Getting corporate tax payments right first time

Paying the correct amount of corporation tax is central to any business strategy. Every organisation wants to be in the ‘goldilocks zone’ where it pays neither too much nor too little. However, it’s not as simple as it at first seems - tax legislation and compliance is a target that is constantly moving. Add to that the industry contending with the ongoing transition from manual to digital processes and tax submissions, as well as the ongoing challenge of keeping skilled professionals engaged and motivated, and it’s easy to see why tax might not be quite so clear cut.

Navigating an increasingly complex regulatory environment

Companies face layer upon layer of legislation, from local tax laws to global regulations, such as the Organisation for Economic Co-operation and Development’s (OECD) Pillar Two rules. Deployed under the Base Erosion and Profit Shifting (BEPS) directive, Pillar Two is expected to ensure that multinational corporations pay their fair share of tax, regardless of where they operate or are headquartered.

The overarching goal of Pillar Two is to create a global minimum tax rate of 15 per cent for businesses with consolidated annual revenues of over €750m. This is necessary because the ongoing digitisation of the global economy has rendered the international tax system ‘no longer fit for purpose’, according to the OECD. Its establishment is designed to help harmonise corporation tax internationally while discouraging tax evasion and increasing the government tax take.

One of the greatest challenges for multinational organisations is the vast amount of data that must be gathered and analysed to meet Pillar Two’s requirements. This data is often scattered across numerous databases, spreadsheets, and systems worldwide. Many organisations are turning to their ERP systems as a primary data source, but these systems differ greatly from business to business, and won’t contain all of the data required to complete the required returns. While some have invested in advanced solutions, others still rely on siloed legacy infrastructure, making compliance far more difficult to achieve.

The impact of Pillar Two will therefore be significant, especially as it means companies must source, integrate and report on more data than ever. In addition, because these entities are geographically dispersed, there is more complexity across legacy systems. Put simply, spreadsheets simply won’t cut it anymore for many businesses. Instead, companies are turning to a new generation of tax solutions and AI-enabled tools or to outsourcing.

Outsourcing, or co-sourcing where part of the process is outsourced, is a valid choice, particularly for smaller businesses who struggle with resources and experience. By hiring a third party to handle tax, businesses can reduce the risk related to understanding and acting on regularly changing rules and regulations. However, it doesn’t come cheap; instead, even small companies might want to explore deploying their own internal tax systems.

The role of technology and AI

Companies that can eliminate discrepancies while complying with the latest regulations are better placed to maximise their financial efficiency and boost their bottom line. There are a wide range of technology services and solutions that can play a key role in ensuring compliance, from data management and integration to tax governance, workflow automation and dedicated tax compliance software. However, the advent of generative AI has proven to be a real gamechanger.

AI has vast potential to eliminate inconsistencies and enhance the performance of tax-related processes. Those tasks involving huge amounts of data that we humans find so repetitive and boring can be handled quickly, accurately and without complaint by AI.

This both saves time for the tax expert by streamlining processes and enables a sharper focus on analysing what the data is really telling us. Equipped with the ability to derive insight from data, we can approach the complexity of instances such as Pillar Two with much more confidence. AI can anticipate and resolve some of the complications this new legislation presents.

It can also ensure we pay no more tax than is expected, which is every company’s aim. By using technology as the backbone of new streamlined processes, we can gather a broader yet sharper picture of our global tax affairs on a granular level, and provide the catalyst for a more effective overall corporate finance strategy.