Businesses’ attitudes towards digital transformation across the tax function vary between the US and Europe according to new research from Vertex, the integrated tax technology solutions provider.
The new Vertex study examined 610 professionals from both regions at manager level and above, working in tax and finance functions at companies with revenue over $20million. It set out to understand their current status and attitudes to transformation in their organisation.
Are SMEs playing catch up?
Over half (54 per cent) of the examined European enterprises are progressing or already completed their tax function transformation. Meanwhile, only 40 per cent of small and medium enterprises (SMEs) have reported the same. This isn’t to say that SMEs are lagging in every transformation department though. In terms of finance automation and automated indirect tax functions, SMEs only trail larger enterprises by a small margin:
Enterprises finance automation 49 per cent – SMEs finance automation 46 per cent
Enterprises indirect tax functions 53 per cent – SMEs indirect tax functions 48 per cent
Interestingly though, US firms have generally seen greater adoption of automated services with 56 per cent automating their indirect tax functions and 52 per cent automating finance processes.
Among those who are transitioning to SAP S/4 HANA, European enterprises are also further along the journey compared to SMEs (47 per cent vs 23 per cent). While both enterprises and SMEs are proceeding on a similar pace for their tax transformation, SMEs are falling behind on finance transformation. Only 64 per cent said these plans are on track compared to nearly three-quarters of enterprises (74 per cent).
Peter Boerhof, senior director VAT at Vertex
Peter Boerhof, senior director VAT at Vertex commented: “Tax transformation is a journey, and our data shows that organisations of all sizes are on different stages of that path.
“However, with the increasing prevalence of real-time and near real-time digital tax reporting mandates coming into force across the world, having the right technology in place will be critical to futureproofing the tax function. Organisations that don’t take action now risk being left behind other more agile companies.”
Driving change
The research also reveals key differences between larger enterprises and SMEs in Europe in terms of what is driving transformation. Optimising business growth is a key focus for 76 per cent of European SMEs. Meanwhile, larger enterprises are more likely to trigger transformation to create efficiency by consolidating various activities into one shared service or function (80 per cent).
Both groups expressed some similarities though. The report finds that both 50 per cent of SMEs and 48 per cent of enterprises are concerned about keeping pace with changing indirect tax rules. This is in addition to being aligned on the importance of indirect tax needs during transformation.
However, one key point of difference is the need for better support for business operations and management of the compliance process, which is significantly more important for enterprises (77 per cent) than SMEs (68 per cent).
Transformation roadblocks
When asked about what’s holding back transformation in their organisation, many respondents cited a lack of technology support in place. Close to half (43 per cent) of respondents said that their entire tax technology approach needed improving. Meanwhile, 18 per cent said they had elements completely unfit for purpose, holding back their ability to transition.
A similar number of SMEs (40 per cent) and enterprises (43 per cent) also see a new ERP system or an upgrade as crucial to effective finance or tax digital transformation. This is alongside implementing AI (40 per cent) and a tax engine (40 per cent).
However, when asked about the barriers to automation in transformation, both groups cited similar issues:
budgetary constraints (33 per cent)
ack of IT support (34 per cent)
decentralised and unstandardised operations (27 per cent)
This is significantly higher than in the US, where just 26 per cent of respondents cited budget constraints as a barrier, potentially indicating lower investment in Europe.
Different countries within Europe also face different challenges. While budgetary constraints and lack of IT support feature in the top three barriers to automation in both the UK and Germany, 29 per cent in the UK also cited a resistance to change and inconsistent data holding them back. In Germany however, the most common barrier cited was a lack of capacity and talent (35 per cent), compared to just 23 per cent of UK professionals.
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