Overwhelmed by an onslaught of requirements, data, and technology, tax departments are beginning to look for new ways to achieve compliance.
“Tax and finance leaders today are dealing with unprecedented pressures,” said Terri LaRae, a partner in Deloitte Tax, during a recent Webcast. Companies are dealing with massive changes in U.S. tax law under the Tax Cuts and Jobs Act, which produced an enormous shift in global tax while also coping with a shortage of professional talent and rapid changes in technology.
“Many are struggling to just keep up, let alone transform,” says LaRae. But transform they must, simply as a way of keeping up.
Enacted in late 2017, the Tax Cuts and Jobs Act reduced tax rates, which is generally expected to reduce overall tax cost. Leadership at some companies are beginning to regard the reduced tax cost as a reason to reduce resources to the tax department, says LaRae.
Yet the legislation did nothing to reduce tax complexity. In fact, it increased complexity, some would argue. Companies are still sifting through hundreds of pages of regulations on how to navigate through new tax rules, and more guidance is still expected. “Most tax departments are not equipped to deal with the new reality,” says LaRae.
Tax reform in particular is driving conversations not just about how companies are affected or how they should view tax planning going forward, but how they should operate to achieve compliance, says Will Williams, national managing partner in tax at KPMG.
“If you look broadly at how departments are trying to do what they have to do to comply and plan and meet requirements, the conversation in the marketplace is turning to what is the appropriate design of the tax department?” says Williams. “What are its key roles and responsibilities? How should it be organized and structured to meet those obligations?”
Matt Becker, managing partner of tax at BDO USA, is witness to those conversations as well. “The scene in the tax function across corporate America is hectic,” he says. “We’ve never seen change of this magnitude at a time when we had this much complexity in the tax code.”
Deloitte’s Webcast polling provides a glimpse of how overstretched tax departments are and how ready they are for change. Tax executives said they need to consider changes because of increasing cost pressure, new technology, and difficulty attracting and retaining skilled tax talent. The majority, in fact, said all three of those factors were driving the need for change. While a little more than one-fourth plan to handle activities internally using technology, 58 percent said they’ll use a combination of technology and outsourcing to get where they need to go.
“Anywhere within the tax function you have a task that can be automated, there’s a high interest in doing that.”
Matt Becker, Managing Partner of Tax, BDO USA
Williams says he sees the largest companies looking for ways to leverage technology to free up people to do more strategic, analytical work. “How do we harness the power of intelligent automation?” he says. “There’s a lot of technology out there.” Robotics process automation is producing a digital labor force capable of mechanical, repeatable tasks, he says.
An increasing number of larger companies are moving to outsource the mechanical aspects of tax compliance and retain internally the more complex, analytical functions, says Williams. “They expect the tax advisor community to be investing in platforms to be able to deliver the mechanical, repeatable functions, so it should be more cost-efficient for the tax advisor community,” he says. “We’ve got close to 1,000 of these types of bots involved in the tax compliance process.”
Becker is steering companies to look more broadly at tax to get a better understanding of an organization’s total tax liability. “Literally seek to consider every single tax the organization pays, domestically and internationally,” he says. While that might sound like an even more granular approach, he says, the idea is to consider more broadly the tax implications of business decisions.
A recent BDO tax poll found only 58 percent of tax executives believe they have a high level of understanding of what their organization’s total tax liability is; 32 percent said their understanding is moderate. Board members are even less confident, with 51 percent saying they have only a moderate understanding of the total tax liability.
In Becker’s view, the most efficient way to get to a better understanding of the total tax liability is through the use of technology. Companies simply can’t hire enough people to do the amount of manual work and analysis necessary to understand the total tax liability efficiently enough to serve the modern global company’s needs. “Anywhere within the tax function you have a task that can be automated, there’s a high interest in doing that,” he says.
Automation can help, for example, in collecting information needed from various subsidiaries for tax reporting purposes. Automation can also sort through trial balances produced for Generally Accepted Accounting Principles purposes to determine whether and where they should flow into tax reporting. “We’re seeing some potential for artificial intelligence to appropriately chart those to the tax return,” says Becker.
Automation not only makes the mechanical tasks far more efficient. It also provides more decision-useful information to operations, says Becker.
If a company is considering moving a facility, for example, the potential tax implications are vast. Property and income taxes across jurisdictions can be numerous, not to mention value-added taxes, shipping issues, and other tax considerations. All of that can be analyzed thoroughly and rapidly, says Becker. “Being able to quickly assess that has tremendous value.”
Deloitte offers some food for thought on how to adapt to changes in tax compliance, focusing on initiatives for organizations, individuals, and tax teams to consider. A disciplined approach to change management is important, along with identifying and acting on emerging trends and inspiring people to continue to learn. The firm also recommends diverse teams that bring different skills in technology, mathematics, analytics, and operations beyond just tax expertise.