A confluence of trends and developments is offering organizations the opportunity to transform tax into a competitive advantage — but many of them may be missing real opportunities for profit, growth, and competitive advantage by failing to use tax data in a forward-looking way, according to a new survey
“Many business leaders aren’t using their tax data to its full potential and are therefore missing an opportunity to gain insights and add value,” said Greg Engel, vice chair of tax at KPMG.
The new KPMG Survey, “
For starters, the survey found:
- Over three-quarters (78%) agreed that their company’s tax function should be used for more than just managing taxes; 93% said that they give priority to the tax function when it comes to investment of resources.
- Just under three-quarters (73%) say that the predictive power of the tax function has the potential to impact the financial direction of the entire organization. But the same percent say that their organization doesn’t know how to use tax data in a forward-looking way.
- Over three-quarters (76%) say the vast array of emerging tax technology options feels like the wild, wild west, with existing technologies evolving quickly and new technologies coming to market. As a result, 65% say they are becoming more willing to outsource or co-source their tax function over the past year.
- While leaders were divided on whether to prioritize tax expertise or tech savvy in hiring decisions for the tax function, the highest-valued attribute for new hires (46%) was strategic thinking. A close second (45%) cited an accounting background as one of the most important skills needed in the tax function to ensure it operates at its full potential.
- In making hiring decisions, 82% said diversity, equity and inclusion continue to be a pressing issue, with 42% saying they have set goals around outreach to Black, indigenous, people of color and other underrepresented minorities.
- The possibility of domestic tax law changes is less likely to keep executives up at night (cited by 37%) than global tax reform (cited by 50%) and GILTI on offshore earnings (also cited by 50%).
- Finally, 84% say their organization is preparing for more transparency around their tax function as part of their ESG commitments.
“The survey included a nice mix of CEOs, CFOs, and CTOs,” said Engel. “They weren’t just leaders of the tax function.”
“A lot of what we learned from the survey was themes to what we’ve been hearing from our client base,” he said. “We wanted to find out what was deriving their views on the tax function.”
Particularly in the field of technology, the survey underscored what KPMG has been hearing about tax function trends, according to Engel.
“Three-quarters of the respondents believe that tax data can make a positive impact. They believe that tax data used in a forward-thinking way can really help them in their decisions.”
But related to that, 73% said their organizations don’t know how to use data in a forward-looking way, Engel observed: “There’s a gap.”
In fact, the survey uncovered a certain “skittishness” about further investing in more technology for the tax functions. “The results may be signaling that interest in further building out or investing in in-house tax technology may have plateaued,” he continued. “One reason may be the fast pace of innovation — it ‘feels like the Wild, Wild West’ — with existing technologies evolving quickly and new technologies coming to market.”
“It’s all over the board,” said Engel. “Only one-third want to invest in tax technology, because they don’t think that there’s a good ROI. They want it but they don’t want to pay for it.”
Uncertain in the face of uncertainty
The survey indicates that companies want to plan for the uncertainty and complexity they face in the tax function, but they don’t know how, Engel indicated. “Tax is so uncertain and these new changes are so complex, especially for global companies.”
“The Tax Cuts and Jobs Act spun a lot of complexity and drove a lot of modeling, and companies are still digesting that,” observed Engel. “There’s an ongoing dilemma of uncertainty and complexity. There are changes on the way, and companies want to know how to plan into those changes. The modeling is difficult and expensive to build.”
There can be many reasons for a company not modeling, Engel suggested. “If you’re a domestic company, you may not need to do a lot of modeling. But if you’re a global company, with a complicated supply chain, I don’t know how you couldn’t model.”
A key question the survey asked was what keeps these executives up at night. Global tax reform and GILTI were both cited by 50% of respondents, compared to 47% who cited ESG issues such as tax transparency mandates, tax activists, sustainable finance, and 37% cited higher corporate tax rates. “GILTI is kind of a U.S. version of OECD’s global minimum tax proposal. Our attempt in our tax model is to make sure you collect at least the minimum amount of tax anywhere in the world,” he said.
The fact that the tax function is seen as having a “seat at the table” is a very real positive in the world of tax, according to Engel. “Nearly 90% indicated that. It’s important that leaders of business value the contributions of the tax function. The tax function is valued, and has a responsibility to participate and help in the business. That’s a good finding, knowing that the majority of survey participants were CEOs and CFOs.”
Finally, when asked a question about outsourcing, close to two-thirds have become more willing to outsource or co-source over the past year, according to Enel “It’s the significant cost and complexity of the necessary technology tools that is driving companies to come to us and to other firms to use the technology we have built to help their clients,” he said.
Moving beyond the status quo will require more companies to consider new approaches to harnessing emerging technology and the strategic talent needed, the survey concluded. “By reimagining their tax functions as they anticipate and prepare for market disruptions and pending tax legislation, more companies can unlock the full value that their tax functions can deliver.”
