What you can expect from this article

Anyone working in the field of tax consultancy today has been experiencing a noticeable shift over the past few years. This is not just down to the wave of digitalisation that swept through Germany during the pandemic. The requirements of many clients are also changing. At a time when many software providers and app developers are automating repetitive tax and accounting tasks, companies expect more from a tax consultancy. Ironically, this effect is exacerbated by the fact that many firms and tax advisers are also digitising and automating their own processes. Routine tasks, which used to be real cash cows, are viewed differently today. The trend is clear: the future of tax consultancy lies in new business areas such as process and digitalisation consultancy.

A clear lead in trust opens doors for tax advisers

For several years now, an increasing number of tax advisers have been putting process and digitalisation consultancy on their agenda. This makes sense for several reasons. Thanks to their knowledge of business processes and the industry, tax advisers are the natural point of contact for clients. This is demonstrated by a joint study by DATEV and Handwerk Magazin on the digitalisation of commercial processes in the skilled trades sector. According to the study, businesses that receive support from a tax adviser are better positioned when it comes to utilising digital solutions and expertise, and are generally more willing to invest. According to the study, 60 per cent of these tradespeople also regard their tax adviser as their main point of contact for digitalisation issues.

The results make it clear that the field of digitalisation consultancy should not be left to IT system integrators. By their very nature, these companies are aggressively pushing their way into the market with consultancy services based on their own tools. However, from a logical perspective, digitalisation consultancy belongs in the portfolio of any ambitious tax practice. This is because a tax practice, with its core competencies in consultancy and communication, comes across as particularly credible if, in future, it also offers advice on process digitalisation and optimisation. Anyone who has a thorough understanding of my tax processes and business workflows can, of course, also help me make organisational and procedural progress towards the holistic optimisation of my processes.

In small and medium-sized enterprises, digitalisation projects often originate in the IT department and are linked to the introduction of new software. Although the intention is not wrong, the impetus comes from the wrong place. IT is not the driving force behind process alignment. And digitalisation should not be built around a specific tool, as the objectives must be established first in order to then select the appropriate tools. Nobody starts by choosing a screwdriver and then tries to find a screw to fit it. Leaving aside the issue of software, tax advisers already possess the necessary knowledge of the GDPR and GoBD to protect sensitive client data and comply with commercial law requirements.

Automation is changing the range of tasks

The world of tax consultancy is changing. For example, the Oxford study „The Future of Employment“ suggests that, in the US, tax consultancy roles could be phased out in future as a result of automation. According to the study, routine tasks such as preparing annual accounts or tax returns could become redundant. Their high degree of standardisation makes them easy to automate. The same applies to financial and payroll accounting. Repetitive tasks will, for the foreseeable future, be taken over by artificial intelligence, for example through the use of Robotics Process Automation (RPA): software robots independently access data and systems and trigger the execution of defined transactions. In future, accounting systems will be able to generate automated entries as well as suggestions for the account allocation of individual invoice or voucher items. The use of artificial intelligence also enables the monitoring of accounting behaviour and the immediate identification of errors. Other AI solutions go one step further: they will be able to automatically check tax matters against similar case scenarios and existing knowledge databases. All these bots, apps and RPAs will support the work of tax advisers.

All of this bodes ill for law firms that cling to the status quo. By implementing the aforementioned solutions for process optimisation, the value of services will be measured differently in future. Those who fail to diversify their offering could quickly lose their competitive edge. And those who do not use information and communication technologies to optimise processes and administrative procedures may face massive price pressure. According to the study, this affects sole practitioners rather than law firms: only 50 per cent of sole practitioners have a website at all. In contrast, forward-looking law firms are shifting their range of activities away from routine tasks towards more knowledge-intensive projects. At present, the functions most commonly used include digital bank statements, accessing the electronic tax account, the power of attorney database, document scanners and the digital tax assessment return transfer. It makes sense and is in keeping with the times to also digitise invoice approvals, create travel and expense claims via apps, and carry out HR management and digital signatures within integrated HR systems.

What feels like a risk actually brings greater stability

The organisational impact of digitalisation on working practices is far-reaching. For instance, firms that support their clients automatically optimise their own processes as well. According to a study commissioned by the Federal Chamber of Tax Advisers (BStBK), the profession is aware of the potential offered by digitalisation. The study found that digitalisation is seen as an investment in the future and is linked to expectations of rising profits. And just under 70 % of the tax consultancy firms and law firms surveyed consider themselves well-positioned. Here, too, it is once again the individual practice that is lagging behind the trend.

The special analysis of the 2018 Statistical Reporting System for Tax Advisers (STAX) has revealed that respondents see the greatest opportunities offered by digitalisation in efficiency gains within internal processes or in exchanges with external partners. Over 50 % of respondents saw the potential for structured analysis of their clients’ data – which underpins tax processes and is constantly growing – as an opportunity to offer additional services. Today, we can see that these expectations were not unfounded. Tax advisers who have since expanded their advisory portfolio are benefiting from consistently high demand and a correspondingly high workload.

From strategy to implementation – all from a trusted source

Automating manual tasks saves a great deal of working time. Law firms can use the time saved to provide more in-depth advice or to develop new business models. One such business model could be digitalisation consultancy, which some law firms now offer. Digital transformation consultancy encompasses the traditional areas of management, process, HR and IT, and can range from strategy right through to the tools used. At the strategic level, the organisation’s long-term direction is set, and the objectives and guidelines for digital transformation are defined. This vision is reflected in the priorities set for individual projects. The need for change is identified, targets are set and measures are initiated. Medium-term implications for different areas of the organisation are addressed at the tactical level, whilst the measures are defined at the operational level.

Tax advisers are experts in commercial processes. Consequently, they approach digitalisation consultancy by optimising accounting and payroll systems. Many clients are grateful for such in-depth consultancy services. And tangible improvements can be achieved even with small changes in the right areas, which paves the way for follow-up projects and a steady income. Some consultants later move on to providing legal or business management advice. They may, for example, offer support with digital HR management, although this area depends heavily on the size of the company. In larger organisations, the tax adviser can serve as a helpful guide to navigating the jungle of solutions on offer. In its early days, process consultancy for digital efficiency focused on optimising accounting and HR management, whilst also covering Office and Microsoft-related topics. Later, the focus broadened to organisational matters, introducing, for example, digital signatures or collaborative tools to clients. The challenge for firms lies in developing the right approaches and the right way of addressing clients.

The basis for consultancy services: procedural documentation

Procedural documentation provides a further entry point into consultancy services and can be expanded to cover process documentation. Procedural documentation is primarily required of businesses under the GoBD and tax law as a documentation obligation to ensure processes comply with the law. Sooner or later, businesses will have to address this issue. Many firms market procedural documentation by playing on clients’ fears or by emphasising the legal obligation. However, far more important than the necessity are the added benefits; after all, procedural documentation forms the first building block of a reputable, professional consultancy service. It is only with this much-maligned documentation that potential for optimisation can be identified and a consultancy service can be structured holistically, moving away from specific areas such as accounting towards the workflow of the entire administrative apparatus. These services are more difficult to sell, but there is a demand for them.

Process documentation raises awareness of working methods and potential for optimisation right from the outset. It also strengthens two key aspects of digitalisation: transparency and participation. However, process documentation is a particularly extensive and time-consuming task, especially in large organisations. At the same time, the potential for insights and added value is enormous, for example through the identification of key individuals with specialist knowledge across the entire organisation. By mapping current processes, it is easy to determine the potential for time and cost savings, efficiency gains and the reduction in staffing requirements resulting from process optimisation, thereby reliably identifying the potential for digitalisation. On this basis, the appropriate systems are selected to achieve the highest possible level of automation.

Positive change requires a willingness to change

One thing is clear: the importance of processes within organisations and knowledge of them will grow. At the same time, the standardisation of processes forms the basis for continuous process improvement. Strategic process management will have a positive impact on the internal and external orientation of organisations – and will normally lead to significant changes. However, experience shows that good process documentation cannot usually be produced simply from a catalogue or questionnaire that the client fills in themselves. At least one specialist responsible for its creation is essential. Using software designed to facilitate collaboration, this person can structure the process documentation in the same way as the topics of Internal Control Systems (ICS) and Tax Compliance Management Systems (TCMS). This is because procedural documentation and the ICS work hand in hand: the risks and the necessary countermeasures can be derived from the documentation of the process steps.

In summary, industry observers note that digitalisation requires tax advisers to demonstrate a fundamental willingness to embrace change. From the nature of their work to the services they offer and the software solutions they use, there are many challenges ahead. Similarly, the role of a tax adviser requires neither a university degree nor formal training, but simply expertise and experience. Consequently, recruitment practices and the general competitive landscape will change. At the same time, digitalisation offers the opportunity to counteract the shortage of skilled workers and make the profession more attractive to young people and career changers. Furthermore, partnerships and collaboration present new opportunities to broaden one’s scope and take a proactive rather than a reactive approach.

Good to know: Professional regulations, billing and funding

Digitalisation consultancy is regarded as freelance management consultancy and is classified as one of the permissible activities under Section 57(3) of the StBerG and Section 15(1) of the BOStB. Professional indemnity and liability insurance cover these activities as business and organisational consultancy (BBR-S B. II. 7b). Collaborations are also a viable solution in accordance with Section 56(5) of the Tax Advisers Act (StBerG): Provided that this is not based on the acceptance of joint assignments, tax advisers may enter into a collaboration with members of the liberal professions or professional practice groups within the meaning of Section 1(2) of the PartG – whilst ensuring that their professional duties are upheld. As a so-called ‘compatible activity’, digitalisation consultancy does not fall under the Tax Advisers’ Remuneration Ordinance, as its applicability under Section 2 of the StBVV is contingent upon the fulfilment of reserved duties (Section 33 of the StBerG).

The rules of interpretation set out in Sections 612(2) and 632(2) of the German Civil Code (BGB) apply to the remuneration for consultancy services. Fees are calculated in accordance with a fee agreement, an existing fee scale, the customary remuneration or at the lawyer’s reasonable discretion (Sections 315 and 316 of the German Civil Code (BGB)). In the first instance, the agreements made are taken into account. If no such agreements exist, reference is made to a scale of fees and thus to the rates of remuneration laid down by federal or state law. Remuneration at the lawyer’s reasonable discretion applies where the gap in the remuneration agreement cannot be filled even through a supplementary interpretation of the contract. Consultancy services provided by law firms and tax advisers are eligible for funding by businesses. One example worth mentioning here is the funding programme run by the Federal Office for Economic Affairs and Export Control (BAFA).