As tax experiences its own transformation with technology, companies are implementing higher-level tech transformations. So where does tax fit into that greater evolution? Tax Executive’s senior editor, Michi Trota, sat down with Daren Campbell, tax technology and transformation leader at EY Americas, to answer that question and gain insights into the relationship between technology and the in-house tax role.
Michi Trota: Why is it important for tax to have a seat at the table when [companies are] undergoing a tech transformation?
Daren Campbell: We do an annual survey, our tax finance operate survey. In 2023, we asked the question, “How many of you are undergoing some type of operating model or tech transformation?” Ninety-six percent of respondents said they’re going through one or planning to in the next twelve months. They’re typically led by IT or finance because they are larger transformations. Going back ten years, there would be small kinds of departmental transformations companies would go through. But what we’re seeing is larger transformations, and part of that’s being driven by the [enterprise resource planning systems]. Like, SAP has a new version they’re mandating that companies transition to—their S/4HANA—by 2027. So that’s driving some of this.
And then as companies look at how they reduce cost, how do they handle the new regulatory regimes around the world that require greater transparency? So, everything from sustainability reporting to some of the new tax reporting they have to do. They’re not able to meet those demands based on some of the current structure. So those are some drivers.
Why it’s important for tax to have a seat at the table is that tax is one of the heaviest users of data in an organization. [If] you’re looking at finance, really, all the information they need for the reporting comes out of the financial system. If you have treasury, they have their own systems where the data’s coming out. The business operations have their own systems. Tax needs information from across the organization. So we need finance information, we need treasury information, HR information, business operations, because there’s so many types of tax embedded throughout a business. The challenge for tax is we are the downstream receiver of this information where we don’t own or control the upstream systems.
As companies go through these transformations and as they’re changing those systems, if tax doesn’t have a seat at the table, then, at the end of the transformation, there’s a very high probability that tax won’t have the information that’s needed. But this also creates a really amazing opportunity, because this is once in a lifetime. It’s been a long time since we’ve had this large a transformation at companies. A lot of the challenge is that downstream reporting, the information tax needs, was lost or is trapped somewhere upstream in the system. As an example, if you’re looking at something like fixed assets and you’re trying to understand the use of that fixed asset, was it a repair or is it actually a new item? There’s different treatment for tax purposes, but if you’re looking just at the financial book fixed assets, you don’t have the information to know whether or not it was new. You see it’s an add, you don’t know the nature or the activity behind it. So tax has to go and pull invoices and get other information to be able to make the appropriate tax determination. If tax has a seat at the table, as companies go through the transformation, they’re able to get the requirements in further upstream. And it also creates an opportunity in some cases where the tax determination itself can be made and embedded upstream in the new system.
But the mantra, really since I first started in the profession, was tax needs to do more with less. That trend continues. By having a seat at the table, tax can get some of that information they need in a faster, cleaner way to do more with less because there’s less busywork, just that data collection from all sources or the cleansing and transformation activities. It’s an opportunity for tax to be more proactive than stuck being reactive in that downstream position.
And what’s so amazing is that opens up a new opportunity—that we’re really archaeologists. We’re looking at past transactions and trying to figure out what’s the tax treatment of a past transaction. If tax can be proactive now instead of reactive, some tax outcomes can be known at the time of or before a business decision is made. So it’s actually turning tax into more of a strategic business partner. That’s arguably a net benefit for the company, because it’s going to have much more comprehensive information to make a final judgment on what transformations they want to make and where the risks and benefits are.
We’re also seeing where tax is part of the value proposition to help pay for a transformation, because there’s the research credit in the US. Depending on the transformation, the company may get tax credits by going through it. There also may be areas where companies can do cash tax planning and actually keep more cash in-house. An example is sales and use tax. If a company doesn’t make the right determinations on what’s exempt or taxable, they may end up paying state tax. And then later, they’ll have to audit that information. It’s difficult to do in real time today, so that money already goes out the door. They end up having to file for a refund. If they can do better at getting the tax classification correct up front, then less money leaves the organization since they spend less time filing refunds and waiting for that money to come back. So there’s real value-add by having tax at the table helping drive value and, in some cases, providing some funding for the transformation.
Trota: How would you advise other tax professionals to make the case that they should have that seat at the table?
Campbell: Typically IT, as they own automation and a lot of the system change, is looking for cost takeout. And back to the survey I mentioned before, eighty-nine percent of companies said they plan to either freeze or reduce costs associated with their tax and finance function. So that is a big focus, and when you look at some finance functions where they have hundreds of people doing certain activities, they often look at it in terms of an FTE [full-time equivalent] savings. If they automate a certain activity that may drive a certain reduction in FTEs on the tax side, there’s just not that many people in the tax function today. If you’re evaluating prioritizing business cases and you’re looking at it just in terms of an FTE takeout, there’s not the same value prop for tax. If you’re looking at it under the traditional sense—that FTE takeout—you’re not going to have the same business case or value driver for tax.
Though the tax function itself may not be that large, a lot of shadow tax happens across an organization. Finance and other parts of the organization spend a lot of time doing tax work as they’re pulling reports for tax, even though they’re not in the tax function. So another big part of the value play is often when you’re looking at the tax function, you’re just looking at those individuals coded to that tax function and not at the costs associated with all the other work from people that interact with and supply the information to tax to make the determination. Often, if tax has a seat at the table, a lot of that activity can be eliminated because there’s a cleaner flow of data. Tax gets the information they need directly. They don’t have to pull from as many sources or do as much cleaning or ask as many questions, because they have more of the information they need.
Having a seat at the table is also an opportunity to advocate at the beginning for what’s needed when a company starts to consider transformations.
Trota: So when it comes to new technology, has tax been an early or later adopter, and why do you think that’s the case?
Campbell: My answer has shifted over the years. If I go back ten, fifteen years, I would have said tax was typically late adopters. The number one tax and accounting software in the world today is the spreadsheet. Probably Microsoft Excel is the number one application. But as newer technologies come out, we find in many cases tax is an early adopter. We saw this with visualization as some of those tools came out. We also saw it with some automation tools like RPA [robotic process automation] or other data integration tools, and it is also something we’re seeing in [artificial intelligence]. There’s always the client-facing, front-office functions on the leading edge of new technologies or tools like AI. When it comes to a lot of back-office functions, though, we see a trend where tax is often an early adopter. And I think one reason is that tax is generally a safe place to start with adoption. Some of the first back-office places AI is being deployed are in tax.
There’s low-hanging fruit, and there’s relatively low risk, because tax files at certain times of the year. We have annual filings or monthly filings. But it gives you time where you can put something in place and do the testing to make sure it’s working versus some other parts of the business that may need to do more daily reporting or other things with a much higher frequency. There are busy seasons and slower periods. So there are good periods to adopt newer technology.
Trota: What are issues you think companies should anticipate specific to tech?
Campbell: Companies now have to track tax regulations through various countries, consider different thresholds for regulation, for registration, tax rates, reporting requirements. When we talk about tech companies, we’re saying almost all companies are becoming tech companies. But actual tech companies, the speed at which they can access a global market, have created incredible pressure.
So if we look at some platform companies, either in transportation or the lodging industry, as they’ve introduced tech and added new platforms, you know anybody around the world can just download their app. And now potentially they’re conducting business in a country they weren’t conducting business in yesterday. And so it ends up raising a lot of questions around local regulations, the occupancy taxes or income reporting now required, because they’re doing business in a country that yesterday they weren’t. Before, with more traditional companies, it was more about presence. Did you have a plant you had to get approvals on to build your manufacturing facility or set up stores? And you had to hire people in-country. On the tech side, that’s not necessarily required if you have software as a service and anyone around the world that has access to that software can get in. And again it could lead to questions about how various jurisdictions treat the use of that software, which puts a lot of pressure on tax where tax is already overburdened. And now you’re entering into new countries where you don’t necessarily have the tax knowledge or experience or resources. How do you quickly scale to that? And we see an increase in co-sourcing. So, I’ll go back to that survey: ninety-five percent of respondents are looking at some sort of co-sourcing model. Many already have that in place to some extent.
We see that trend on two sides, with the core tax technical knowledge. With some resource constraints, we’re also seeing that from a tax technology and data standpoint, but there is a move toward it. [Another thing], as the world went through COVID, it introduced many more companies to the same challenge—remote work.
Before you had physical locations, physical offices, people typically lived near those offices and locations, [but] under COVID we moved to more remote work and cloud tools and cloud collaboration tools that really opened up where employees live. That created a whole host of challenges around payroll tax, where people are located, how long they’re in certain locations as people self-select to move to different locations. The company itself has specific reporting requirements, which became much more difficult to manage.
Trota: What skills do you think tax professionals need today and as they anticipate the future, especially with the advances we’ve seen in tech?
Campbell: How can professionals upskill their tax function while balancing their time and attention with their other responsibilities, which are already considerable? When visualization started becoming a big thing in finance and tax, I met with a company and the VP of tax. We presented to them the art of data storytelling through the use of visualization and the insights that could bring. And they looked across the table and said, “Daren, I would love to use all this, but the reality is I’m just trying to get my tax return out the door. We’re up to the last minute just trying to do compliance activities. We don’t have time to do any of these insight activities. So I love the idea, but I just don’t know how we would even implement it.”
That is a huge challenge, because we have limited resources under cost pressures to further reduce some resources, and regulations and requirements continue to expand.
When we look at what skills we need to have today and then in the future, I think we’ve undervalued the tax technical legal domain of knowledge and skills. I think there’s a lot of talk about how we need to have more technology skills, and I work a lot with universities and think that’s cascaded. Part of what they’re hearing from tax professionals, accounting professionals, is that technology skills are what’s needed in the future. But I think as we’ve seen the advancements of technology, your need to be a computer programmer has decreased quite a bit. There’s been this rise of the low-code, no-code tools. Technological complexity has risen exponentially as we get through the low-code, no-code tools up to generative AI. And because those tools have become easier to use, what’s differentiating is your understanding of how to apply those tools to a business problem. That domain knowledge is really critical. When I look at what skills are needed, I would say intellectual curiosity is really important. Being continual learners—like our tax people—they need to be more analytically minded, more data-aware. I don’t believe they need to be computer programmers.
It’s not about continuing to do things the way you’ve always done them, but it’s that domain knowledge, really understanding what the business problem is and the domain of tax, what the tax law and regulations are, and then being able to work with the machines.
Trota: Daren, thank you so much for your time.
