Reimagining the Tax Function - Survey Report by EY India

1. Reimagining the tax function Find your path forward

2. Table of content

3. I II III Tax as a strategic partner: Expectations and challenges (pg. 6) Talent demands: Shifting competencies and skill shortages (pg. 10) Legislative and regulatory change: Lack of resources to deal with rapid change (pg. 14) IV V VI Keeping pace with legislative and regulatory change: Increase in workload (pg. 16) Possible inconsistency in position due to legislative and regulatory change: Increase in risk (pg. 20) Digital readiness: Investing in the right technology is vital (pg. 22) VII VIII IX Cost pressure: Companies are forced to do more with less (pg. 26) Data management: Skills, Competencies, abilities and timeliness (pg. 28) Tax operating model: Most companies are re- evaluating their target operating model (pg. 30)

4. Preface Dear Reader, conducted by EY in association with Euromoney Institutional Investor Thought Leadership (“global survey”) with 1,700+ respondents, 63% of which are from Forbes Global 500 largest public companies. The global survey’s results are pegged against the Indian results for executives to draw valuable insights. For a tax director, tax issues are no longer limited to legal interpretations of tax laws– the spotlight is on getting the right tax organizational structure, people, processes and technology to effectively deal with the current environment and partner well with business. Q While we all are witnesses to the rapidly changing business and regulatory environment, how many of us believe that our tax functions are ready to embrace and capitalize on these changes, especially on the tax technology front. Both surveys converge to indicate that, organizations today recognize the need to be bold and innovative with their tax function to successfully manage the headwind and deliver value. But it also shows that many are struggling to find the right solution. The cost of inaction is far greater than the cost of making a mistake. We conducted a survey, Re-imagining the tax function, across senior executives from large organizations in India. The participants come from more than 15 industries and include a mix of public and private companies, as well as Indian subsidiaries of global corporations and Indian companies with overseas subsidiaries. Vast majority have turnovers of more than INR1,000 crore. The results of this survey demonstrate how the tax function is generally striving to keep up with digital advances and push towards achieving transparency and complying with tax reforms. EY’s experience from advising organizations in India and around the globe is that merely keeping pace with the change is not a successful long-term strategy. Companies must identify and execute the change required to adapt to the challenges they face and continuingly reimagine their tax function. Once they decide to act, leading companies typically choose one of the three approaches and each has its own pros and cons. 1. Rebuilding or transforming the existing tax function: This generally will include building a new digital platform, training or hiring tax technologists and exploring the creation or expansion of a shared service center. This option generally causes less disruption in the organization and offers the This report also showcases the findings of the global survey published in May 2018, 4

5. most control. But it’s expensive, requires significant management focus and can be hard to staff due to a shortage of talent with the right blend of skills. It also requires constant vigilance to ensure people, processes and technology keep pace with change. technological capabilities supporting their existing infrastructure. This report explores these options in more detail, using survey results to explain what companies are doing in the aggregate, while offering insights to help companies decide which approach is right for them. Q 2. Outsourcing tax activities to a third party: Under this option, the IT costs and risks are shifted to the vendor(s) who already have made large investments in their technology platform and have built a global network of skilled personnel. However, it requires significant change for the organization, including a new mode of management and governance. Do companies want to transform their tax function? Do companies want to outsource their tax function? Or is the right answer somewhere in between? We hope this report helps readers understand the current state of the tax function, their relative position in it, as well as the likely future toward which most tax functions are headed. 3. A blend of the prior two options: Under this option, companies, on need basis, may choose to partially outsource and/or build Jitesh Bansal Partner, Tax, Technology and Transformation E-mail: jitesh.bansal@in.ey.com Phone: +918067275303 Mob: +919886060519

6. I Tax as a strategic partner: Expectations and challenges Q What is the biggest challenge for the tax function at the strategic level in the organization?1 37% find ensuring risk managed compliance difficult to achieve 44% feel adding value to business through tax insights is the biggest challenge As response to an India specific question, 44% of the survey respondents voted that one of the biggest challenges for the tax function today is adding value to business through tax insights. model planning, expansion, divestment) and at the same time, tax function should be well equipped to answer the increasing demands of business. Tax functions need to be sufficiently agile to provide insights as business evolves. Tax functions also need to adapt to changing behaviors, higher level of digital trust and the changing manner of consuming insights. Too often, decisions are made that have a tax impact — as virtually all of them do — without involving tax in the strategic discussions or factoring tax into the formative decisions. Tax is sometimes perceived by business as only a point of compliance and not a point of value delivery. To overcome this, it is critical that tax has a “seat at the table” in business decisions. Tax, by its very nature, finds itself embedded in various function of the organization – accounts payable, financial reporting, regulatory filings and business decisions among others. However, tax sometimes does not have complete visibility over processes and controls in functions outside the tax organization. This is one of the reasons 37% of Indian survey respondents find ensuring risk managed compliance difficult to achieve. The challenge of adding value to business is two-fold. Business should reach out to tax at the right time (including for product pricing/ design, supply chain/ operating 1 Given the relevance, we have got specific inputs from India audience 6

7. Q Making tax a part of the internal risk management and governance of the organization run by internal audit functions and audit committees/ boards could not only help in better management of risk but also help to elevate tax function’s profile in business and get business stakeholders to start thinking about tax in every business decision. Actionable insights: Tax should have a seat at the table in business decisions and should get more integrated with business to provide insights and add value. Further, to meet the tax risk management ask, tax functions will need to reimagine the way they look at tax data and processes and operating models need to rapidly evolve to improve turnaround over compliances, face and defend increasingly sharp and focused inquiries and audits from tax authorities. 7

8. Q. How confident are you that your organization has the ideal tax function- optimally leveraging people, process and technology? India The Indian survey results clearly show that there is a gap between the existing and desired state of tax function. In today’s disruptive business landscape, tax functions will need to be agile to adapt to the changing business and regulatory requirements. 78% are not very confident of optimally leveraging people, process and technology In our experience, many companies are seeking to re-evaluate their operating model. When making these decisions, they must examine their priorities around cost minimization, value creation and risk management. Global 53% are not very confident of optimally leveraging people, process and technology 53% respondents of the global survey are not confident in their operating model. This shows that the confidence on current operating model is lower in India as compared to the global context. This may be due to recent slew of technology led tax reforms. Actionable insights: Organizations should re-examine their tax function in the context of rapid change and decide whether to undertake an internal transformation or outsource part or possibly all of their tax function 8

9. 53% respondents of the global survey are not confident in their operating model. This shows that the confidence on current operating model is lower in India as compared to the global context. This may be due to recent slew of technology led tax reforms. 9

10. II Talent demands: Shifting competencies and skill shortages Q Q. Do you believe that core competencies will move from “tax and technical skills” to “process and technology skills” over the next three years? India 38% 53% 9% Strongly agree Somewhat agree Do not agree Global 18% 80% 2% Strongly agree Somewhat agree Do not agree2 2 Source: EY’s global survey conducted in association with Euromoney Institutional Investor Thought Leadership, published in May 2018 10

11. Q While the tax function of 15 years ago may have been focused almost exclusively on tax technical and planning skills, organizations today are in search of tax people who are able to manage new technology challenges. As per the Indian survey over 90% of the respondents believe that core competencies of the professionals will move from tax and technical skills to process and technological skills over the next three years. Similarly, almost all companies (98%) in our global survey believe the same. Actionable insights: To cope with the transformation, organizations require the right mix of dedicated resources who can manage process and leverage technology to improve consistency, quality and efficiency. Tax professionals will need to speak the same language as their colleagues in IT, so one knows how to ask for it and the other knows what the needs are. 11

12. Q Q. Is your organization able to attract and retain appropriate talent needed in today’s evolving tax and finance function (e.g., technology, engineering skills)? India Global3 Challenge Challenge 89% 67% Yes it’s a challenge Yes it’s a challenge Globally, a vast majority of organizations are finding that attracting and retaining appropriate talent is a challenge in today’s tax function. Career progression has been a challenge for companies to attract and retain trained talent. A digital skillset (e.g., proficiency in basic technology tools such as business intelligence tools, automation, data governance and analytics) in a tax professional is a rare find. Around the globe, 89% of the tax and finance function is grappling with the evolving talent needs and shortages of the right skills. In India, the percentage notably stands lower at 67%. The reason for higher confidence in India can be attributed to higher agility, larger talent pool and a generation that has leapfrogged. 3 Source: EY’s global survey conducted in association with Euromoney Institutional Investor Thought Leadership, published in May 2018 12

13. Q India has been at the forefront in aligning with BEPS through amendments in its domestic tax laws and introduced general anti avoidance provisions, equalisation levy, limitation of interest deduction, introduction of significance economic presence concept, master file and CbCR, place of effective management, where other mature economies are still contemplating action. Actionable insights: The key challenge for most organizations is to drive a cohesive change touching people, systems and processes without business disruption. Action to be taken to hire, train or assign a liaison to work between tax and IT and serve as a translator whenever necessary. Most big ticket reforms in India are powered by technology and India has made its stand clear to the world that rather than taking baby steps, India is progressing leaps and bounds in areas of digitization, transparency and legislative reforms. No country of comparable size and complexity has attempted a tax reform of the scale of GST in India. In fact, many European countries are observing Indian technology led GST to take back and implement learnings from India’s experience. From the direct tax perspective, India has implemented online registration, e-payment of taxes, e-filing of tax returns, e-processing of returns, e-matching of tax credits and also e-assessments. Amid the changing landscape, organisations need to keep pace with these changes and strengthen their tax function to be able to exploit the opportunities available through India’s growth trajectory. 13

14. III Legislative and regulatory change: Lack of resources to deal with rapid change Q Q. Does your organization have the resources to identify, evaluate and respond to new tax legislation / compliances (such as Goods and Services Tax (“GST”), Base Erosion and Profit Shifting (“BEPS”), Foreign Account Tax Compliance Act (“FATCA”), Common Reporting Standard (“CRS”) and Country by Country Reporting (“CbCR”), e-assessments)? Global4 India 87% responded that they do not have adequate resources 61% responded that they do not have adequate resources Globally, most companies (87%) report a lack of resources to monitor, evaluate and respond to legislative change. Meanwhile, in India, 61% report lack of adequate resources. Tax reforms in India are on the rise. GST has brought in a structural change in the indirect tax system in India. India has amended its tax treaties with various countries and made amendments in the Income-Tax Act to align with the BEPS Action Plans and adopt FACTA and CRS. India has also adopted the path of e-assessments. This could be a challenge as the changing tax legislative landscape will impact both, the risk profile and taxes paid by organizations. Actionable insights: Companies should ensure they have the right talent and technology capabilities available to monitor, evaluate and respond to major legislative changes around the globe. 4 Source: EY’s global survey conducted in association with Euromoney Institutional Investor Thought Leadership, published in May 2018 14

15. Q Q. Do you feel it is difficult for one person to be a subject matter expert on all facets of taxation (e.g., direct tax, GST, transfer pricing, international tax)?5 Given the relevance, we have got specific inputs from the Indian audience and in India, companies realize that it is an enormous challenge for a tax professional to stay continually updated in a rapidly changing and fluid regulatory regime. Around 83% of organizations felt that it’s difficult for one person to be a subject matter expert in all facets of taxation (e.g., direct tax, GST, transfer pricing, international tax). India 83% Yes, it is difficult Actionable insights: Companies should look at making greater investment in training the tax function talent to build subject matter expertise across multiple taxes. This may translate to an added cost to attract and retain the talent, which is the need of the hour given increased transparency and information sharing between tax and regulatory authorities across multiple taxes and regulations in India 5 Given the relevance, we have got specific inputs from India audience 15

16. Keeping pace with legislative and regulatory change: Increase in workload IV Q For corporates, the practical ramifications of this change fall into two categories- meeting new compliance burdens and managing the new risks they present Q. How will complying with the various transparency initiatives (e.g., CbCR, CRS, FATCA, transactional government filing, GST) impact the workload of your tax function? India Global6 89% 88% expect an increase in workload as a result of the various transparency initiatives expect an increase in workload as a result of the various transparency initiatives The vast majority of global and Indian respondents expect an increase in workload as a result of the various transparency initiatives that are underway. This also is in line with the results of the global survey. From OECD’s CbCR to the US’s FATCA and CRS to other legislations, governments across the globe are demanding unprecedented amounts of information. There are sweeping tax policy changes around the globe as countries seek to remain competitive and protect their tax bases. 6 Source: EY’s global survey conducted in association with Euromoney Institutional Investor Thought Leadership, published in May 2018 16

17. Q In India, tax administrators have introduced a numbers of changes to tax filings that will increase transparency and reporting requirements. Invoice-level filing in GST is the most notable change, a number of measures have been undertaken on the direct tax side as well. Increased reporting requirements will lead to companies performing comprehensive analysis before any data is reported and thereby increasing workload and costs. Actionable insights: Organizations need to identify tasks forming part of their process which can be automated using new age technologies like robotics process automation and analytics to efficiently manage compliances. Companies can aim to improve data quality and analysis though automation of data from multiple source systems to meet the transparency requirements and respond to targeted enforcement. 17

18. Q Q. How will governments gathering electronic information and using it in targeted enforcement activity impact the workload of your tax function? India Going digital is a big investment for a tax authority, but one very likely to be made given with two other important developments - a new wave of transparency requirements for taxpayers and an unprecedented commitment between countries to share information. 78% Many tax departments discover that they can unlock valuable tax information using transactional analytics, tax reporting analytics, risk analysis and monitoring, supply chain analysis, transfer pricing analytics or other bespoke, targeted analytics in areas such as pricing and margin modelling. expect enforcement activity to increase workload Expected future state of the Indian tax administration scenario in the short to medium term includes: Global7 ► Sharper and more focused risk-based selection of cases for assessment and selection of cases of scrutiny linked to the profile of taxpayer using business intelligence without manual interference 89% ► Real-time collaboration among various authorities because of the following: ►  MoU between CBDT and RoC ►  Mutual access and sharing of information between GSTN and IT database expect enforcement activity to increase workload 7 Source: EY’s global survey conducted in association with Euromoney Institutional Investor Thought Leadership, published in May 2018 18

19. Q Q. Do you foresee increased collaboration with other business functions to ensure compliance with various transparency initiatives? The global and Indian survey results are clear that almost all companies (93%-98%) foresee the increased need of collaboration between the tax function with other business functions. Global8 India 98% 93% For the tax function, the challenge is not just looking for big data, but good data. Since tax-related data resides everywhere across the organization, from operations to sales to finance to IT departments, it is important to have a seamless, consolidated and integrated view of that data. At the time when reporting requirements are increasing due to transparency initiatives, tax teams are spending most of their time just pushing data around. Tax has, for decades, been a notoriously isolated function in many businesses. As a result, company-wide technology decisions have frequently failed to take account of its needs. Actionable insights: One of the important to-dos for the tax function is to have an integrated tax data source. Also, tax function leaders now need to sustain far better relationships across the business, including the executive, finance and IT. 8 Source: EY’s global survey conducted in association with Euromoney Institutional Investor Thought Leadership, published in May 2018 19

20. Possible inconsistency in position due to legislative and regulatory change: Increase in risk V Q Q. How will transparency initiatives (CbCR, CRS, FATCA, transactional government filing, GST) impact your organization’s tax risk profile including reputational risk? Global India 95% 61% organizations think there will be an increase in their tax risk profile organizations think there will be an increase in their tax risk profile9 Organizations believe that increased transparency initiatives undertaken across the world often increase the tax risk. The concern is not so much that there will be greater levels of transparency and closer to real-time access to data, but how organizations can respond to the inevitable increase in information requests from tax authorities to provide meaningful, contextual and accurate explanations. They need to report transactions and create records to build internal systems. But the major risk arises when this data is further matched with data from other sources, analyzed across taxpayers and jurisdictions to see any abnormalities. The greater visibility of these initiatives may increase the tax risk in digitalized world. Globally, 95% of organizations foresee an increase in tax risk profile on account of transparency initiatives, while only 61% of Indian organizations consider it as an increased risk. The stark difference may be due to either inapplicability of some of the transparency regulations or lack of foresight on how these existing initiatives of the Indian tax administration may affect them. 9 Source: EY’s global survey conducted in association with Euromoney Institutional Investor Thought Leadership, published in May 2018 20

21. Q Q. How will governments using targeted data (gathered electronically) for enforcement activities impact your organization’s tax risk profile? Increased surveillance by government bodies of data trails left by electronic transactions has increased risk of enhanced scrutiny of tax submissions and related questions by officials around the digital footprints of transactions, if not accurately disclosed or disclosed to satisfaction of the authorities. It might also prone to the risk that such digital traces used by officials to initiate suo-moto probes. India 63% Increases risk As tax administrations around the world become more deeply connected to companies’ data, globally 80% of organizations expect their risk profile to increase due to targeted enforcement activities. Meanwhile in India, only 63% of respondents agree to this notion. This may be due to the reasons stated in the earlier question. Global 80% Increases risk10 Tax administrators are boosting their access to information through third parties. This information will be aggregated from far more sources in the future. Actionable insights: Companies will need to invest in intelligent analytics to identify areas of weakness early in the process because they will need to respond to authorities more quickly. Organizations will also need a comprehensive approach to tax controversy that provides a line of sight into the issues at stake and the potential for future conflicts. 10 Source: EY’s global survey conducted in association with Euromoney Institutional Investor Thought Leadership, published in May 2018 21

22. VI Digital readiness: Investing in the right technology is vital Q. Which of the following has the most significant impact on the ability of your tax and finance functions to deliver predictable outcomes on a sustained basis? India vs Global Lack of technological investment 38% India 51% Global 38% 51% Not enough/Wrong resources 31% India 28% Global 31% 28% Lack of process and controls11 31% India 21% Global 31% 21% 11 Source: EY’s global survey conducted in association with Euromoney Institutional Investor Thought Leadership, published in May 2018 22

23. The right process, controls and resources are important. 38% of the Indian survey respondents feel that lack of technological investment has the most significant impact on the ability of tax functions to deliver predictable outcomes on a sustained basis. The result is largely in line with the global survey. The apprehension is correct as many countries are taking advantage of digitization to pass new e-invoicing requirements into their national legislation, while others are going a step further, asking companies to provide electronic audit files directly from their ERP systems. This is placing distinct operational pressures on companies, as they run programs which unearth the need for new investment in technology and headcount. Without such investment, few can be sure that the data they provide is both available in terms of system accessibility and data accuracy, but also clear and free of anomalies which may not be fully understood by the tax authorities, resulting in a potential audit or heightened scrutiny. Pinky Mehta, CFO of Aditya Birla Nuvo Group says, “For executives, the benefits of automation would be consistency, limited dependence on human intervention and institutionalization of knowledge. For me, automation would definitely help improve my comfort level on tax data”. 23

24. Q Q. Is your organization investing enough time and money in analytics and technology solutions to effectively manage your reputational risk and tax risk profile? Government agencies and companies are looking at “Regtech” technology that seeks to provide configurable, reliable, easy to integrate, secure and cost-effective regulatory solutions as an option to extract as much data as possible and analyze the same using data analytics. Given the above, it is important to have a tech-driven tax function to enable organizations to effectively manage risk and have resources to value add to the business function. India 60% To add to this, government systems are getting increasingly mature and are able to co-relate data and ask intelligent questions. Without the same level of insight being available with companies, strategically dealing with risk becomes very challenging. feel that the organization is not investing enough Global Chris DeVito, ex Sr. Director, International Taxation at Johnson & Johnson says “In a decade or so the government will calculate the tax return for you; tax compliance professionals should have very little manual work to perform.” 52% are not highly confident that they are investing enough12 12 Source: EY’s global survey conducted in association with Euromoney Institutional Investor Thought Leadership, published in May 2018 24

25. Q Governments are making substantial investments, including India where government has taken up projects like “Project Insight”, which is expected perform data analytics to identify abnormalities and reduce human intervention. Organizations need to look inward to ensure they are ahead of the governments. 60% of the Indian survey respondents reflect the view and recognize the need for their organization to invest resources in the technology to manage risks better. This is broadly in line with the global perception. If companies don’t spend the time and money up front to include tax in their finance or technology transformations, they inevitably end up spending money later in terms of retrofitting or replacing the systems, increased cost of compliance, potential penalties or additional resources. Actionable insights: Companies to develop the right business case to receive adequate resources for technology / resources / process requirements, needed to meet increasingly granular and real-time information filing and compliance requirements. Organizations need to build business data analytics and capabilities to get a holistic view of their tax risk profile so as to manage their tax risks proactively. 25

26. VII Cost pressure: Companies are forced to do more with less Q Q. How do you measure the efficiency of your tax function?13 The tax function in any organization, like any other function, is constantly under pressure to decrease its costs. This section helps understand how organizations manage their tax function cost. 37% To effectively manage tax function cost, it is imperative that it includes the tax cost as well. This provides an insight in to how efficiently tax function is being managed. Furthermore, what is avoided in tax cost is as important as the cost incurred itself and that will happen only when tax positions are technically sound and consistent. Hence, there is a need to take a holistic view of not only administrative and people expenses, but also the risk adjusted tax cost incurred. Standalone tax function cost Cost of operating the tax function is generally a very miniscule percentage of the entire tax cost of the organization. Over 60% of respondents consider tax cost to be a part of the tax function cost. The survey indicates that tax functions are increasingly measuring tax efficiency of their tax function as a sum of tax cost and operational costs. A large improvement in tax risk/ opportunity profile can be enabled with even a small investment in tax function operations. 63% Tax function cost along with tax cost Actionable insights: There is need to holistically identify tax functions costs, which includes tax risk and opportunity. This is possible only when there is clear visibility and complete control. 13 Given the relevance, we have got specific inputs from India audience 26

27. Q Q. Will business fund the expansion / new skill needs of your tax team as the tax law evolves? 62% 28% 10% I’m doubtful I don’t think so Yes, of course Given the relevance, we have got specific inputs from the Indian audience and the survey underlines the fact that the adoption of technology by tax functions currently is abysmally low. Although 62% of the survey respondents feel that business will fund the expansion / new skill needs of the tax team, the funding willingness does not seem to translate into tangible results in technological investment. This may be due to inadequate engagement between the management and the tax team on the importance of adopting technology for the purpose of tax. There seems to be a gap in realizing the extent to which the tax team needs to imbue technology into their day-to-day working. About 38% of survey respondents expect considerable roadblocks in helping upgrade the tax team’s knowledge / skills beyond the world of tax. Actionable insights: Tax teams should engage with the management to buy-in and invest in tax technology and new skills to truly unlock immense benefits that technology offers or outsource to a service provider who has the requisite technology capabilities with cost efficiencies. 27

28. Data management: Accuracy, skills, competencies, abilities and timeliness VIII Q Q. How confident are you about tax data management in your organization?14 Given the relevance, we have got specific inputs from the Indian audience and about 80% of the Indian survey respondents are not completely confident about their existing data management systems. India 80% are not very confident about the tax data management Typically, there are two types of data that tax teams deal with. First, data for tax compliances and audits and second, results/ deliverables of the tax function such as submissions, notices, tax returns, etc. Tax functions need to better position themselves in terms of dealing with both these facets of tax data. The current ERP systems used by companies have limited tax functionalities, there is also a lack of a tax data repository which makes it difficult to store, maintain and retrieve data in an organized manner. Further, about 60% of survey respondents do not have the same level of comfort if the people currently managing the data are not around. Actionable insights: Companies should ensure they have better access to quality data. Investment in systems and processes that provide a systematic access to quality and consistent data is needed. 14 Given the relevance, we have got specific inputs from India audience 28

29. Q Q. How confident are you that you will be able to respond to notices and information/data requests from tax authorities from the following perspectives?15 In India, tax authorities are increasingly calling for detailed data and using data analytics to break down and analyze the data from various perspectives. In such circumstances, it is important that the data submitted to the tax authorities is reliable and uniform and is able to withstand scrutiny and verification. Technology can help track and respond to such inquires. For example, the government of India wishes to share data between the Goods & Services Tax Network and income tax network on a regular basis to verify the information reported under either law is consistent and correct. Timeliness Very confident Not very confident 39% 61% Accuracy Very confident Not very confident 35% 65% A majority (61%-65%) of the Indian survey respondents are not very confident about sharing data on a timely and accurate manner and do not believe that they have the skills to respond to the notices. They acknowledge a gap in all aforementioned facets. This paints a picture of a tax team that is fighting a battle to retrieve and reproduce the data extracted from the systems. If the data is not interpreted correctly, it can lead to misunderstanding and dispute. Skills/ Competencies / Ability Very confident Not very confident 39% 61% Actionable insights: Proactively access the information likely to be requested by the tax authorities. Build a single “source of data” by way of a tax data warehouse/ data lake. Implementation of technology in tax makes data structured and consistent. 15 Given the relevance, we have got specific inputs from India audience 29

30. Tax operating model: Most companies are re-evaluating their tax operating model IX Q Q. What action would you take to resolve deficiencies in the current tax function? India Global16 Re-engineering current tax function Re-engineering current tax function 35% 35% Considering functional outsourcing Considering functional outsourcing 25% 25% Develop point-based solutions specific problems (robotics, etc.) Develop point-based solutions specific problems (robotics, etc.) 28% 24% 12% Do nothing, what we have is fine 16% Do nothing, what we have is fine In India, 88% of organizations are considering taking action due to deficiencies in their current tax function, which is largely in line with the global respondents. With tax function being outsourced, companies get access to industry best practices, efficient data management, reducing dependencies on people, process improvement, specialized skills, technology tools, etc. without having to make a continuous investment in these areas. Companies have realized the importance of building a “top in class” tax function to manage one of their biggest expense in their profit statements (i.e., taxes). But it clearly takes a lot to do this, in terms of time, effort and competence. Today, outsourcing is another option that companies are exploring. Actionable insights: As a famous saying goes, “If you don’t know where you are going, you might end up someplace else.” Now is the time to define the desired state of the tax function, assess current state as against the desired state and determine the most appropriate strategy to bridge the gap. 16 EY’s global survey conducted in association with Euromoney Institutional Investor Thought Leadership, published in May 2018 30

31. TAX Q Q. Has functional outsourcing (i.e., a third party operating your tax function) been considered as a solution to deal with the pressures on today’s tax function? Global17 Globally, there is a significant leaning toward outsourcing. This can be observed from the fact that about 84% of organizations are already outsourcing or exploring outsourcing opportunities. Indian companies are also taking steps towards outsourcing, with close to 50% of Indian organizations already outsourcing or exploring outsourcing opportunities. 57% Exploring outsourcing functions 27% Already outsourcing functions 8% 8% Decided against outsourcing Have not considered outsourcing Actionable insights: Companies that choose not to undertake an internal transformation of their tax function or who are struggling to achieve the benefits from a transformation should consider the benefits of outsourcing to a service provider that has invested heavily in a technology platform and cost-efficient delivery centres. A company may want to relook its outsourcing strategy and determine the right mix of capabilities they wish to build in- house and functions they would like to outsource. 17 Source: EY’s global survey conducted in association with Euromoney Institutional Investor Thought Leadership, published in May 2018 31

32. TAX Q. Which are the top three benefits that would make you potentially move to an “outsourced” model?18 Reducing tax risks 26% 22% Solving the need to fill people gaps within the tax team 22% Increased management time to focus on core competencies 11% Building cost efficiency 10% Agility/ Scalability Managing tax risks, making the tax function process driven and freeing up management time to focus on core business competencies are considered to be the key drivers to consider “outsourced model”. Also, the shift of IT costs and risks to the vendors who have already made large investments in technology platforms and a global network of skilled people is a great advantage. Niraj Shah, CFO of PNB MetLife India Insurance Limited says “For the business, the finance and the tax team, clearly faces most significant challenge in terms of the rapidly evolving macro-economic and regulatory environment, both globally and locally and keeping abreast of that is something which is extremely important both for the business as well as for the finance and tax teams” 18 Given the relevance, we have got specific inputs from India audience 32

33. Actionable insights: A company may want to relook its outsourcing strategy and determine the right mix of capabilities they wish to build in-house and functions they would like to outsource. 33

34. Conclusion Find your path forward Q The survey enunciates the need for tax functions to consider remodeling their operating strategy. This would involve relooking at three facets – people, process and technology. As next steps, tax functions can consider the following: 1. Performing a health check: This would involve understanding your current state and desired state of the tax function on various areas such as people, data, process, technology and risk. As part of this exercise, it would also be useful to re-visit (and redefine if required) tax function KPIs. This would help design a future state operating model to start working towards. The operating model design should also identify elements of the tax function which the company desires to be performed ‘”best in class” and those which they would like to perform “best in cost”. 2. Identifying a few “quick wins”: While undertaking a tax function remodeling, it is important to set timelines and priorities. Some important and low hanging/ easy areas to solve could potentially be picked up first. Some examples of such areas include organizing tax operations by putting in place workflow management tools, automating some high-risk/high- effort tax compliances such as GST/ withholding tax, quick process review to identify control/ data gaps, etc. 3. Re-evaluating your in-house vs outsource balance: Building the right mix of people, process and technology takes investments, time and effort. Further, the ideal state is a moving goal post as tax laws and business models are constantly evolving – so companies are sometimes a little weary of incurring capital expenditure towards this. Companies are therefore looking at outsourcing their entire tax function or pieces of it to professional services firms who have already made investments in this direction and are equipped for change management. With outsourcing, companies are able to focus on their core needs, while having the agility to manage their changing needs and nature of tax footprint more effectively. 34

35. Tax functions have clear opportunities to reduce costs, eliminate exposures, manage risk and deliver more value to their organizations. Those who don’t adapt to the current and growing pressures are in real danger of being left behind. Q Every company is currently at some stage of this re-imagination process. EY has an insight into each stage of the journey, from strategy to implementation. Please contact one of our tax technology leaders listed below to schedule time for discussions Ajay Kumar Garima Pandey Partner, New Delhi Partner, New Delhi E-mail: ajay9.kumar@in.ey.com Phone: +911246714220 Mob: +919810 024658 E-mail: garima.pandey@in.ey.com Phone: +911246714943 Mob: +9198114 16000 Jitesh Bansal Rahul Patni Partner, Bengaluru Partner, Mumbai E-mail: jitesh.bansal@in.ey.com Phone: +918067275303 Mob: +919886060519 E-mail: rahul.patni@in.ey.com Phone: +912261921544 Mob: +919892 248624 Sameer Prakash Venkatesh Narayan Partner, New Delhi Partner, New Delhi E-mail: sameer.prakash@in.ey.com Phone: +911244432210 Mob: +917042 311550 E-mail: venkatesh.narayan@in.ey.com Phone: +911246714000 Mob: +919811 228212 35

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