Report reveals Chief Tax Officers’ top concerns
By Arjun Ruparelia
The tax function has always been a core competency within organizational decision-making. However, manual data entry into spreadsheets and the lengthy process of migrating the information to multiple locations puts significant pressure on tax personnel, leading to errors.
Add to that the potential penalties that regulators can impose due to inaccurate manual entry and you’ll see how expensive such mistakes can be to your company.
Concerned about their organization’s operational efficiency, more companies (about 79 per cent, according to a new report) are looking to invest in technological tools related to transformation, data management and extraction that require less back and forth and ultimately reduce risk.
KPMG annual CTO survey
Technology was a key focus of KPMG’s latest annual CTO survey, which collected insights from 126 chief tax officers from companies with revenue of $500 million or more across a wide array of industries. Topics included shifting work models, mergers and acquisitions (M&A), Environment, Social and Governance (ESG), opportunities and challenges in the tax function, and the future of tax.
The survey found that the tax environment will get more demanding in the coming months — which might spell trouble for organizations’ growth prospects. In response, outfits are preparing by investing in agile technology to automate tax functions and reskilling existing tax professionals to spur business growth.
Key issues on the tax landscape
The survey uncovered key trends in the following areas affecting the tax function:
Challenging tax environment persists
According to the report authors, a likely tougher tax environment in the U.S., but uncertainty about exactly what it will entail under the Biden administration, is complicating tax moedling and planning and “raising the stakes” on tax decisions.
Among respondents, 78 percent consider regulatory risk to be the top threat over the next three years. They are looking to rebound from the pandemic-induced panic response with an integrated perspective for a sustainable future.
They also anticipate an increase in corporate tax since, empirically, the U.S. is at a period of historically low tax rates. This suggests that the government needs to raise tax rates and manage its soaring expenditures to meet its obligations.
Technology reducing the burden
As challenges related to tax functions grow, CTOs are turning to technology to reduce some of that burden.
Technological solutions bridge the gap between evolving business environments and offer a cost-effective, agile solution for vigorous growth. Leveraging technology effectively handles increased demands on tax departments and presents all information in a tax-ready format through their enterprise-wide financial systems.
For example, “tax-sensitizing” an organization’s ERP system by incorporating tax requirements accurately captures data that the tax function needs. The business can extract value data, perform analysis and provide actionable insights.
These systems streamline companies’ tax reporting process by integrating data from multiple applications into a common reporting and information platform, reducing the hassle for employees — creating a win-win situation for the company.
According to the survey, investments in ERP, source systems and data warehouses will be significant in the coming years, owing to their unprecedented benefits. Moreover, collaboration tools are also essential for tax functions for operating in global environments and working with remote or hybrid teams.
Two-part tax advisory service
The U.S. government announced a two-part framework to address the tax challenges of the digital economy:
- Pillar 1 focuses on global taxing jurisdiction and putting more control in the hands of the market, which is where the users and customers are located.
- Pillar 2 introduces a minimum tax rate of 25 percent. Groups taxable at below the minimum rate would be required to pay a top-up tax at their head office location or at the location of other affiliates.
This framework has notable implications for businesses' tax functions, significantly impacting their tax profile, reporting and operations.
Tax functions need personnel with both specific tax and accounting knowledge, as well as sufficient technological capabilities to work with client data. However, many candidates either lack sufficient tax expertise or technological competency.
Businesses need to attract and retain a highly-skilled workforce to tackle this challenge, while other companies might often try to poach talent.
Many leaders are considering outsourcing the tax function to give the in-house team a breather from routine work, freeing them up to learn automation- and artificial intelligence-driven tools.
Looking at tax functions through an ESG lens tells a more holistic and empathetic story about your business purpose. Three ways to enhance your ESG tax initiative are:
- First, paying a fair share of tax on the ESG initiative for global and domestic tax reforms around the globe.
- Second, an ESG approach involves more than publishing tax data; it’s about having a tax strategy that aligns with your core values.
- Third, emphasize the link between transparency and governance to build a solid foundation of trust.
Today, tax functions increasingly need to speak to a wider audience, including employees and customers, and have robust tax policies that align with ESG initiatives.
Increase in M&A activities
Global M&A activities blew past $5.8 trillion in 2021, but these come with challenging tax complications.
The tax consequences of an M&A dictate the most critical aspects of structuring your business. But, as tax law changes accelerate, getting clarity on the tax issues related to M&A is difficult.
Many companies are identifying tax requirements with complicated strategies formed by the authorities. This is why, even after the unprecedented pace of M&A activities, nearly two-thirds (63 percent) of CTOs say tax-related issues are growing, thus taking a toll on the overall transaction.
Tech makes tax less taxing
Global taxation demands transparency, agility and thoughtful communication with stakeholders. Proper systems and sophisticated technological advancements help you fulfil this demand.
Caseware ReviewCompTax helps tax departments with their decision-making processes in areas such as collecting, reviewing and reconciling data, scenario planning, projections, and overall business support.
With ReviewCompTax, you can merge all financial engagements into one workflow, review and compile tax engagements, and track the entire scope of your operations in real time with a shared dashboard. Learn more today.