Corporate tax departments today face myriad risks and challenges including an uncertain regulatory landscape, a talent shortage, vulnerable supply chains, reputational risk, and difficulty harnessing technology
To better understand the current state of the corporate tax department, KPMG surveyed 126 chief tax officers (CTO) from large companies in the Fall of 2021 and compiled their views in its 2022 Chief Tax Officer Outlook.
When asked which tax risks pose the biggest threat to their companies’ growth over the next three years, more than one-half of the CTOs chose talent. Greg Engel, Vice Chair-Tax at KPMG, believes that number would be even higher if the survey was conducted today.
In corporate tax departments, staffing challenges preceded the COVID-19 pandemic and they’ve been exacerbated by it, Engel notes. “There continues to be a lot of people leaving their jobs and the profession,” he says. “If you go to college campuses and talk to the professors, you’ll hear that fewer and fewer people are going into the accounting profession — and that wage inflation could be a reason why.”
Competitive compensation is part of the solution, but the workplace environment is arguably more important, Engel says. Many people were drawn to public accounting by the opportunity to work closely with colleagues with shared interests and objectives — and that has largely been lost with remote working.
“Anything a business can do, safely, to get their people feeling like they’re a valued part of a team, part of something bigger, will go a long way,” he says.
Amid the labor shortage, demands on corporate tax professionals have intensified, the KPMG study notes. “In today’s complex and evolving business and regulatory environment, tax is being asked to do more with less, produce results faster, and unlock value in new ways. Crunching numbers and preparing spreadsheets is no longer enough,” the report states. “Tax professionals are now expected to collaborate across functions, understand business strategy, and contribute to enterprises’ decision making, requiring more than just technical tax knowledge.”
Another recent KPMG study, Tax Reimagined: Perspectives from the C-Suite, confirmed that C-suite executives want their tax departments to deliver data analytics and strategic guidance alongside tax & accounting expertise. Three-fourths of these leaders, however, said their tax teams lack the right mix of skills.
A multi-pronged talent strategy emerged from the two surveys:
- Upskilling current staff — Nearly 60% of the CTOs said they are increasing training and reskilling of their current team members.
- Recruiting tech talent — About 40% of respondents in both surveys said they’re recruiting tax technology specialists or tech specialists who can learn tax.
- Outsourcing — Two-thirds of C-suite executives say that, over the past year, they’ve become more willing to outsource or co-source their tax departments to keep pace with advancements in tax technology.
“There’s a huge desire to make better use of technology and data in the tax department,” Engel says. “And that desire comes from not only the head of tax, but also from the people they report to.”
Regulatory risk & data analytics
Another challenge facing corporate tax departments is the volatile regulatory environment, which many CTOs called their departments’ top risk. Indeed, more than 46% had said they expected an international agreement to be reached on one or both parts of the Organisation for Economic Cooperation and Development’s (OECD) effort to address tax challenges arising from the digital economy. Pillar 1 of the initiative would enable authorities to levy taxes on companies in the jurisdictions in which they sell products and services, even if those companies lack a physical presence. Pillar 2 would impose a global minimum tax to potentially dissuade companies from shifting operations to lower-tax countries.
“These initiatives could have wide implications on the future tax landscape, with potential impacts on multinational organizations’ tax profiles, operations, and reporting,” the KPMG report says.
It’s unclear how these complex, international initiatives will play out, and companies often lack the data analytics needed to model the impact of proposed tax laws, Engel explains. As a result, CTOs cannot provide their companies with clear guidance to inform strategic planning. “The uncertainty weighs on the tax department because the other parts of the organization want to go ahead and do what they need to do,” Engel adds, “but they feel like the tax department is unable to give them what they need, which is certainty.”
The tech gap
KPMG’s Tax Reimagined C-suite survey found that corporate tax teams often fall short of leaders’ expectations when it comes to capturing and analyzing data and modeling financial outcomes.
And two-thirds of respondents in the CTO Outlook report acknowledge that their teams spend more time collecting and preparing data than they do performing analytics. Responding CTOs say they will focus future tech spending on:
- Data management, extraction, loading, and transformation tools (79%);
- Enterprise resource planning (ERP) software, source systems, and data warehouses (60%);
- Collaborative tools (50%); and
- Business intelligence, modeling, and advanced analytics (38%).
C-suite executives say they know tax data can create valuable intel, according to KPMG’s research, but most say their organizations are not yet using tax data to respond to audit inquiries, generate spending insights, forecast tax rates, identify opportunities to improve the bottom line, or inform decisions about mergers & acquisitions. The study identifies several systemic reasons for this, including an inability to share data across the business, concerns over data accuracy, resourcing issues, and a lack of analytic tools and skills.
Even so, most executives say they don’t intend to invest heavily in technology to correct the problem due to their concerns about return on investment (ROI), data literacy within the company, and insufficient available tax technology talent. Instead, two-thirds say they are increasingly willing to outsource or co-source their tax function in order to bolster its tech capabilities. “Companies know they need more data and technology, but given the pace of change, they’ve concluded that they can’t keep up if they implement these tools themselves,” Engel says.