77% of Tax Departments Consider Digitalization a Top Priority
The Augmented Law Institute at EDHEC Business School, Tax Tech Algonomia, and the law firm Fidal have released a study analyzing the progress of tax departments in major French companies regarding digitalization.
In a context of implementing electronic invoicing and transposing Pillar 2 rules, digitalizing the tax function is a crucial agenda item for large corporations. This study provides an operational overview of the maturity level of tax departments and outlines best practices.
Digitalization: The Proactive Choice
Various indicators observed suggest that tax departments have embarked on a digitalization journey:
- 100% of surveyed tax departments report receiving support from their leaders, most often from the CFO.
- 69% state they have a budget to carry out digitalization projects successfully.
- 46% have a dedicated team member for managing technological tools.
However, several obstacles have been identified:
- In 54% of cases, the difficulty of integrating new tools into existing systems.
- 46% of respondents cite budget constraints.
- 38% report a lack of time to effectively advance this significant initiative.
The study also highlights the dependence of tax departments on other divisions, particularly the finance department, which holds the data, and the IT department for the implementation and technical monitoring of selected technological solutions, including security matters related to tools and data. This underscores the imperative need for a project-based approach involving multidisciplinary teams.
The study also offers an analysis of various tax topics ripe for digitalization:
- The top priority for digitalization, according to 46% of respondents, is the reconciliation and adjustment of transfer pricing flows, with 38% stating that a tool is currently being deployed for this purpose.
- 43% of surveyed companies report equipping themselves for better identification and monitoring of tax risks.
- 40% of respondents have taken steps to automate the declaration of their national taxes.
Furthermore, the progress made by some of the tax departments participating in the study serves as a source of inspiration for their peers. The most forward-thinking departments already benefit from dedicated business tools that draw from a common data lake shared with the finance department.
"In the face of recurrent and increasing regulatory changes, the study demonstrates that some tax departments have chosen to be proactive in digitalization, viewing it as a means to free themselves from low-value-added tasks and thus contribute more directly to the company's strategic decision-making," explains Walid Eljaafari, President and Co-Founder of Algonomia.
A Regulatory Environment Encouraging Digitalization
This study aligns with a regulatory environment that encourages the digitalization of tax departments. Electronic invoicing, for instance,has been implemented on July 1, 2023, and the European Union's transposition of Pillar 2 rules for the global minimum tax is expected to be completed by the end of the year.
"Ensuring tax compliance for companies without utilizing 'Tax tech' will soon become an impossible challenge. Depending on a company's size, structure, overall digitalization level, and the competence of its team members, we aim to demonstrate that it is up to each tax department, once well-informed on the matter, to decide the level of digital maturity they aim to achieve," says Emmanuelle Deglaire, Professor of Law and Taxation at the Augmented Law Institute of EDHEC Business School and author of the study.
Measuring and Advancing the Digital Maturity of the Tax Function
EDHEC's Augmented Law Institute, Algonomia, and Fidal have identified the various steps that should accompany digital transformation:
- Cultural adaptation to facilitate needs identification.
- Identifying needs by the tax team, possibly structuring a periodic process for collecting these needs.
- Sourcing providers through collaboration between the procurement department, the tax team, and the IT team.
- Deployment by the IT department with the assistance of the tax team.
- Collecting feedback during the implementation phase and throughout the tool's lifecycle.
According to Fidal team members,
"The study provides an objective assessment of the level of digitalization in tax functions and the maturity level of tax departments. The findings are encouraging and even stimulating, although there is still room for improvement. The goal is not to impose digital resistance but to encourage digital enthusiasm within tax departments, reassuring about the role of humans in this transformation and demonstrating the relevance of such a transformation as an extraordinary driver of tax performance, be it in terms of efficiency, security, data reliability, and ultimately results."
Finally, to help tax departments assess their digital maturity and identify the levers to progress, the development of an index is currently underway.