The Pressure to Modernize Financial Functions Exposes Companies to Risks

PwC’s latest report, Tax Function of the Future, explores the impact of broader transformation programs for financial teams on tax functions and warns that the consequences could expose organizations to new potential financial, reputational, and operational risks.

Following the economic crisis, streamlining and reorganizing financial functions has become common in large organizations, driven by regulations, cost-cutting, and changes in business.

However, simplification and improvement programs for financial functions that do not consider the impact of tax functions on these changes could fall short and fail to achieve the expected savings.

The report highlights that the work and processes of tax and financial teams must be re-evaluated to ensure support for new business and regulatory requirements as well as investor demands, adapt to technology, and provide better support for business decisions, often with minimal investment in increased resources.

Additionally, expansion into new markets and increasingly demanding information requirements from external markets and regulatory bodies have led to an increase in the responsibilities of financial teams for business changes related to key areas of tax expertise, including intercompany transactions, transfer pricing, new tax and accounting policies, and requirements. BEPS alone will require multinational companies to disclose to tax authorities an unprecedented amount of information about their global operations, including activities, profits, and employees, thereby putting pressure on tax and financial functions.

However, reorganizations often fail to connect financial function transformation initiatives with tax requirements, which could mean higher integration and technology and process renewal costs for many organizations than the savings achieved through the change program.

Mark Schofield, leader for global tax reporting and strategy at PwC, said:

“Tax is a very complex business function that is often fully understood only by those who lead that department, so it is not surprising that integration following changes in the financial team does not go smoothly. In practice, the tax team cannot exist without the financial function and vice versa.”

“Tax teams perform their work based on information collected and shared by the company’s financial team, and tax costs are key to understanding the financial health of the company. Transformation programs within financial teams that do not understand and integrate tax requirements, functions, and skills could contradict the fundamental requirements related to the responsibilities of both teams, creating tax risk and undermining the effectiveness of business decisions, not to mention the wasteful expenditure of valuable investment.”

The report highlights that data analytics, information prepared for tax purposes, and increased use of automation could eradicate time-consuming manual tasks and spreadsheets prone to errors, while supporting greater business efficiency. This change will bring new opportunities for tax professionals.

Mark Schofield, leader for global tax reporting and strategy at PwC, added:

“The tax professionals of the future are radically different from traditional tax professionals. In addition to professional qualifications, they possess technological skills, advanced data analytics skills, statistics, business and management skills, and decision-making skills. This transformation is already taking place in some companies and provides a more concrete insight into the situation, leading to better business decisions and greater efficiency.”