How banks are reimagining tax and finance functions to deliver value

Driven by data

A key to driving successful transformation is data and technology. Indeed, banks surveyed by EY overwhelmingly indicated that the lack of a sustainable plan for data and technology is, by far, the biggest barrier to delivering a tax and finance functions’ purpose and vision.

All too often, different functions within a bank fail to share data in the most efficient, effective way possible. This challenge is magnified for tax and finance functions, who need to focus on data sources and transaction-level information to comply with global tax rules.

Many banks’ tax and finance functions use a tax reporting package, consolidation ledger, or disconnected spreadsheets as a primary source for tax data, necessitating a significant investment of time and effort in various data cleansing activities. As the percentage of time devoted to data collection, cleansing, and manipulation increases, these functions struggle with reduced efficiency and increased risk, ultimately compromising operational effectiveness.

“When it comes to data, there is often a gap between sources and uses of information,” says Schiffman. “For instance, financial accounting data often isn’t easily able to suit tax requirements without intervention. Unless the tax and finance functions think and act strategically about the tax data supply chain, information created for one purpose may be used for another purpose in a way that inadvertently introduces incremental risk.”

As the global operating environment continues to shift, internal and external stakeholders alike are increasingly demanding ever-increasing volumes of information that must be timely, accurate, and complete. As such, the value of a comprehensive data and sustainable technology strategy cannot be overstated, as too much time and resources are consumed in simply trying to aggregate and reconcile information.

With tax becoming more real-time and transaction-based, banks’ tax and finance functions should actively participate in the design and governance of financial systems to help ensure data quality through correct processing at the time of transaction. A methodical and accessible central ecosystem – including a central data lake where information is sourced, acquired, cleansed, and structured to ensure it is constantly up to date and always at hand – forms a critical part of high-performing tax and finance functions.

“The data lake gives you all the individual data points you’d find in a database, from various sources — the market, business transactions, investments, and subsidiaries – plus the data the organization generates itself in the course of its work,” says John Thomopoulos, EY Global Banking & Capital Markets Tax Leader.

“By being cleansed and always updated, every person in the workflow can be sure the computation they’re picking up is the correct one. The data lake is deeper than the typical database because it preserves historic reporting and its results.”

By adopting this approach, the tax and finance functions become much more operationally efficient and empowered – creating cost and time savings that can be redeployed elsewhere across the organization, while driving better planning, analytics, and business decisions. It also positions banks to comply with emerging digital tax filing requirements, which will only increase the workload of their tax and finance functions.

Doing more with less

The benefits of optimizing data and technology are key, as one of the most critical considerations for any tax and finance function now is the pressure to reduce costs without compromising quality.

“As banks grow, they can’t afford for their cost ratios to match their revenue growth ratios,” says Thomopoulos. “Just because a bank adds another 100 legal entities and now has to prepare several hundred (or more) additional tax filings, that shouldn’t then cost an equivalent amount for each one. This is a major consideration.”

Indeed, according to the EY survey, 87% of banks have a plan to reduce the cost of their tax and finance function over the next two years. That’s higher than businesses across all surveyed sectors (79%). And, their average target cost reduction is 7.7%.

This points to the complexity such organizations face when supporting the broader business. And, it leads to the second key tool for tax and finance transformation – the need for digitalization.

The digitalization of tax administration has upended the way business information is shared with tax authorities, and tax and finance functions need to be every bit as current with the latest technology as the governments to which they report. As regulators around the world embrace digital transformation, banks are being forced to respond in kind, boosting their own readiness.

Unsurprisingly, 86% of banks in the EY survey anticipate an increase in the workload it takes to comply with emerging digital tax filing requirements. They also estimate they will spend $9.2m on digital tax filing compliance over the next five years, compared to $7.7m of the overall sample.

“There’s a drive to become as real-time as possible with financial reporting,” says Jake Berman, EY Global Banking & Capital Markets Tax Resident. “Take the month-end close. That process used to take a month, so the tax and finance team was always a month behind. The trend now is to get to the close as quickly as possible. And, this time compression further magnifies the expectations placed on the tax and finance functions.”

Here, too, banks face significant challenges. According to the EY survey, banks have nearly twice the number of enterprise resource planning (ERP) platforms as other companies – 16, versus nine for the overall sample – reflecting the complexities their tax and finance functions are faced with, as well as the legacy of previous industry consolidation. This creates more challenges for obtaining timely and accurate data, which further affects the ability of tax and finance to really shine – by reducing risk and adding value to the business.