What Is Tax Transformation? Four Benefits For Companies

April 2019

“Digital transformation” is a buzzword across industries, but what does it really mean? At its core, transformation is the application of today’s digital advancements in technology to solve traditional business problems, as well as a tool to combat competitive pressures and economic headwinds. It results in a foundational change in how a company delivers value to its clients and customers.

While transformation is a focus for many businesses, experience and research tells us that middle market companies are still determining how and where to dedicate investments and resources to implement these efforts. The need to automate manual tasks to improve efficiencies and keep pace with legislative and regulatory change is one reason many tax departments are planning to invest.

Tax transformation is a form of digital transformation that integrates processes, people, technology, and data to understand tax liabilities and forecast how decisions will impact them. Automating manual tax activities means trained tax professionals can refocus their time on strategically addressing these changes and anticipating what’s next. Here are four reasons transformation is ripe for corporate tax departments.
 

1. Increase Revenue and Profitability

Of the 300 C-level executives surveyed in BDO’s 2019 Middle Market Digital Transformation Survey, 71 percent report they have seen increases in revenue from digital initiatives and 74 percent have seen increases in profitability over the past 12 months. Additionally, 81 percent forecast a revenue increase and 79 percent anticipate an increase in profitability from digital initiatives over the next three years.

While middle market executives who have invested in transformation initiatives are already seeing tangible benefits, they are just the tip of the spear for a market segment that is largely in the early stages of developing a full digital transformation strategy. Many start small, with operational efficiency projects that often require lower overhead investment.

For tax departments, regulatory and legislative drivers like tax reform and the Wayfair decision have only exacerbated the host of compliance and reporting challenges facing companies, making the argument for transforming the tax function that much stronger. By leveraging emerging technologies and automating manual tasks, tax departments can find opportunities to reduce costs and minimize their total tax liability, ultimately increasing profitability and driving revenue growth.
 

2. Boost Operational Efficiency

Boosting operational efficiency is a top goal in both the short and long term for 70 percent of executives surveyed. When it comes to tax, one key to doing so is automating routine tasks so that trained tax professionals can meet tax reporting needs and compliance requirements and refocus their time on strategic tax planning. BDO’s Tax Transformation Guide is a step-by-step guide on how digital transformation can help tax departments meet growing demands and begin to streamline processes.
 

3. Reduce Risk and Increase Compliance

Fueled by growing compliance obligations, and competitive and internal pressures, many tax departments have reached a turning point – ready to leave behind static spreadsheets in favor of tools that allow for reduced risk and real-time analysis and communication. Of the 150 tax executives that were surveyed in BDO’s 2019 Tax Outlook Survey, 46 percent indicated adjusting to the 2017 federal tax code changes and 31 percent cited complying with the 2018 state and local legislative changes, like the Wayfair decision, as top concerns weighing on tax exec minds. Automating the tax function is no longer a question of how but when. By leveraging emerging technologies to optimize tax operations, tax professionals will have more time, resources, and tools to manage and minimize tax liabilities, while mitigating their risk of noncompliance.
 

4. Minimize Total Tax Liability

The tax department has been traditionally viewed as a cost center, but this view loses sight of their main goal – tax minimization - which ultimately increases revenue. When a total tax liability approach is taken, the sum amount of all taxes owed across every area of a business, is looked at holistically to understand the impact of business decisions and ultimately to realize tax minimization opportunities. The ability to understand and communicate effectively about total tax liability is becoming increasingly important as the role of the tax professional rapidly evolves.

By transforming the tax function, organizations not only improve processes through automation, but enable data-driven insights that shift their tax department from number crunchers to strategic advisors, often with a direct impact on revenue and profitability.

This is not a change that happens overnight, but one that is accomplished with the right people, processes, and technology in place. For many businesses, once the benefits of digital transformation are understood, the question becomes: How do I pay for it? Read Making a Business Case for Tax Transformation to learn more.
 
 
For more information, visit BDO's tax transformation resource center