The use of tax technology has been increasing over the last decade, as organizations seek to gain efficiencies and deliver more value from their tax data. However, this has developed more slowly in the banking sector than other industries. Specific challenges faced by banks can explain slower tax technology adoption, such as complex system infrastructure, special tax treatment applicable to the banking industry, dispersed tax processes responsibilities and higher data security restrictions. Given the current external and internal pressure on tax functions to increase efficiency, there is no better time to develop a tax technology agenda supported by strong business cases. Adopting new software solutions to improve tax processes is not necessarily a synonym of large project costs and disruption. From taking a step-by-step approach to bigger transformation plans there is a breadth of strategies to enable tax functions within the banking sector to initiate a tax technology journey.

According to our last tax transformation trends survey, 77% of the respondents indicated that their tax function is either proactive in modernizing specific systems and processes or taking a bolder approach in redesigning and digitizing the entire processes and systems architecture. We indeed witnessed that the implementation and use of tax technology has significantly increased over the last decade but does not seem to have yet landed in the banking sector as much as in other sectors. There are multiple reasons for such slow adoption. The banking sector often benefits from specific tax treatment making it difficult to leverage from other industries (e.g. VAT regime where banks can be exempt from VAT depending on services/products offered and the treatment opted for). In addition, banks’ tax processes generally run in, or adjacent to, a minimum of 3 well segregated systems:

1. ERP – For accounting and corporate tax aspects;
2. Core-banking system – For services/products/transactions-related taxes;
3. Client Relationship Management tools – For tax-relevant customer data, in particular around tax transparency.

Because of this separation of tax data in 3 different systems, responsibilities for tax processes are often scattered throughout Operations, Finance and Client Data Management teams, making it difficult to define a holistic tax process transformation roadmap.

Is that really an issue?

There is absolutely no doubt that banks need to transform. Tax functions are subject to the same drivers for change as other finance functions, as well as some specific to tax:

• Pressure on margins;
• Tax services commoditization (how much can banks still charge for client tax reports or tax reclaim services?);
• Neo-banks competition;
• Expectation from new customer generations in terms of digital interfacing and real-time interaction (account opening within minutes rather than days/weeks);
• Increased regulatory requests from local and foreign authorities;
• Push for even more tax transparency (e.g. ESG); and
• New tax regimes (e.g. OECD Pillar II, oversees services tax).

Without a clear tax transformation roadmap, tax functions will remain as reactive service providers and will not achieve the transformation to a true business partner to other internal functions.

Where to find funding?

Technology projects, whether they are tax-related or not, should be business case driven. There are sufficient exogenous drivers to justify tax processes transformation, which lead us to believe that it has rarely been more easy to build a robust business case and demonstrate the value to the business.

There are different ways to get a tax tech project rolling. While there is no one-size fits all approach, each tax function should be able to apply one of the 3 approaches below, enabling it to start its transformation journey:

1. Big bang: Companies that have a strong consolidated tax function, that went through a target operating model design and which have built a strong business case to revamp their tax functions may consider a large transformation within a short space of time. Other institutions might have had to take a big bang approach to respond to a failure identified or a key audit finding. Although such approach often provides the highest return ratio, it does require significant investment. We have seen this approach being used in the context of client tax onboarding, where specific tax and workflow technology was implemented to reduce client onboarding time. Other examples are the deployment of technology to support large groups in tracking the global compliance obligations and outsourcing certain compliance tax obligations.
2. Step-by-step: Targeting tactical quick-wins can free up resources and allow focus in a second phase on more strategic pieces. This approach requires a lower initial contribution and provides fast results and improvements. However, it requires a consistent and long-term vision from the tax function to ensure that the organization is not left with incoherent pieces of technology, and staff exhausted on tactical sprints without benefiting from the sustainable benefits. We have seen this approach being used for tax accounting processes, whereby multiple data input and data wrangling processes are being run inefficiently, e.g. a classic undocumented labyrinth of spreadsheets. Looking through those processes, simplifying and documenting them can provide quick-wins for the tax function in terms of efficiency increase but also allow the tax function to be ready for the next big move, e.g. to a tax data hub.
3. Piggy-backing on ERP, core-banking or CRM-projects: This method is interesting as it requires some holistic thinking and helps break across silos. To be successful here a strong internal network is required, diplomatic navigation skills to bring the voice of tax to the table and early access to the project pipeline. The downside of this approach is that the tax function is not in the driving seat and must rely on other functions’ projects, which makes it difficult to roll out a thorough tax technology roadmap.

Where to start the tax transformation journey?

All tax technology projects start by understanding the current state (systems, process, people, controls etc.) and challenges, and using those challenges as opportunities to transform. In developing a tax technology roadmap it is also key to join up with the right sparring partner who understands your business and diverse tax processes. This partner should provide the right level of challenge to your initial assumptions but above all can show you the art of possible and help you navigate through the swarm of available technologies and solutions to identify the one most suitable to efficiently solve your challenges.

If you would like to discuss more on this topic, please do reach out to our key contacts below.

Key contacts

Petrit Ismajli - Partner, Financial Services Tax & Legal

Petrit Ismajli has over 15 years of tax-related experience in the banking industry and led the customer tax, operational tax and indirect tax teams with another Big 4 company. Petrit also previously was the Head of Tax at the Swiss Bankers Association and has significant experience and insight into the key tax changes impacting the Swiss banking industry.

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Karim Schubiger – Director, Head of Tax Technology Switzerland

Karim heads the Swiss Tax Technology Consulting practice, supporting tax functions transformations in terms of operating model design, governance setup and digitalisation journey as well as tax engines implementation. In addition, Karim leads the Tax Transparency team in the Suisse Romande and Ticino markets within the Financial Services Tax & Legal practice, responsible for services related to QI, FATCA, CRS, 871(m) and DAC6. In this role, he is a technical advisor and subject matter expert to financial institutions in the banking, trust, and insurance sectors. Prior to joining Deloitte, Karim worked for eight years in support teams of Swiss banks, in particular in areas such as operations, project and change management as well as operational taxes. Karim has both a tax and engineering degree.

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Michael Grebe - Director, Financial Services Tax

Michael is a Director in the Financial Services Tax practice. He advises banks, trust companies, and insurers in relation to the interpretation and implementation of the global transparency related regimes. He has over ten years of experience in the financial industry covering a broad spectrum ranging from Process- over Project- to Product- Management. Prior to joining Deloitte, he led the FATCA and CRS implementation project for a global financial institution.

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Sarah Rathgeb - Senior Manager, Financial Services Tax & Legal

Sarah advises clients on the digitisation of their tax functions, including the development of a roadmap to assist with the digitisation journey and internal communication. She develop solutions to automate tax processes, using robotics, analytics, and bespoke programs, enabling tax functions to reduce risk and to dedicate their time to value-adding activities. In particular, She has developed several tools within the Financial Services Industry to enable us and clients to perform review and governance functions more uniformly and efficiently. 

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