What does an effective tax function need?

A high-performing tax function rests on three closely connected foundations: sound governance, disciplined operations, and reliable infrastructure.

When these elements work in concert, the tax department can deliver timely, accurate outcomes and meet the expectations of the board, regulators, investors, and other stakeholders. The sections below set out the challenges that commonly arise in each area and the practical improvements that give a tax function greater confidence and control.

Why is data access so important for tax?

Both finance and tax depend on clear visibility into how transactions are processed and how the underlying IT systems are configured.

Where that visibility is missing, data integrity becomes a serious operational risk. This is especially true when transactions are booked across multiple countries without first being evaluated for their tax consequences, because errors introduced at the point of entry are difficult and costly to unwind later.

A further complication arises when the financial data held in a system no longer reflects the way the business model was actually designed, or when changes to that model are not properly managed and recorded. In many organizations, simply obtaining the tax data required for reporting to regulators, investors, and tax authorities, across every business unit and jurisdiction in which the company operates, remains a persistent challenge. Resolving these data issues is a prerequisite for almost every other improvement discussed here.

What does good tax governance look like?

Good tax governance means a documented strategy, a clearly defined risk tolerance, and objectives formally endorsed by senior management.

The tax function struggles when it operates without a documented strategy, a clear set of objectives, or a plan to guide its day-to-day decisions. The difficulty deepens when senior management has not set out, in writing, the objectives and the level of risk it is willing to accept in tax planning. In the absence of these reference points, progress tends to depend on the influence of particular individuals rather than on agreed policy, producing a fragmented approach in which stakeholders are not aligned and standardized global controls are challenging to establish.

Matters improve markedly once the tax department’s strategy, objectives, and risk tolerance are understood across the organization and formally approved. The aims of the indirect tax department should be consistent with the company’s wider commercial goals and overall tax strategy, so that tax considerations support rather than obstruct the business. Building direct, proactive relationships with key stakeholders, including the CFO, the audit committee, internal audit, and the tax authorities, reinforces this alignment and strengthens the department’s standing.

Define roles and make procedures accessible

The division of responsibilities between the tax department and the wider business should be documented plainly, and the supporting manuals, procedures, and working instructions should be available online to everyone who needs them. This accessibility lets tax professionals contribute proactively to multidisciplinary projects and demonstrate the value the department brings. To fulfil its advisory role, the department must also keep pace with developments inside the organisation, which calls for a strong learning and development environment.

Engage beyond the organisation

The tax function should also look outward. Thoughtful external representation and engagement with policymakers, at local, national, and European levels, together with sustained relationships across government and industry, can help shape the rules under which the company operates and advance its broader objectives.

How should a tax function manage its operations?

Strong tax operations rely on clear procedures, monitored performance targets, and a uniform process for evaluating risk.

In practice, few performance targets are set or monitored, and issues are left unresolved because accountability is unclear. Good practice points the other way: meaningful targets should be established and supported by technology-enabled key performance indicators that allow performance to be reviewed regularly, through both formal and informal channels. Those measures should also capture how the tax function interacts with the business and with other stakeholders.

A frequent weakness is the absence of clear procedures for critical VAT processes, combined with inconsistent criteria for evaluating VAT planning. The information needed for compliance, financial reporting, and other tax activities is often unavailable for much of the year. To support sound decisions, this information should be produced frequently and presented as objective evidence, rather than reconstructed under pressure at reporting deadlines.

Set criteria for using external advisers

Tax planning benefits from a systematic approach with well-defined evaluation criteria, including clear guidance on when and how to engage external advisers. A policy might require, for example, that all written advice be delivered in English and that the tax department be notified before consultants are approached on any material tax matter, so that oversight is maintained and knowledge is retained in-house.

Make tax risk a continuous input

Risk management should be a continuous input into both operational decisions and strategic direction. A uniform tax risk process ensures that potential events affecting the company’s objectives are evaluated consistently, and it should account not only for downside risks but also for missed opportunities such as available savings. Resource allocation and budgeting can then follow that assessment, concentrating limited effort on the highest-risk areas, while the department actively seeks opportunities to optimise planning across jurisdictions, business units, and tax types.

Assess indirect tax before major transactions

Significant non-routine transactions deserve particular care. For events such as mergers and acquisitions, all indirect tax liabilities should be assessed before the transaction is completed, taking account of regulatory, legal, and corporate record-retention requirements and identifying the relevant risks with the indirect tax team. More broadly, the department’s risk strategy should distinguish between strategic, operational, financial, and compliance risks, set out concrete action plans for each, and rest on an internal control framework implemented across all tax functions globally.

What infrastructure does a tax function require?

Reliable tax infrastructure means organised, backed-up records and systems correctly configured for VAT compliance and reporting.

Sound infrastructure begins with the careful handling of records. Corporate documents, tax files, and supporting records, whether held in hard copy or electronically, should be organised, retained, and readily accessible, rather than left on individual employees’ hard drives. They should be backed up in line with the company’s IT policy, and any tax audit adjustments, including settlements, should be fully documented and archived so the organization stays prepared for future audits.

Where documentation for critical tax processes is incomplete, or where the requirements of tax authorities and corporate record retention have not been addressed, a comprehensive documentation process should be put in place and reviewed regularly, so it continues to reflect changes in the operating environment.

Use technology to capture data once and reuse it

Technology is the second pillar of effective infrastructure. The right tools reduce reliance on manual input and let tax data be captured once and reused across applications, which streamlines workflows and lowers the risk of error. ERP systems and related technologies must be correctly configured for VAT compliance, financial reporting, and planning, with dedicated IT support so the department can rely on access to the systems it depends on. Considerable gains are available simply by replacing spreadsheets with purpose-built systems designed to improve effectiveness and reduce risk.