It was my great pleasure last week to be in Copenhagen working with a group of senior tax & tax technology stakeholders from some of the largest companies in Denmark. They have been coming together informally for quite some time to share and discuss their challenges in a safe environment (Ed. Are there other groups like this elsewhere? It would be interesting to know).
Besides being a wonderful group of people, they were highly receptive to the idea of taxology – that is, a high-level examination of the information fabric that makes up our newly digital lives in taxbefore going into “solutions mode”, as one person put it.
We talked about people, process, technology & ‘data’, and how focusing on technology alone leaves 75% of that equation behind with results to match in terms of realizing value. This led to a conversation on the main purpose of automation – not to replace manual processes but to support “good” data in a well-understood tax data model, and that a transformed state only exists once that has occurred.
Contributing Xyto philosophy to this established group produced some great feedback. “Inspiring”, said one person, and “Absolutely did not disappoint”, said another.
Interestingly, they have yet to name their group. If they had, it would probably have been called “Tax Technology” club or similar. Now, hopefully it will contain “Tax Technology & Transformation”, thereby also giving a nod to the upcycled thinking and capabilities that matter in tax’s digital future.
Contact us to learn more about transformation, and why tax technology does not measure up in the modern age without it.
Cliché Busting: The Substance Behind the Sound Bites
Part 4 of 5: Key Concepts in the Future of Tax
There’s a saying that goes, “technology requires tax to upskill, but transformation requires tax to reskill“. For those that follow this series, it will be no surprise that we fully subscribe to this.
Of course, we don’t mean that current skills must be forgotten, but the impact of digitalization is so pervasive that shortly – if not already – every aspect of tax will be in a state of flux.
One of those aspects, a critical one, is how industry knowledge is managed. In addition to general tax skills & knowledge, in-house tax professionals must add tribal knowledge – that is, all the hard-won wisdom around their organization’s own tax footprint.
But, even that is not the end of it. Progressive in-house tax departments are taking on the challenge of understanding how that tax footprint is represented in the company’s enterprise systems, taking the reins of control for themselves through tax engines and other digital tools. This is a vital part of tax’s in-house value proposition going forward, a point we have stressed throughout this series.
The consequence of all this is that mountains of new & up-calibrated information, intelligence, and knowledge are being generated. As an example, tax departments looking to become full business partners & digital co-pilots at their companies will need to acquire good levels of competency in:
Note that collectively, we call this taxology, and persons well-versed in these competencies for the tax industry specifically are taxologists.
But in reality, this list is a subset, and anyway none of it works very well if not within the context of transformed mindsets and new ways of working. In fact, at this point we feel we should issue a gentle word of warning:
“The idea that tax technology & digitalization should be natural for existing tax professionals because, after all, it is still just ‘tax’, is a false one. Experience shows that tax professionals are ‘surprised’ and unfamiliar with the impact of technology, and typically overspend and/or end up with solutions not fully fit for purpose. The time for learning by trial ‘n’ error has passed.”
What is natural, however, is for tax to be deeply impacted by technology, and particularly – at risk of overstating the obvious – information technology, or “IT”.
If tax departments were factories, they would have one input, raw data, and one output, information – that is, data with business relevance imparted to it. This is the root of tax’s value proposition, so if “IT” means putting information on steroids through the use of powerful technologies, then tax is perfectly positioned to profit. For this reason alone, it should be welcomed with open arms by the industry.
Lastly, not every tax department is at sea with technology. An increasing number have managed to acquire IT skills in some form and now partake in the broader corporate digital alchemy. This is great as far as it goes, yet nearly all suffer from:
Key person risk – highly reliant on a few individuals who can do it
Digital skills succession – informal and little or no notion of how to make them a permanent, embedded feature of tax with genuine career paths.
Consequently, this cannot yet be called a truly transformed state as the tax function has yet to redefine itself by digital-age capability. Also, you cannot assume that once the system is configured that everything is fine, and let all the knowledge reside in the heads of a few persons who cannot explain it to others.
So, how is this resolved?
Towards a Solution
As with the rest of this series, the challenge is not new and others before tax have faced the same challenge – that is, an information & know-how explosion. As such, knowledge management is already a major focus area in general.
Tools like the internet and email revolutionized the communication & dissemination of information, but it was search & tagging that brought meaning to the content. Early in-house attempts were collectively called ECM, or enterprise content management, but these were mostly half-hearted and largely ineffective.
At Xyto, as always, we are only concerned with meaningful answers and found that wiki-style knowledge management is the right approach for tax. To make that realizable, we are introducing a Tax MetaBase to capture, refine, and share new-age tax knowledge. The “meta” refers to the fact that it contains information about the information – or metainformation – that make up digitalized tax landscapes.
It follows the principles used by Wikipedia, the world’s largest online encyclopedia, and early customer experience has revealed two important knock-on benefits:
Creating the Tax MetaBase itself was an immense learning experience even for highly experienced tax professionals, and
Portions of it are common to all tax functions in terms of some areas of tax, knowledge acquisition methods, and technology – SAP, Oracle, Vertex, etc.
Consequently, we have been able to put together a Tax MetaBase Prototype, which offers a big head start on this highly challenging undertaking. After all, international tax by its very nature is vast & highly complex, never mind trying to capture & explain the details of its digital manifestation as well.
However, like the concepts in Parts 1-3, this works best within a transformed state, but even here we found a mutually beneficial effect at work – namely, that a Tax MetaBase helps foster transformative journeys, which in turn are greatly improved by the Tax MetaBase – a.k.a. they strongly reinforce each other.
So, What Does This Mean For You?
Firstly, it means that we can explode the myth that digitalized tax cannot be written down & shared. Of course it can, and while it takes some extra effort to start, the long-term benefits are incalculable. In fact, they’re hard to imagine at the outset, as one of our customers – a graduate of Smart Tax Technology – told us:
“At the beginning, I only understood 5% of what we are now achieving.”
Secondly, well, forget secondly for now. It’s easier to show you, so why notContact Usfor a Tax MetaBase demo. You won’t be disappointed.
In Part 5, the final one in this series, we explore why this or any of Parts 1-4 will lack meaning & value unless people & corporate cultures begin opening up and start to relinquish their addiction to the “pre-digital + automation” mindset.
Taxology Part 1: Why Agile Matters
Taxology Part 2: Why Transformation Matters
Taxology Part 3: Why ‘Data’ Matters
Key Concepts in the Future of Tax – A five part series
In one sense, taxology is about excellent delivery of tax technology with built-in digital future-proofing.
Xyto and partners are all about realizing both for the price of one, such that…
Their combined value is far greater than the sum (cost) of their parts.
But how? … Well, it’s no big mystery and we’ve nothing to hide.
We simply run journeys that unshackle the most powerful concepts already available today!
The associated sound bites are not new and many in tax have heard of them, yet they remain curiously out of reach.
This 5 part series looks at the truth behind five critical keywords that tip the balance towards success when tax embraces digitalization.
For the second year running, Geoff Peck, our founder & chief taxologist, contributed at the innovative LL.M. Digitalization & Tax Law program run by the Executive Academy at the University of Vienna (WU), now in its third year. This program addresses the critical need for digital acumen & skills in today’s tax profession.
Based on our own Smart Tax Technology certification program, itself now in its sixth year, plus the downstream experience of our many graduates, we were able to bring unique practical perspectives to proceedings, particularly around transforming the tax function.
Xyto will be participating again as the WU 2022/3 academic year draws to a close in June along with our partners.
From the Students:
“I really liked the presentation and that you have shared with us your experience … thank you very much for your time and I really appreciate.”
“Thank you very much for your interesting presentation today.”
“Thank you for the great lecture, it was very inspiring!”
“It was a pleasure attending your lectures.”
For more information on tax technology, digitalization & transformation training options with Xyto, WU, and our partners at TPA Global e-bright, please contact us for a short, insightful conversation. It’s a must for those in the 21st century tax industry
Cliché Busting: The Substance Behind the Sound Bites
The third concept under review, namely ‘data’, is without doubt the most impactful to the future of tax. As a paradigm-shifting medium for tax information, digitalized ‘data’ is firmly in the process of redefining the industry, and it is the focal point around which all tax transformation revolves.
This sentiment is expressed in two powerful statements which we like to share widely and often:
“As oil was to the energy industry in the 20th century, so data is to the tax industry in the 21st century.”
…and as tax authorities turn ever more towards transaction level e-regulation:
“Your tax position is no longer what you say it is, it’s what your data says it is.”
While the impact of this on tax advisors remains muted for now, for in-house tax professionals acting as full business partners to the rest of the organization, it’s turning their world upside down.
Gone are the days when tax preparers sit at the edges of the system and data wrangle ERP downloads in Excel before submitting to authorities. As data reaches jurisdictions at speeds and in quantities greater than ever before, the tax function is left with one option and one option only that makes sense:
“Get tax data right first time at source.”
But before digging deeper on that, let’s first take a step back and ask an important question – Why all the fuss? What is so important about ‘data’? (Note: we use single quotes when referring to ‘data’ in concept rather than the data itself).
It’s hard to avoid the default view that ‘data’ is little more than paper documents held in digital form. Excel does little to dispel that myth because it’s only one small step up from paper, albeit using a digital medium. The same is true of e-filing.
However, corporate-wide data & tax data held on powerful database platforms using sophisticated business data models and supported by ever-improving enterprise applications and query tools, is an entirely different prospect altogether.
If handled correctly, this data platform acts as a window onto your entire company – a digital twin, if you like, a mirror on the whole organization, instantly available and constantly updated. It offers in-house tax professionals complete access to their domain at speeds and levels of granularity previously unimaginable. Like giving eyes to a person born blind, it’s an utter game-changer.
And make no mistake, this is exactly what the tax authorities are after as well. They’re scrambling to build up sophisticated digital profiles on their taxpayers and gain holistic visibility and control over their hinterlands in same way that in-house tax professionals should be looking for in their own organizations.
However, there’s a problem or two:
Bad data andgarbage in, garbage out are pandemic in today’s corporate databases, and;
Lack of enterprise data skills and ‘data’-literacy means few, if any, know how to improve this (even CDOs – chief data officers – have a poor track record).
As a result, data is frequently a risk-laden, corporate liability instead of the highly prized asset – or even THE most valued asset – it should be.
The data industry and data sciences don’t help much either. They typically focus on managing vast data reservoirs and gleaning golden nuggets from its depths. Only a relatively small part of the industry deals with pinpoint preciseness and the uber-accurate reflection of the entire organization in data that tax desires.
As such, “getting tax data right first time at source” seems like a forlorn hope, as does trust in data. But as tax authorities lift their approach to data from plumbing to meaning, this is an escalating risk. The last thing in-house tax managers want is for the authorities to know more about their companies than they do. There’s no value in that for their stakeholders.
So, what’s the way forward? Well, in our opinion, it starts with a manageable, meaningful, and realistic approach to ‘data’ that does not cost the earth.
Our starting point at Xyto and partners is the business stories that data, a.k.a. the digital twin, tells you, or should tell you. For example, any VAT manager will tell you how B2B VAT numbers work in the EU, but is this correctly reflected in data and the systems?
To answer that question is a simple exercise in data modelling that anyone can do if shown how. Completing this exercise for 10-15 key business data objects is all it takes to turn the corner, and start treating ‘data’ as the bedrock of the tax function.
In Part 4 we explore the challenge of rapid digital upskilling, mushrooming tribal knowledge needs, the social influencing required to elevate the role of tax, and how wiki-style knowledge management has a critical role to play in all of this.
Cliché Busting: The Substance Behind the Sound Bites
Part 2: The Essence of Transformation
Of the five concepts under review, perhaps transformation is the most high profile, but also misfires the most. That’s a shame because it’s vital to avoiding disruption and succeeding in the digital world.
Almost every tax technology effort, or systems project with a tax component, is either named “transformation” or has transformation as a stated objective. But once the rubber hits the road, they rarely stay on track.
Instead, they kick off as automation initiatives or application integration projects (such as an ERP rollout), where the work typically lands with IT or an external partner. The trouble is that this does not deliver transformation.
To understand why, let’s start with a definition of transformation.
A transformed state exists only when the end state bears little or no resemblance to the start state, for example, as in nature when a caterpillar becomes a butterfly. In the same way with digital transformation, it only occurs once all four of its main components – people, process, technology and ‘data’ – are fundamentally altered.
Traditional technology, IT and automation projects fall short because they leave two critical components behind without meaningful change:
People – who after the project, typically go back to the work they did before; and,
Data – remains undefined, undervalued, poorly governed, and subservient to process.
As always, people will argue differently. For example, when challenged they will say, “but we trained our people in new software”, or “we’ve put data quality measures in place”, but when you scratching below the surface, these paintjobs are more likely to actively suppress real change than cause it.
That’s because true digital transformation has an entirely different quality about it. For starters, transformation is strategic, while traditional technology, IT and automation are tactical. It’s also unfamiliar to most (even in IT!), and yet it’s the only way to truly unleash the towering value proposition of digital capability and make the tax profession comfortable with itself again.
So, what are the key features? Firstly, data outranks automation as a source of value. Secondly, automation is no longer about replacing humans with machines – instead, the main purpose of automation is to support the data model, especially for knowledge based industries like tax.
This leads to a place where technology complements upskilled humans, who no longer fear being disrupted by it. In fact, they learn to accept their jobs cannot be done without it and start to fully embrace it. Ultimately, they become fundamentally recalibrated and redefine themselves by their close relationship with technological tools and the rich data platforms they support.
As we said, like caterpillar to butterfly, transformation impacts everything. Nothing escapes. For example, HR must now recruit, retain, and motivate an entirely different kind of person; and the legal department can forget scouring software license agreements for liabilities and risk, because technology that complements humans is better suited to the simpler subscription model.
But herein lies the issue. Full digital transformation is so different that it’s just too much for most people and corporate cultures to swallow. It intuitively feels wrong even when it’s not, and quite frankly, can be terrifying. So, our recommendation is to not even try! Let me elaborate on that.
Basically, transformation is not a project, and it will fail if you try and run it that way. Instead, it’s the product of a series of specific actions taken over time that cannot be forced. Here’s the formula:
Read as, “Vision plus Strategy plus Skills plus the sum of innovation efforts over time will lead to a transformed state, where Transformation is not a destination but the way of being at the end of a journey.”
Transformation cannot be done all at once because, as stated in Part 1, the outcome cannot be known in advance. Partly for this reason, we at Xyto avoid mentioning “transformation” except to leaders and visionaries. Managers and pragmatists still want transformation, but can’t understand why it’s not a normal project. Hint: this is where the proper use of Agile comes in.
Instead, we’ve devised a combination of education, methods, coaching, upskilling, messaging, influencing, leadership and partnering capabilities to engineer effective innovation journeys with the right trajectory that fit in with existing tasks and projects. Meaningful, intentional, and balanced action every day is the key.
In Part 3, we look at Data, and reveal why tomorrow’s greatest asset is often today’s greatest liability, and what tax can do about it.