The VP Tax Perspective

Tax Transformation: Insights from Kamila Szydlowska.

In conversation with Kamila Szydlowska, Tax Director and Head of Tax, who has led comprehensive tax transformations in both well-established corporations and fast-growing businesses

Please keep in mind that the statements and opinions expressed by the interviewee in this interview are her own and should not be interpreted as statements or opinions of any company she has worked for.

Patrick Evans (PE), Sal Partners: Good morning, Kamila. It's a pleasure to have you here today to discuss tax transformation. Before we dive into the details, can you introduce yourself and share your background and experience in tax transformation?

Kamila Szydlowska (KS): Good morning, Patrick. It's great to be here. I have over twenty years of experience as a tax professional, specialising in tax transformation for both mature organisations and rapidly growing enterprises. After spending the first ten years of my career at EY, I've spent the last decade in senior positions within the US pharmaceutical industry, specifically at Bausch Health and Moderna. I have led significant transformation projects, where I implemented advanced technologies, streamlined processes, and developed strategic tax initiatives. My expertise spans international tax, transfer pricing, compliance, and risk management. I have a proven track record of aligning tax strategies with broader business objectives to drive growth and efficiency.

PE: Thank you for that introduction. To start, can you explain what tax transformation is and why it's essential right now?

KS: Tax transformation refers to the comprehensive overhaul and modernisation of a company's tax function. This involves integrating advanced technologies, redesigning processes, and optimising resources to improve efficiency, compliance, and strategic value. The transformation is essential due to rapid legislative changes, accelerating data and technology developments, and a shifting talent environment.

PE: Why is transforming the tax function critical in today’s business environment?

KS: Tax regulations are becoming increasingly complex and stringent worldwide. This complexity requires a more agile and sophisticated tax function to keep up with frequent changes and ensure compliance. For businesses operating across borders, navigating diverse tax regulations effectively is crucial, reducing the risk of penalties and reputational damage. Moreover, technological advancements play a significant role. By leveraging automation and artificial intelligence, companies can streamline tax processes, reduce manual errors, and enhance accuracy.

PE: Can you elaborate on a transformed tax function's strategic advantage?

KS: The strategic value of a transformed tax function cannot be overstated. The tax function needs to evolve from a compliance-focused role to a strategic business partner in today's business environment. Real-time control over data allows the tax function to be more proactive in tax planning and optimisation, identifying tax-saving opportunities and aligning tax strategies with business goals. This alignment ensures compliance and significantly boosts profitability and competitive advantage.

PE: What role does effective risk management play in transforming tax functions?

KS: Effective risk management is another critical aspect of a transformed tax function. Control over data is integral to maintaining effective risk management. Businesses can minimise the risk of costly disputes and penalties by ensuring accurate filings and adherence to compliance requirements. An efficient tax function identifies potential risks early and addresses them proactively, safeguarding the company's financial health and reputation. This strategic risk management approach prevents issues and enhances overall business stability and resilience. Ensuring meticulous data control supports effective risk management, making audits proceed smoothly and limiting the risk of disputes and audits in general.

PE: How does data control enhance reporting and transparency in tax transformation?

KS: George Orwell once said, "Who controls the past controls the future. Who controls the present controls the past." This quote is incredibly relevant to the world of taxation, particularly when considering data's importance. In today's rapidly evolving tax environment, businesses must maintain meticulous control over their current data. This current data will eventually become the past data that tax authorities audit and the outcomes of these audits will shape the future of the business.

Tax transformation enables real-time reporting and better transparency, which regulators and stakeholders increasingly demand. Accurate and transparent tax reporting builds confidence among investors, regulators, and the public, supporting the company's reputation and sustainability. By ensuring accurate, comprehensive, and real-time data management today, businesses can create a robust historical record. This facilitates smoother audits and empowers companies to predict and prepare for future tax obligations and regulatory changes. Essentially, having control over your data now means controlling your future. This proactive approach allows businesses to adapt swiftly to new requirements, make informed strategic decisions, and maintain compliance, which are critical for thriving in an increasingly regulated tax landscape.

PE: What other benefits does a transformed tax function provide?

KS: Cost reduction is a crucial benefit of tax transformation. Adopting new technologies and streamlined processes can significantly reduce the costs associated with tax compliance and reporting. Improved efficiency in the tax function allows businesses to allocate resources more effectively, focusing on strategic initiatives rather than routine tasks. Additionally, it enhances collaboration across departments, fostering a more integrated approach to achieving business goals.

PE: You have significant experience in transforming the tax function in both mature organisations and those similar to startups due to rapid growth. Can you apply the same approach to both?

KS: The transformation journey significantly differs based on the organisation's maturity. Mature organisations often have complex structures with multiple subsidiaries, extensive operations, and international presence. Tax transformation in such organisations involves harmonising tax practices across various jurisdictions and business units. They usually have established tax processes and legacy systems that must be integrated or replaced, requiring careful change management and significant investment in updating technology and training staff.

PE: What are some specific challenges mature organisations face during tax transformation?

KS: Mature organisations must comply with various regulatory requirements, making the transformation complex and time-consuming. They typically have more resources to dedicate to these projects and can afford to hire top consulting firms and invest in cutting-edge technologies. Risk management and mitigation are crucial as these organisations have much at stake regarding reputation and financial exposure, so their approach often includes robust risk assessment and management strategies.

PE: How do tax transformation efforts in rapidly growing enterprises or similar to startups differ from those in mature organisations?

KS: Startups usually have more superficial organisational structures with fewer entities and less geographic spread, making their tax transformation efforts more straightforward and focused. Startups are generally more agile and can quickly adapt to new tax processes and technologies without the burden of legacy systems. However, they often operate with limited resources, so their tax transformation projects must be cost-effective, prioritising quick wins that provide immediate benefits. The primary focus for startups is on growth and scalability, aiming to establish scalable tax processes that can support rapid growth without becoming bottlenecks.

PE: How does the approach to the scope of activities performed by the tax function differ between mature organisations and fast-growing enterprises? Is it better for a startup to outsource and for a mature company to build an in-house function?

KS: We must remember that this topic does not use a fit-all-sizes approach. Each company’s approach towards outsourcing and insourcing will depend on company size, complexity of operations, budget, and strategic goals.

But before we dive into the details, let’s start with the definitions. Outsourcing involves contracting out the tax function to a third party. The benefits include cost savings, access to specialised expertise, and flexibility. However, it comes with drawbacks like loss of control, potential communication issues, and concerns over data security.

Insourcing keeps the tax function within the company, providing greater control, immediate feedback, and alignment with company culture. However, it can be more expensive due to salaries, benefits, and training costs. It may also stretch internal resources thin and make finding and retaining the right talent challenging.

Co-sourcing offers a middle ground, combining elements of both insourcing and outsourcing. In a co-sourced model, internal staff work with external professionals to perform critical functions.?In most cases, the external provider will allocate the dedicated team committed to the client. The client will have direct control and can provide directions to the team. This approach allows companies to retain control over critical tax functions while leveraging external expertise for specific tasks. Co-sourcing can be particularly beneficial for handling peak workloads or specialised tax issues without fully relinquishing control. It provides flexibility in outsourcing while maintaining some degree of internal oversight.

PE: How do you think rapidly growing enterprises could optimally manage their tax functions?

For start-ups, the journey typically begins with insourcing due to more superficial structures and limited budgets. In the early stages of development, startups often rely on in-house accountants who can provide tax advice rather than hiring specialised tax experts immediately. In addition, having in-house tax support helps fast-growing companies execute closer, more integrated control over the day-to-day operations in real-time. They may transition to co-sourcing to scale operations effectively and gain access to specialised skills as they grow. This helps them prepare for rapid growth without the total expense of a large in-house team. Co-sourcing is especially beneficial because it allows a company to retain control over certain aspects of its tax function while leveraging external resources for specialised tasks or during peak periods. It combines the best of both worlds—expertise and cost efficiency. Eventually, as the company matures, it may evaluate whether to outsource certain functions fully, continue with a co-sourced model depending on its specific needs and resources or even expand the tax team to build in-house capabilities.

PE: What about mature organisations?

KS: As an organisation grows and matures, it makes sense to continually assess which models make the most sense for current and future needs.? For mature organisations, a mix of insourcing and outsourcing can optimise efficiency and cost. They can outsource routine tasks (such as compliance) while keeping strategic functions in-house to maintain control and expertise. This approach ensures they can efficiently leverage external expertise while retaining internal talent for critical decision-making and strategic initiatives.

The key questions then become: What will be the scope of the third-party provider's involvement? How long will their services be needed? Which tax-relevant activities will be kept in-house, and which will be outsourced?

Alternatively, they may go in the opposite direction and expand the relationship with the external partner—not just to outsource the tax function but to provide broader, more complex support that extends into other areas such as accounting, customs, or internal controls.

Ultimately, there is no right or wrong answer. The best approach involves taking a holistic approach to transformation and adequately planning the organisation's transformation journey, building resources, expertise and capabilities accordingly.

PE: Now, let’s move on to another important aspect of tax transformation – technology. Do mature corporations and startups face the same technological dilemmas regarding tax transformation?

KS: Mature corporations and startups often face different technological challenges in tax transformation. Mature companies typically deal with legacy systems that require integration or upgrades, which can be complex and costly. They may need to invest in advanced, customisable tax technology solutions to enhance their global operations' efficiency and compliance. They may need to rehost, refactor, or re-platform their existing applications to boost performance and maintainability. In some cases, they may even decide it is more beneficial to set up entirely new systems to adopt the latest technologies rather than upgrading.

Startups, however, can start from scratch, adopting the latest cloud-based technologies and automation tools right from the beginning. This allows them to be more agile and responsive to tax environment changes, providing scalability and cost-efficiency without the complexities of integrating legacy systems.

PE: How do you ensure tax transformation initiatives align with overall business objectives?

KS: Ensuring alignment with overall business objectives requires close collaboration with other business functions and clear communication of the tax strategy's value. At Bausch and Moderna, I worked closely with finance, legal, and operational teams to understand their goals and identify how the tax function could support them. This involved regular discussions with senior management to align tax initiatives with strategic priorities such as international expansion, mergers and acquisitions, and supply chain optimisation. By positioning the tax function as a strategic partner, we contributed to the company's growth and success.

PE: The skill set required for modern tax professionals has evolved significantly. How do you view this transformation, and what critical skills are needed today?

KS: The required skill sets for tax professionals have transformed significantly. Today’s tax professionals must be highly data-savvy, comfortable with advanced analytics, and proficient in leveraging technology to streamline processes. Additionally, strong communication skills, strategic thinking, and the ability to collaborate across different business functions are crucial. The modern tax professional must be adaptable, continuously learning, and ready to apply new technologies and methodologies to stay ahead in a rapidly changing landscape.

PE: How do you see the role of the Head of Tax evolving in the coming years?

KS: The role of the Head of Tax is evolving to become more strategic and integrated with overall business operations. The role will continue to grow towards being a strategic partner within the organisation, contributing to its long-term success. There will be a greater emphasis on leveraging technology and data analytics to manage compliance and optimise tax strategies. Heads of Tax must build robust governance frameworks, proactively manage tax risks, and support business initiatives such as international expansion and mergers and acquisitions. The increasing complexity of global tax regulations will require Heads of Tax to stay ahead of changes and ensure their teams are equipped to handle new challenges.