the gap between ambition and capability, and the vagaries of the market’s response. Clearly, for this company, something is missing from their repertoire that otherwise would give them a better handle on such things.

So, what steps should tax leadership be taking? What will realistically offer a better chance of success, and avoid the hidden agendas and the paying of lip-service that frequently harm such efforts?

Finding bedrock in the sand
Like so much else in life, real success starts at home. So, watch out for the following thought-processes that can become self-fulfilling prophecies if not held in check:

  • Technology belongs to IT and has nothing to do with the real work of a Tax professional;
  • Enterprise IT is so complex that it’s unknowable, by us or anyone else; and
  • Technical risk is inevitable, and holistic control is almost impossible.

Again, we sense a sea-change among Tax managers. Whereas previously technology could be dismissed as a hopeless case and/or someone else’s problem, now there is a genuine desire to understand the best way forward. It includes an extra level of business accountability – namely, if there’s insufficient confidence in a proposed strategy or plan from a business perspective, don’t take the risk. It’s a great approach, but it is also causing thousands on the business-side to sit on the side lines while they try and figure out a viable approach to Tax Technology.

What should you do?

Let’s get practical. Bear in mind that there is no silver bullet and this is a journey that will take time. Consequently, here are some suggestions in terms of performing the groundwork necessary to set a path that will last the distance.
The first step is sometimes the toughest, but change is in the air:

1. Commit to stepping outside your normal comfort zone.
This implies you don’t have all the answers and you are open to discovery and education in unfamiliar realms. Couple this with a healthy market awareness (the market will sometimes sell what they think customers will buy rather than what they truly need), and you have a solid foundation to build on.

The second suggestion is easy and many have already taken this step:

2. Appoint one or more persons from the Tax team as accountable for Tax Technology.
There is a tightrope to walk here as accountability without responsibility is a significant risk. Responsibility is only effective with a firm grasp of the levers that drive the enterprise IT side of the equation, but this is a highly specialised and sophisticated skill very different from, and at least as complex as, that of Tax. Corralling such interdependent capabilities is an immense challenge. However, go ahead and appoint someone anyway. Make it a formal arrangement. It’s a prerequisite for progress.

The third step is also straightforward and about half of companies that take the second step also take this one:

3. Provide that person (or team) with adequate backing and allow sufficient time.
Avoid giving with one hand and taking away with the other. While many in this role will have split responsibilities, ensure they’re not dragged back into the melee as soon something comes up (like US Tax reform).

However, even those that successfully navigate the previous steps, almost never do the next step:

4. Provide that person (or group) with appropriate training and support.
This may sound like a criticism, but it’s not. While the market for Tax Technology products continues to mature, the market for capabilities around the governance of those products is in its infancy. Even the specialist Tax recruitment firms, with their finger on the pulse of the industry, are only just starting to pick this up.

The concern is that while these appointees will undoubtedly make a difference, they lack the vision and capability to produce consistent results in all circumstances based on sound principle and relevant competencies. For example, not all technology is created equal; core enterprise data and IT (including tax engines) must be treated differently from downstream products like compliance tools, which are different again from business workflow and process governance. All this differs from the project skills and knowledge of specific Tax technology products that would normally be associated with Tax Technologists (specialising in activities rather than governance). Overall, if this was a more established discipline like Tax business, a gap of this magnitude would be deemed unacceptable.

Consequently, there is a need for another step to truly hone an approach to Tax Technology suitable for today’s Tax world:

5. Seek to discover the root concepts and principles that govern and underpin all Tax Technology. Expect them to be transformative in nature, and focus them around the Tax Technology leadership role established in the previous steps.
This is the opposite of treating everything as a process and each issue as standalone. If your only mode of operation is to knock down technical challenges in ones and twos as they arise, then you’ll end up with a system that looks like spaghetti junction under the hood. If this tangle could be mapped, it would appear as highly complex, inflexible dependency matrixes, that by definition are costly to run, barely effective in execution, gruelling to maintain and resistant to change.

Unravelling the tangle just described is a non-trivial exercise, but, again, all enterprise IT is not created equal in this regard. For instance, no third-party compliance tool will suffer this problem because they are self-contained (also called point solutions). In a point solution, the vendor has sorted out all the complexities for you and allows little or no leeway to undermine its integrity. If you have issues with a point solution then it will be for other reasons (bad source data or poor configuration). However, as already discussed, ERP is not a point solution (and Excel even less so). Also, the interfaces between point solutions can be as tangled as ERP (held together by the preverbal chewing gum and sticky tape). To add to the problem, the quality of an end-to-end solution overall is susceptible to the weakest link rule.

So, this is the challenge facing an untransformed tax function. However, it’s not as bad as it sounds. Also, the benefits on the other side are greater than many can fathom (imagine the full power of great data at your fingertips). But most will make progress in much smaller, pragmatic chunks over time, which is still a highly valuable and viable approach.

The key is to get started, and again, it begins at home. Knowledge is everything. For example, how can you hire the right people if you can’t tell whether the candidates are living in the old world or the new?

So, this encapsulates this material, and much more, under the umbrella term of a ‘Taxologist’. Taxologists, or the vision, skills, competencies and tools they represent, are a necessity if Tax is to emerge from the Ctrl-Alt-Delete era of enterprise IT.

Tax Technologist vs Taxologist? And Why It Matters

The shortage of good technology skills in Tax is acute, yet there’s little meaningful discussion about the nature of those skills. The industry is short-changed as a result.

Technology is running amok through Tax in more ways than one. Less obvious is the impact its having on traditional roles, responsibilities and skill sets. How do we know this? Because if there was no issue, we would not see the following:

  1. Trepidation and lack of clarity around TaxTech strategies and execution
  2. Difficult, expensive initiatives that yield indeterminate results
  3. Low expectations for TaxTech among the leadership based justifiably on experience.

If this does not apply to you, or you feel the above is acceptable, then please stop reading now. Personally, I believe it’s totally unacceptable, and I’ve made it my mission to do something about it.

Forklift Drivers

Everybody knows that knowledge of specific TaxTech products and/or ERP is needed to make them work, in the same way a forklift needs a forklift driver. I myself am pretty handy with a domestic handyman’s toolkit, but don’t ask me to construct a beautifully finished fitted kitchen. You’ll be disappointed.

Yet, this happens in Tax Technology every day. Tax Technologists operate tax tools and follow project processes, but Taxologists are holistic architects, stay close to the business, and understand ‘why’. Here’s a synopsis of more differences:

Tax Technologist Taxologist
Installs tools Constructs solutions
Automation Transformation
Technology first Tax Data first
Product focus Business focus
Narrow focus Broad focus

At first glance, these may seem circumstantial, but the effect can be enormous. Tax managers frequently pay premium rates for what are effectively artisans, hoping for sophisticated, end-to-end, digitalized tax solutions. Granted, artisans are needed, but they’ll under-achieve without proper guidance from a Taxologist.

And unfortunately, when it’s over, nobody can put their finger on exactly what happened or clearly figure out how to be better next time. At this point, Tax leadership reverts to sanctioning only reactive and incremental efforts when in reality far more is needed to stay abreast of the technology-driven pace of change.

So, What Now?

We need two things; more Taxologists (they are quite rare), and Taxologists’ tools. After all, architects need blueprints (try putting together a decent fitted kitchen without one). Side note: if at this point you’re thinking a blueprint is not really necessary, then imagine that the fitted kitchen you’re trying to build and all its components are invisible, as are the inner workings of most computer-based information solutions.

The PawPawTaxology Tax Technology Insight Series and services are the first designed to solve these problems. Check it out today, then let’s talk!