Regulation and talent
This comes at a time when disruptions in the tax agenda seem to be accelerating as the world tries to move beyond the pandemic. With the OECD’s BEPS 2.0 project expected to come into force in 2023 as well as the EU’s anti-tax avoidance directive (ATAD 3) in 2024 – along with other changes to tax regulation – the reporting and transformation requirements is only going to become more onerous for private businesses.
According to the EY International Tax and Transfer Pricing Survey 2021, 76% of respondents say they are being challenged by the sheer volume, pace and complexity of global tax reforms.
Furthermore, 62% of respondents to the survey noted that complying with emerging digital tax filing requirements will further increase the workload for the tax and finance functions. The cost of responding to these new obligations will be considerable and will continue to increase. Private business respondents indicate they expect to spend an average of US$11m over the next five years simply to comply with these emerging digital tax filing requirements.
Perhaps more fundamental than technology investments and changing regulations is the workforce of the future needed to support the tax and finance strategy and functions. Across the globe, we have seen the “Great Reshuffle” of talent with employees demanding new forms of flexibility and increased remuneration. According to our TFO survey, 94% of businesses expect that they will need to upskill their tax and finance personnel to address new skills resulting from emerging data, process, and technology requirements over the next three years.
“Finding the right talent is one of the greatest challenges that businesses face today,” says Jim Givens, Americas EY Private Tax Leader. “Many businesses are looking for creative, sustainable ways to access the finance and tax skills of others to supplement their in-house functions.”
Why co-sourcing is increasingly part of the solution
Today’s private businesses continue to grow at pace – working hard to stay focused on strategic ambitions and purpose while addressing unprecedented disruptions that impact critical tax and finance functions. Many of these businesses have already been highly proactive adapting internally and pulling the levers in their control to transform internally. Yet the challenges and opportunities continue to evolve, and the pace of change is difficult to match.
While some private businesses seek to build internal capabilities, more and more are responding to these pressures by turning to strategic co-sourcing collaborations to drive value, manage risk and support transformation. According to the EY TFO survey, the co-sourcing trend is being driven by a need to support comprehensive transformation and a balance of three significant benefits for the in-house tax function: reduced tax risk profile (39%), reduced costs (33%) and increased value (28%).
The EY TFO survey shows that 74% of private businesses are more likely than not to co-source select tax and finance activities over the next 24 months. For many, a hybrid approach combining internal and co-sourced activities is an effective option. Either way, businesses that have undertaken such transformations may be better positioned to redirect resources to focus on the most strategic finance and tax issues.
“Choosing where to focus time and investments can be the most significant – even overwhelming – aspect of today’s tax and finance functions strategy and transformation” says Jim Hunter, Global EY Tax Platform Leader. “Still, innovations in the marketplace offer unprecedented opportunities for those that can access leading practices. Now is the time to reevaluate strategy and focus to reach the right balance for supporting business growth. This could mean co-sourcing activities that are necessary but perhaps non-core or where the required investments and capabilities are difficult if not impossible to sustain alone.”
Four steps to a successful transformation for private businesses
Private businesses need a transformation strategy that is holistic, flexible and has the scope to evolve and adapt to changing talent, regulatory and technology landscapes. The following steps can act as a guide to successful and robust transformation:
1. Re-evaluate the operating model
Even if transformational changes have been made to the operating model, private businesses should make continuous assessments to stay up-to-date and to identify gaps particularly in people, methods, and technology.
2. Determine what stays in-house
In-house delivery may be appropriate for high-value activities such as analyzing or managing tax controversy. However, for this to be effective, a degree of internal transformation to upskill and update existing people, data processes and technology will be required.
3. Decide what to co-source
It may be more advantageous for private businesses to co-source some activities, especially those that are more routine, highly repeatable or data-driven – such as completion of tax returns, regulatory filings and data collection.
4. Consider a hybrid approach
Some private businesses will see the value in a hybrid approach where they continue to own and staff some tax and finance processes and activities, while co-sourcing others. This approach can empower tax and finance functions to become a value-added partner to the business by giving them space to focus on activities that improve the bottom line.