Corporate tax departments have been confronting additional reasons for uncertainty in 2022, with surging inflation, interest rate increases, war in Europe, global minimum taxes and the continuing pandemic adding to worries.
A pair of recent surveys from Bloomberg Tax and BDO USA polled corporate tax leaders about the challenges they are facing this year. The
This year, legislative tracking kept the top position on the annual survey as the biggest challenge cited by the tax executives, but it continued to increase, with 56% of respondents citing legislative tracking, tax reform and staying up to date as the top challenge. The results were the same across the board, whether at public or private companies, smaller or larger tax departments, or industry sectors.
The second biggest challenge was finding the time for conducting planning activities such as scenario analysis and modeling (46%) to gauge the potential implications of tax reform and global changes and inform appropriate business strategies.
“We have been tracking the potential tax changes … and discussing its impact with our tax advisors to better understand the changes and the various effective dates for all of the provisions. I’d say it’s never too late to start modeling out the impacts with different tax scenarios,” said Denise Bee, head of tax at the messaging company Slack, in a statement.
The most prevalent mandate over the past three years for the tax function, according to the respondents, has been reducing costs and promoting efficiency in tax administration (45%). That corresponded with the assumptions made by respondents in previous Bloomberg Tax surveys. In 2018, reducing costs (38%) ranked second behind improving tax planning as the expected mandate going forward. Before the outbreak of COVID-19, Bloomberg Tax’s survey showed it ranking first at 43% and growing to 55% after the pandemic hit.
Given the strong economic rebound in the first half of 2021, the 2022 survey indicated that reducing costs would no longer be the top mandate over the next two years. Instead, the respondents cited reducing cash tax payments and the effective tax rate, and improving tax planning and tax-related decision support, as tied for the top spot at 42% each. Reducing costs and promoting efficiency dropped to second place at 37%.
The talent shortage is continuing to affect many corporate tax departments, with 70% of the respondents somewhat or strongly agreeing that corporate tax departments are under-resourced in 2021, and 74% saying the department will need additional resources to fulfill its mandate over the next two years. With the Great Resignation underway, many tax departments are finding recruiting to be more difficult than in the past. More than two-thirds (69%) reported having difficulty recruiting and retaining talented tax professionals. The outlook for improvement in the near future isn’t exactly promising. A 87% majority of survey respondents anticipate that over the next two years, it will become either somewhat or much more difficult to recruit and retain top tax talent.
Tax departments are trying to make up with the talent shortfall with greater automation. While digital transformation accelerated during the pandemic, tax departments often lag behind in adoption and investment in new technology. The survey found that only 29% of the respondents see their tax departments as innovators or early adopters of new technology and 15% consider their departments late adopters. More than half (55%) describe their tax department as typical in waiting to make sure technology is fully vetted before adopting it.
An 84% majority indicated increased automation and AI would play a critical, important or contributing role in plans to improve tax effectiveness over the next two years. They see a variety of benefits, such as eliminating manual processes, increasing accuracy and productivity, and improving controls.
“Today’s young tax professionals grew up with technology,” said Adam Schrom, product lead for Bloomberg Tax, in a statement. “Tax departments that are forward-thinking in their approach to technology adoption will be more appealing to those professionals and have a better chance to attract and retain the right talent.”
An eye on tax changes
In another recent poll,
Tax executives are also worried about corporate tax rate increases, with 55% of the respondents saying changes to the corporate tax rate would have the greatest impact on their organization, while 24% believe a corporate minimum tax would have the largest impact.
“The tax department sits at the nexus of external tax forces and internal business strategy — a position that offers incredible value to company management,” said Matthew Becker, national managing partner of tax at BDO, in the report. “Every business decision has a tax implication, so tax should factor into the conversation to drive optimal business outcomes. As tax leaders strive to take on the role of strategic advisor to the C-suite, they need to find efficiencies in tax operations to manage their growing responsibilities.”
As calls for tax transparency mount, nearly all (95%) of the respondents to the BDO survey said their department is playing a role in developing tax transparency reporting programs. However, there are roadblocks to tax reporting on the technology side, with 62% of the respondents indicating that data collection and analysis is the greatest challenge to accurate tax transparency reporting.
