Can GCCs help transform Tax functions in an organization

The first wave of Global Capability Centers (‘GCCs’) was primarily driven to provide ‘wage and cost arbitrage’ benefits to global organisations eagerly looking to free up capital to invest in growth. Today, the GCC sector has gone beyond that –helping in standardisation, process efficiency, effectiveness, cost reduction, driving business value, etc., thus proving to be significant value contributors to the organisation.

India has significantly contributed to the growth of organisations with GCCs leveraging quality talent and capabilities. The country is home to more than 1,400 GCCs which directly employ over 1.3 million people. Currently, the GCC market size in India is US$ 35.9 billion, which is expected to grow to US$ 58 – 61 billion by the year 2025[1].

In the post-COVID world, business models are being transformed for the digital age. Multinational corporations expect their tax functions to play a bigger advisory role, such as providing strategic counsel on multiple issues including emerging digital business models and sustainable transformation. GCCs are increasingly evolving in order to adapt to the disruption caused by COVID-19, as they seek to provide quick value-added services, better customer experience, and high-impact business outcomes.

As per a recent survey by Deloitte, currently, 90% of GCCs in India undertake finance functions and 36% of them undertake tax functions.[2]

Organisations undertaking finance/tax function spends more than 46% of their time on information gathering. Further, reworking, reviewing and reporting consume more than 40% of the time, leaving little room for analysis/planning. An optimum scenario would be where 50-60% of the time is spent on analysis and planning, and minimal time is consumed for data collation, reporting, review, rework etc. This may be possible if the activities are either outsourced by the tax function or centralised centres of excellence. As per the Deloitte survey, 44% of CFOs preferred outsourcing tax services, while 31% preferred setting up tax shared service centres[3].

Based on the preference of the organisation and the business requirements, GCCs can adopt three different models for Tax GCC:

  • In-sourcing – One of the key benefits of such model is that the core business knowledge is retained within the organisation.
  • Outsourcing to third party service provider – Such model can help in redirecting the bandwidth of resources to strategic business requirements.
  • Hybrid model – This can help retain control of key processes within the organization, while leveraging service providers’ capabilities in other areas.

While Tax Shared Service Centers (‘SSCs’) typically start with undertaking reporting and data gathering activities, the following are the key essentials for realising the value of Tax GCCs:

  • Right scope of tax processes to be undertaken
  • Flexible service model that can adjust with the changing business environment
  • Automation supported by cutting edge technology
  • Strong analytics based on historical data for better decision making
  • User friendly system for easy retrieval of data from single source

India is expected to add another 500 GCCs in the next two years. Given the aspirations for the tax function to add more strategic value and with the rapid shift to digital tax administration, multinational enterprsies (MNEs) may see merit in centralising their tax processes within the GCC as it helps optimise service delivery through integration and automation. GCCs could explore undertaking a plethora of functions such as strategic tax planning, risk management and tax governance, direct tax provision and compliances, indirect tax, mergers and acquisitions, transfer pricing, payroll taxes etc.

[1] Zinnov NASSCOM report- GCC India Landscape: 2021 & Beyond

[2] Deloitte- 2021 Global Shared Services and Outsourcing Survey Report

[3] Deloitte -Tax transformation trends survey: Operation of focus (May 2021)

Authored by

Manisha Gupta – Partner, Deloitte India; Vijai Jayaram – Director, Deloitte Haskins and Sells LLP; Rohit Lal – Manager, Deloitte Haskins and Sells LLP; and Unnati Sharma – Assistant Manager, Deloitte Haskins and Sells LLP

Disclaimer: The views expressed in this article are those of the author and do not necessarily reflect the views of ET Edge Insights, its management, or its members

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