For Financial Services organizations, extracting strategic value from tax compliance activities in both, operational tax and group tax reporting, has long been a challenge.
In the current uncertainty of COVID-19, and with the IMF projecting the worst economic downturn since the Great Depression, businesses are increasingly shifting their focus on cost savings to remain competitive.
Relative to other “compliance” functions, Tax and Tax operations have traditionally not been heavily challenged on cost and yet, many businesses recognize their tax and finance function is not where it should be. Of the 1,013 respondents to our 2020 Global Tax and Finance Operate (TFO) survey, nearly every single one said they are either starting or are part way through transforming their tax and finance function operating model, to keep pace with the wave of change impacting the function and to ensure their statutory filing and tax compliance processes are well-managed. 83% of respondents said the mix of core competencies of their tax and finance personnel will shift from tax technical competencies to data, process and technology skills over the next three years. This will represent a seismic shift in how these areas operate.
How do you make that step change in operating model, to add strategic value, whilst managing costs in parallel?
Lessons learned from the current crisis present an opportunity. The transition to working from home has turned out much smoother than expected. Much of what has been assessed as ‘un-outsourceable’ in the past, has been proven wrong by COVID-19. Home office feasibility is a first step in what can potentially become a wider transformation of the distribution of work.
Co-sourcing of certain functions can be a way to support this essential transformation process by reducing overall costs, increasing operational resilience, controlling unpredictable information technology expenses, and redirecting internal resources to more strategic activities. It also enables organizations to leverage the vendor’s considerable and ongoing investments in the necessary talent and technology to add further strategic value to the activities.
For example, a bank that decides primarily for cost reduction reasons to co-source certain operational tax activities to a third party, has the potential to leverage the vendors data platform and wider technology skills to enhance their overall Client experience and offering for example via client profiling and strategic portfolio reviews and other services.
Starting the co-sourcing journey
73% of respondents to the TFO survey said they are more likely than not to co-source some critical activities in the next 24 months to add value, reduce risk and decrease cost. In this context, we suggest that Financial Services organizations re-evaluate opportunities to co-source within Switzerland and propose the following guide:
- Assess your current target operating model.
Now is the time to examine your organization’s priorities around cost controls, value creation and risk management to understand how your tax function contributes to your overall business strategy. Once these priorities are clear, it is easier to identify gaps in people and technology and decide how sustainable the current model is for the future.
- Determine whether to build.
Keeping tax and finance activities in-house generally requires some degree of internal transformation to optimize existing people, data processes and technology. Some organizations may decide to keep activities they consider higher value and best-in-class in house; for example, planning or managing tax controversy. But they need to be sure they can perform these activities with improved efficiency, effectiveness and control while ensuring business continuity in crisis mode.
- Determine what to co-source.
Some organizations may decide it’s better to co-source some activities, especially those that are more routine such as completion of tax returns, regulatory filings and data collection. It may be, that co-sourcing these tasks can be performed at lower costs through centralization or use of third parties.
- Find the right mix.
Many companies may decide a hybrid approach is right for them, where they decide to continue to own some tax and finance functions, considered to be critical, while co-sourcing others. The right hybrid approach can maximize both effectiveness and efficiency while empowering their people to focus on being a value-added partner to the business by focusing on activities that improve the bottom line.
If you would like to learn more how EY can help your organization to extract strategic value from your tax compliance activities, please get in touch.