The tax reporting revolution
Daniel Musikant, Group Head of Tax Reporting and Compliance at RS Group Plc, spoke with us...
In this Future of Tax conversation, Daniel Musikant, Group Head of Tax Reporting and Compliance at RS Group Plc, explains how professionals are adapting to the changes in compliance and reporting.
How has tax reporting changed over the past 15 to 20 years?
Tax reporting was traditionally focused on compliance with the priority being to prepare accurate tax provisions and complete year-end disclosures. Today, stakeholders expect greater transparency, deeper insight into the numbers and forward-looking information.
The role brings together the three distinct areas of tax accounting, financial reporting and data. Tax reporting professionals need a strong understanding of accounting standards and tax legislation, reporting systems, internal controls and the data that underpins the numbers. They also need to be able to explain complex tax issues to finance teams, auditors, senior management and other stakeholders.
Regulatory change has been a major driver of this shift, including Pillar 2 and Country by Country Reporting (CBCR), both of which have introduced additional reporting and compliance requirements.
How have country-by-country reporting and Pillar 2 changed the role?
CBCR has significantly increased the amount of global data that tax teams need to collect, validate and manage. With the introduction of Public CBCR, affected businesses need to be prepared to respond to potentially more questions about their global tax positions.
Pillar 2 has added another layer of complexity, with additional data requirements and calculations. Multinational groups must ensure they prepare a qualifying CBCR for Pillar 2 purposes to ensure they can take advantage of the relevant safe harbours.
Even where the resulting top-up tax is not significant, the compliance burden can still be substantial. Some organisations have therefore initially outsourced Pillar 2 compliance as they may not have the resources or technical expertise in-house.
Pillar 2 has also put further pressure on reporting timetables. Country-level data needs to be largely finalised before the Pillar 2 calculations can be completed. In turn, the top up tax must be known before the effective tax rate can be finalised.
Is tax reporting still mainly compliance focused?
Compliance remains fundamental, but tax reporting is now much broader.
Boards, investors, auditors and tax authorities are paying greater attention to tax information, while governance and transparency have become increasingly important. The role goes beyond simply producing the numbers. Stakeholders want to have tax balances explained and be provided with insights, something which is particularly relevant for businesses that are subject to Public CBCR.
Technology and data have also changed the role. Tax professionals are dealing with larger volumes of information and need efficient data analysis processes in place to keep up.
Why are fewer people choosing tax reporting and compliance as a career?
Tax reporting can be perceived as being purely compliance-focused, which may make advisory work more attractive, particularly to people earlier in their careers.
In reality, however, tax reporting combines tax, accounting, data, technology and stakeholder management. Tax reporting professionals have to work closely with finance, investor relations, auditors and senior management.
It is a specialist skill set. Every group has tax reporting requirements, but fewer people have both the technical knowledge and the interest to specialise in the area.
How has technology changed tax reporting?
Technology has transformed the reporting process. What was once heavily dependent on spreadsheets and manual analysis is increasingly supported by tax technology and data tools. Technology can assist with data extraction, reconciliations, calculations, controls and analysis and can reduce reliance on manually maintained templates. It can therefore improve the consistency of the reporting process.
Technology is however only as effective as the data behind it. For large organisations, improving data quality and ensuring that information is captured consistently across entities and jurisdictions is critical.
Will AI replace the human element of tax reporting?
AI has significant potential but is unlikely to remove the need for experienced tax professionals.
AI can review large volumes of data, identify anomalies, summarise legislative changes and support documentation. These capabilities should reduce the amount of time spent on routine processing of data, freeing up more time for interpretation, risk management and providing insight.
However, professional judgement remains essential. Technology can identify that something has changed, but a tax professional needs to understand why and assess what the business should do about it.
How far can technology take tax reporting?
There is significant scope to improve tax reporting through standardisation and automation, although there is unlikely to be a single solution that works for every organisation. Businesses will need to focus on where technology can genuinely improve efficiency and reliability.
The right approach depends on factors such as the size of the business, the number of entities and the jurisdictions in which the group operates. Standardised data and templates can improve consistency and facilitate review by the Group Tax team, particularly where local finance teams prepare the initial calculations.
What will good tax reporting look like in five years?
Routine activities such as data extraction, reconciliations and initial analysis are likely to become increasingly automated, and the numbers may be prepared quicker as a result of technology advances. This should give tax professionals more time to interpret results, manage risk and advise the business.
How important will data quality be?
Data quality is critical to effective tax reporting. Many organisations are implementing new ERP systems, creating an opportunity to improve the quality of tax data at the point where it is captured and processed. Getting the data right from the beginning can reduce manual intervention and improve the reliability of the reporting process.
Businesses with reliable data and well-designed systems will be better placed to adapt to changes in reporting requirements.
What should hiring managers look for when recruiting tax reporting professionals?
Strong candidates need a combination of technical tax knowledge, financial and tax accounting expertise, data skills and an understanding of technology. They should be comfortable working with data and systems, and able to get behind the numbers and interpret information rather than simply process it.
Communication, stakeholder management and the ability to work to tight deadlines are also important. Tax reporting professionals need to work across tax and finance, engage with auditors and advisers and explain complex issues to non-tax audiences.
Project management is also important. Reporting involves tight deadlines and working with a wide variety of stakeholders. Tax reporting professionals need to manage the end-to-end process from calculating the numbers through to final disclosures and preparing other deliverables such as papers for the Audit Committee and CFO.
What is the best career path into tax reporting?
The best career path combines both working in practice and a broad role within industry. A strong grounding in practice can provide valuable experience by enabling professionals to have exposure to different businesses.
Moving into industry can then provide a different perspective, particularly within a multinational organisation where they will gain experience of multiple jurisdictions and a wide range of tax issues.
A broad role covering compliance, reporting (including data and technology skills) and advisory work can provide a solid foundation before deciding whether to specialise.
If you would like to take part in the Future of Tax discussion series, get in touch and let’s explore a conversation from your perspective.
