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Corporate Tax Departments

New report looks at what corporate tax departments are up against in 2023

Tad Simons  Technology Journalist/Thomson Reuters Institute

· 6 minute read

Tad Simons  Technology Journalist/Thomson Reuters Institute

· 6 minute read

A new survey of corporate tax department leaders by KPMG illustrates the challenges these units are facing in the coming year and beyond

Corporate tax departments are under a great deal of pressure to deliver value and insight far beyond their traditional roles involving tax filings and regulatory compliance, according to a new report from the tax, audit, and advisory firm, KPMG. These days, geopolitics, economics, corporate citizenship, environmental sustainability, technology, strategic intelligence, operational insight, and talent development all have a tax component, and all are in a constant — and sometimes frustrating — state of flux.

To find out how corporate tax leaders view these myriad challenges, KPMG surveyed 300 Chief Tax Officers (CTOs) from large U.S. companies with revenue of $2 billion or more and published the findings in its fourth annual 2023 Chief Tax Officer Outlook report.

The talent shift

Last year, CTOs surveyed rated talent as the top threat to organizational growth from a tax perspective, particularly reporting struggles with identifying and hiring talent with both tax and technology skills. This year, however, talent was rated last in a list of 10 risk factors that companies are facing over the next three years.

These results reflect both the turbulence of the times we live in and the degree to which tax leaders have absorbed the lessons of the pandemic and are re-thinking their priorities going forward, says Greg Engel, Vice Chair -Tax at KPMG. “Last year, talent was a big concern, but most of the people leaving the profession have cycled out, and we’ve adapted to a ‘new normal,'” Engel explains. “The question to focus on now is, how do we develop and train our people, and provide them with a satisfying career path?”

Tax managers have also learned how to fill skills gaps through outsourcing, Engel says. Indeed, 83% of the report’s respondents say they plan to use outsourcing, co-sourcing, or managed services within the next three years. The viability of a hybrid workforce also eases the talent burden, adds Engel, because it provides employees with greater flexibility.

A new threat to growth: ESG

While environmental, social, and governance (ESG) issues were at the bottom of the list of corporate risks last year, this year ESG concerns were ranked the number one threat to organizational growth over the next few years, ahead of regulatory changes, geopolitical fallout, supply-chain management, and global economic uncertainty.

The rise of ESG as a perceived threat to growth is a direct result of the extra reporting and responsibility that ESG initiatives require from corporate tax departments, Engel says. Everyone from the boardroom on down wants to be viewed as a “good corporate citizen,” he notes, and progress on ESG initiatives has become an important benchmark of responsible corporate behavior.

“As momentum has moved business forward on ESG, tax has a role in all of it, so it’s become a large reporting effort,” Engel explains. “On the G side, with reporting mandates on the horizon, we’ll begin to see more companies start to pay more attention to transparency and consider investing in tools or third-party providers that can help them tell their total tax story.”

The S and E sides heap extra responsibilities on tax departments as well, especially when it comes to navigating new environmental taxes and accessing government funding opportunities for ESG initiatives. If tax is a game of sticks and carrots, Engel says, tax departments are tasked with minimizing the sticks of ESG (e.g., new taxes on plastics or carbon), maximizing the carrots (e.g., tax incentives, grants, energy credits), and shaping the narrative about how the company is meeting its commitment to sustainable tax behavior.

According to KPMG’s report, attitudes about the tax department’s proper role have shifted so dramatically that a majority of CTOs (56%) now say it is more important to “be seen as a good corporate citizen” than it is to minimize the company’s tax burden. Transparency too has become such a hot-button topic that almost half (49%) of the companies surveyed said they are fully transparent and share significantly more tax detail than required.

Regulations & geopolitical factors

Changes in tax laws and regulations represent the number two threat to corporate growth cited in KPMG’s report. At both the domestic and international level, planned tax reforms and increased scrutiny from tax authorities promise to complicate compliance and add to the burden tax departments already feel, the report observes.

Meanwhile, 60% of CTOs expect that changing U.S. regulations will increase corporate taxation over the next two years. Almost as many (58%) also say new legislation included in the Inflation Reduction Act (IRA), including a minimum tax on corporations, will have a significant impact on their tax and compliance costs.

Unpredictability is the biggest headache, Engel says. “Companies and CTOs like consistency and predictability, and they don’t have any right now,” he says. “This is why as politicians debate tax policy changes, it’s critically important that companies model and plan for various scenarios.”

Furthermore, uncertainties about how operations and supply chains will be impacted by global inflation, trade tensions between the U.S. and China, and the ongoing Russian war in Ukraine are also top concerns for CTOs, especially those who work for large multinationals.

According to the report, CTOs say helping their companies understand the tax implications of international events — such as supply-chain disruptions, regional disputes, trade restrictions, currency controls, etc. — is becoming an increasingly important part of their job. “As supply-chain issues spur organizations to diversify from historically low-cost countries like China and India, CTOs are helping set up tax-efficient structures where the business wants to be,” the report states. “This includes helping supply-chain functions evaluate tax costs and risks associated with new supplier sourcing and potential operational moves.”

A seat at the table

Though many of these risk factors cited in the report add to the work burden and responsibilities that corporate tax departments must shoulder, Engel says they also offer tax leaders an opportunity to demonstrate the strategic and operational value of the tax function to the overall enterprise.

“Successful CTOs might already have a seat at the table, but it’s up to the CTO to bring strategic thinking to the table and that while it may have been harder to find tax at the top of the agenda in the past, it is less difficult to make that case today,” Engel adds.

“From ESG and regulatory changes to supply chain and geopolitical issues, and everything else in between — there is so much going on now that you really do have to have a strategic tax voice at the table,” he says. “CTOs just need to be prepared when they get the call.”

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