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.

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!

In 2014, Thomson Reuters began giving “Taxologist” awards to those who succeeded with their Tax Technology products. Now the term has adopted a broader meaning and labels a set of skills that are fast becoming as distinct as they are vital to tax function success. It’s time to treat them as such.

The pace of change in the tax world, driven by technological advancement, is bewildering. Such is the impact that the basic expectation of a tax function is being quietly altered—as without mastery over technology there’s simply no way to keep up. Anecdotal evidence suggests concerns are growing. This is unfortunate, as by association the standing of the Tax professional is at risk of being eroded at the very time their organizations need the opposite from them.

So, how have people and companies responded? Let’s take a brief look.

1. Tax specialists migrate towards technology or IT professionals become tax solution specialists

The argument rages as to which route is better, but neither is ideal. While adequate to learn the tricks of the trade for a few specific Tax technology products, neither allows for one to gain sufficient grounding in the disciplines of the other to construct, oversee and govern large, complex end-to-end Tax solutions.

2. Create a dedicated Tax Technology department

A necessity at any large corporation or those with a structured org chart (which is almost everyone), but these new groups have a chequered history. They either struggle to distinguish themselves from IT or succumb to the temptation to dabble with technology. Their true purpose eludes them and only a few establish a viable basis for demonstrating their value.

3. Outsource everything

Outsourcing works best when there’s a firm handle on the what and how of the tasks being handed over. Too often, the discovery element (underestimated by the outsourcer) derails such arrangements. A similar outcome can be expected when the outsourcee is an in-house IT department and Tax adopts a hands-off approach.

These pitfalls eventually leave the leadership frustrated and hesitant, as no amount of reshuffling the deck can compensate for an inherent skills gap. Let’s explore further.

The Missing Link

Starting with the obvious; no one doubts Tax is complicated, but then so is IT. Anyone who has ventured into projects knows that the distance between the two is far greater than might be imagined. At first glance, tax technology looks like it should be simple, yet it has repeatedly proved not to be so. The assimilation of technology into Tax is a non-trivial exercise. In truth, there’s an entire body of knowledge, concepts, principles and disciplines involved, and certain ground rules that must be established and observed. Without recognition of these fundamentals, initiatives are wrong-headed from the outset.

Think of it this way. If a qualified Tax professional was the first of his or her kind to turn up at a multi-$billion international corporation, they would have much to do. Firstly, they would have to get their heads around the current situation, devise and formalize a business-level strategy, then agree and socialize it before finally putting in place the processes, tools and checks to execute it safely. Only then would the organization begin to reap the rewards. Fortunately, Tax experts have a fully tried and trusted profession to fall back on, giving them the wherewithal and respectability to pull this off. It’s time tax technology had the same.

Et viola! The scene is set for Taxologists, or so you might think, and yet they barely exist today. Those that do exist are rarely deployed correctly, in part because until now they’ve defied definition and it’s unclear how to value one. Yet in most cases, it’s a highly-qualified, proficient Taxologist who is recognised as such, that is the missing link.

So, What Can Be Done Today?

As yet, there are no three-year university courses for Taxologists. They have no professional bodies nor internationally agreed standards to which they must adhere. It will remain that way for some time to come. However, there is another option, the Smart Tax Technology Certification Program.

Taxology and Taxologists may not yet be ready for the paraphernalia of a full profession, but that doesn’t mean they can’t start acting as one. As it becomes increasingly difficult to separate Tax from the technology that underpins it, the success of the tax function will rest on both the existence of professional-level Taxologist skills and the means to bring them to bear effectively in today’s organizations. Fortunately, there’s a way forward which brings early results within reach. See the Tax Technology Insight Series to learn more.

Acknowledgement for Thomson Reuters who introduced the term “Taxologist” in 2014. Copyright: NejroN / 123RF Stock Photo.

 

As the impact of technology in Tax grows, so do concerns around the best way to deal with it. Getting a handle on it starts with better visibility and understanding of technology and its usage, namely, the talents of a Taxologist. They’re critical to the health of tax solutions.

In the previous article, we offered a definition of a Taxologist (What is a Taxologist? Part I) to describe, embody and label those skills, but why do they matter?

They matter a great deal. Here’s why.

Without a Taxologist available, the following happens:

• Tax technology initiatives grind on, especially around ERP, often delivering indeterminant results. Issues persist. Nobody’s sure why

• The next steps in TaxTech are unclear. There seems to be an invisible hole in the middle of any significant proposal that translates to risk. Again, nobody can quite put their finger on it

• After several automation efforts, the Tax function is still drowning in data. There’s a sense that there must be a better way

• Efforts to really get to grips with TaxTech end up focusing only on the technical aspects of one or more pieces of technology

• Newly created Tax Technology groups struggle to define their role, achieve results or differentiate themselves from IT

• The goal of simplification is elusive. Few or none of the efforts at simplification work as expected. Complexity is out of control

• A long-term strategy cannot be agreed. Instead, a reactive, patchwork approach takes hold, storing up problems for later

• Good independent advice, difficult to get in the first place, may not be recognized as such when it is found. Bitter experience has ingrained low expectations for TaxTech in the leadership.

So, Taxologists matter because neither Tax nor IT backgrounds alone are adequately equipped to deal with the new challenges facing a modern Tax function. The situation becomes more confused if Tax solution experts are then expected to be Taxologists, when in fact they are Tax Technologists (See Part I for an explanation).

This leads to frustration and hesitation at a time when Tax needs to be moving forward. The greater the impact of new technology, the greater the cost if left unresolved.

So, What Now?

Help is at hand. The PawPaw Taxology Tax Technology Insight Series and supporting services ensure that Taxologist instruction and capability is available to you when and how you need it.

With industry sources like ACT suggesting that most new jobs will be for Tax Technologists or Taxologists, or require an understanding of them, this matters a great deal in the industry right now.

Acknowledgement for Thomson Reuters who introduced the term “Taxologist” in 2014.

The definition of a Taxologist can vary, so let’s hone in on one that offers the most overall value to multi-national corporations. Their importance is matched only by the lack of clarity around who they are.

As agents of change, language and technology work well together. Take smartphones for example. Adding a camera to a phone seems like an innocuous innovation until the words ‘selfie’, ‘selfie stick’, and ‘photobomb’ are introduced. Suddenly, the act of picture taking adopts new habits and expectations, and can catch people unawares (I was recently accused of ‘photobombing‘ just by innocently standing around).

Today, the language around tax technology skills needs a similar boost. Many have suspected for a while that something is missing— ‘Tax’ and ‘IT’ don’t seem to cover it anymore. This gap in the lexicon is holding the industry back.

However, to pin down the missing piece, we first needed a label for it.

Then, along came ‘Taxologist’

In 2014, Thomson Reuters began giving Taxologist awards to those who, in their opinion, were strong advocates or excellent practitioners around their products.

The word seemed ideal. It frames nicely a distinct role but its wider adoption across the industry stuttered. Nevertheless, it was what we were looking for.

So, in this first of two mails, we will briefly define ‘Taxologist’ in a broader context. Next time, we discuss why it matters (hint: it matters a great deal).

What Is a Taxologist?

Let’s first dispel any misconceptions by outlining what it’s not:

1. A Taxologist is not a Tax professional who has learnt some tax technology, even if they have achieved some good results
2. A Taxologist is not an IT person who has worked on Tax solutions for a while, picking up Tax knowledge along the way.

This may disappoint a few people, but rather these are routes to becoming Tax Technologists, namely, those with the ability to interact with TaxTech tools and projects. However, like plumbers or electricians on a bricks-n-mortar construction site, they alone cannot be expected to deliver a beautifully architected finished building.

A Taxologist, on the other hand, will know how to put together the entire edifice of a corporate-wide Tax solution such that it offers best capability and value to the company overall, while avoiding pitfalls.

Without this level of oversight and guidance, such efforts will under-achieve or flounder, even with good Tax Technologists present.

So, Why are Taxologists Different?

A Taxologist works holistically as a business solution architect, offering both high-level vision and detail-level control. It’s a specialist skill, and often operates alongside several Tax Technologists, including third party consultants who work under his or her general direction.

Typically, if Tax Technologists are asked to fulfil the role of Taxologists they struggle. Projects become chaotic and hard to govern. This is unfortunate, especially if the customer has unwittingly paid premium rates for what are effectively artisans, hoping for better.

Where Do Today’s Taxologists Come From?

Firstly, true Taxologists are rare today. Also they’re self-styled, having attained this status via their own means (until now, neither training nor industry-standard benchmarks existed for Taxologists).

So, for the purposes of our definition, they must also be excellent Tax Technologists, because until now this was the only route to becoming one. That now changes with the introduction of the Smart Tax Technology Certification Program.

However, it’s not possible to be an expert Tax Technologist in all tax products and tax types—there are simply too many. But a key characteristic of a Taxologist is an ability to leverage any and all products, methodologies and tools, in a controlled, low-risk manner, within a clear and well-socialized, Tax digitalization strategy. To a good Taxologist, technology is not a mystery.

In the past, not all Tax Technologists became Taxologists. You needed an above-average knack for IT, a firm grasp of data, and an eye for the real business of Tax. Only the most inquiring minds would then eventually figure out for themselves that:

1. TaxTech products are more like tools in a toolbox, not the final answer. They’re a means to an end, not the end in itself
2. It’s necessary to go beyond the automation mindset to solve the problems facing the Tax function today.

So, does this mean Taxologists are CTOs (Chief Transformation Officers) for Tax? Not entirely, but the disciplines of transformation should be one of the many weapons in their arsenal. In fact, good Taxologists must have excellent knowledge of Tax, tax systems, technology, solution architecting, design, enterprise data, business process, as well as soft skills such as projects, management and communication.

Here’s a few additional items to note about Taxologists:

• the Taxologist role may consist of more than one person;
• ERP is the most valuable Tax tool of all, so strong capability in this area is crucial;
• and, they may struggle to succeed at companies where IT is an ivory tower, and will need extra help if that grip is to be loosened.

How Can This Help You and Your Business?

That’s the subject of the next article, and the best way to start is by:

1. Recognizing the difference between Taxologists and Tax Technologists; and
2. Planning to acquire or nurture Taxologist capability in your organization.

The PawPaw Taxology Tax Technology Insights Series is the only platform in the marketplace dedicated to helping you achieve this.

Acknowledgement for Thomson Reuters who introduced the term “Taxologist” in 2014.