Corporate Tax

New report reveals corporate tax departments are struggling to implement know-how and expertise within the face of ongoing tax adjustments

Corporate tax departments are struggling to implement advanced technology and find people willing to … [+] use it.

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Thomson Reuters released its annual State of the Corporate Tax Department annual report on June 8th. The report summarizes the results of an online survey of tax departments for small to large businesses both inside and outside the United States and in a variety of industries.

Tax reform was cited as the most common challenge facing tax departments, reflecting 2020 survey results. “Our latest survey of indirect taxation departments shows that 57% expect big changes in government, particularly in terms of digital filing or, in some cases, real-time reporting,” said Sunil Pandita, president of corporates at Thomson Reuters. A specific tax workstream as well as new technologies and automation round off the three most important challenges. Reduction of the tax burden tied to fourth place through process improvements. The survey also revealed some new challenges specifically related to the pandemic and its ongoing effects, including managing the effects of Covid-19 and providing an effective remote work environment.

Whether working remotely or in-office, respondents agreed that using technology to improve communication within the tax department improves team collaboration. Unfortunately, respondents also said that communication between departments doesn’t make the same improvements unless the rest of the company adopts the same communication technology and implements it consistently. In other words, technology improvements allowed the tax team to work better with each other, but not necessarily with the rest of the company.

Almost half of the tax departments surveyed stated that they felt the burden of insufficient resources. 56% of the US companies surveyed. “The potential risks from a compliance, quality of work and talent retention perspective should be warning enough for departments to address this shortcoming, but a team with the right resources can potentially generate additional tax savings.” Departments that consider “really big “Consistently reported higher spending (around 14%) than companies that said they had insufficient resources. “One of the benefits of having a more sophisticated department is the greater likelihood that the resources are properly sized.” Of course, more sophistication comes with a higher price tag. Again, departments that felt they were adequately equipped in terms of staff and technology spent about 14% more than those departments that considered themselves “underserved”.

The most common strategy for overcoming resource constraints is to introduce additional technology and automation. Pandita notes that “using technology saves time, which in turn saves costs, improves time to value, and improves team member morale.” Technologies related to direct tax compliance and tax regulation were seen as the greatest added value. These technologies make staff more efficient and improve accuracy. Technologies related to process management and workflow automation have often been the least used because of the resources required to implement them. The report acknowledges that a lack of budget or skills can also lead to underutilization of certain technologies. The lack of resources can be compounded by the apparent complexity of certain tools or lack of training. The report also states, “Sometimes people are simply resistant to change and stick with simpler technologies that they are already familiar with.” While the results are not entirely surprising, they show the difficulty that tax departments have in adopting technology to improve results and efficiency as well as to adapt to an increasingly complex and frequently changing tax landscape.

For North American companies, the tax department’s budget for technology improvements and automation most often comes from the company’s finance and accounting departments. In the UK and Europe, it comes from the Information Technology (IT) department. Direct cost savings were most often cited as the main argument in arguing the business case for implementing a new technology. Other reasons given to argue that a technology is “money well spent” have been its impact on quality, accuracy and standardization. Risk reduction, processing speed, and overall efficiency were also seen as compelling. Only 12% of the survey participants named user friendliness as a decisive criterion when choosing a new technology. Nonetheless, the report reminds readers that “given the general outcome of technologies that are underutilized after implementation, we encourage departments to consider this an important selection criterion”.

Tax departments today need people who are excellent at both taxation and technology, and it is difficult to find both in one candidate. The survey says finding qualified employees was the biggest hiring challenge. Advanced technology skills are the largest single skill gap within existing tax teams, and tax departments have difficulty finding good tax advisors alongside those with specialized technology skills (19% say this is the top challenge for new hires). Investing in training and retaining high-performing employees is important. Still, the survey results show that few tax departments use talent metrics to help their department succeed. Metrics related to meeting deadlines, compliance, accuracy, and reducing tax liability were much more common. Given the role employees play in meeting these other metrics, the survey concludes that a lack of talent metrics can be a missed opportunity.

The report highlights and quantifies the difficulties corporate tax departments face in implementing a corporate tech stack and ensures that existing and new employees can handle it.

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