Corporate tax departments today face a myriad of risks and challenges, including an uncertain regulatory landscape, a shortage of talent, vulnerable supply chains, reputational risk and difficulties in leveraging technology.
To better understand the current state of the corporate tax department, KPMG surveyed 126 Chief Tax Officers (CTOs) of large corporations in the fall of 2021 and compiled their insights in its Tax Director Outlook for 2022.
When asked which tax risks posed the greatest threat to their business growth over the next three years, more than half of CTOs chose Talent. Greg Engel, vice president of tax at KPMG, believes that number would be even higher if the survey were conducted today.
In corporate tax departments, staffing issues predated the COVID-19 pandemic and have been exacerbated by it, Engel notes. “There are always a lot of people leaving their jobs and the profession,” he says. “If you go to college campuses and talk to professors, you’ll hear that fewer and fewer people are entering the accounting profession – and that salary inflation could be the reason.”
Competitive compensation is part of the solution, but the work environment is arguably more important, says Engel. Many people were drawn to public accounting by the ability to work closely with colleagues who shared common interests and goals – and that was largely lost with remote work.
“Anything a company can do, safely, to make its employees feel like they’re 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, deliver results faster and unlock value in new ways. Doing calculations and preparing spreadsheets is no longer enough,” the report says. “Tax professionals are now expected to collaborate across functions, understand business strategy and contribute to corporate decision-making, which requires more than just technical tax knowledge.”
Another recent KPMG study, Taxation reinvented: perspectives from the C suite, confirmed that C-suite executives want their tax departments to provide data analytics and strategic advice in addition to tax and accounting expertise. However, three-quarters of these leaders said their tax teams lacked the right mix of skills.
A multi-pronged talent management strategy emerged from the two surveys:
- Development of current staff — Nearly 60% of CTOs said they are increasing the training and reskilling of their current team members.
- Recruit tech talent — About 40% of respondents to both surveys said they hire tax technology specialists or technology specialists who can learn tax.
- Outsourcing — Two-thirds of C-suite leaders say that over the past year they have become more willing to outsource or co-source their tax services to keep pace with advances in tax technology.
“There is a huge desire to make better use of technology and data in the tax service,” says Engel. “And that desire comes not only from the tax chief, but also from the people to whom they report.”
Regulatory risk and data analysis
Another challenge facing corporate tax departments is the volatile regulatory environment, which many CTOs have identified as the top risk for their departments. Indeed, more than 46% said they expected an international agreement to be reached on one or both strands of the Organization for Economic Co-operation and Development (OECD) effort to address the challenges taxes arising from the digital economy. Pillar 1 of the initiative would allow authorities to levy taxes on businesses in the jurisdictions in which they sell products and services, even if those businesses do not have a physical presence. Pillar 2 would impose a global minimum tax to potentially deter companies from moving their activities to low-tax countries.
“These initiatives could have broad implications for the future tax landscape, with potential impacts on the tax profiles, operations and reporting of multinational organizations,” the KPMG report states.
It’s unclear how these complex international initiatives will unfold, and companies often lack the data analytics needed to model the impact of proposed tax laws, says Engel. As a result, CTOs cannot provide their companies with clear direction to inform strategic planning. “Uncertainty hangs over the tax department because other parts of the organization want to move forward and do what they need to do,” adds Engel, “but they feel the tax department is unable to give them what they need, which is certain.”
The technology gap
KPMG Tax reinvented The C-suite survey found that corporate tax teams often fall short of executives’ expectations when it comes to capturing and analyzing data and modeling financial results.
And two-thirds of respondents in CTO Insights recognize that their teams spend more time collecting and preparing data than performing analysis. Responding CTOs say they will focus future technology spending on:
- Tools for managing, extracting, loading and transforming data (79%);
- Enterprise resource planning (ERP) software, source systems and data warehouses (60%);
- Collaborative tools (50%); and
- Business intelligence, modeling and advanced analytics (38%).
According to KPMG research, C-suite executives say they know tax data can create valuable insights, but most say their organizations are not yet using tax data to respond to audit requests, generate on expenses, forecast tax rates, identify opportunities to improve the bottom line, or inform decisions on mergers and acquisitions. The study identifies several systemic reasons for this, including an inability to share data across the enterprise, concerns about data accuracy, resource issues, and a lack of analytical tools and skills.
Even so, most leaders say they have no plans to invest heavily in technology to fix the problem due to concerns about return on investment (ROI), mastering data within business and the lack of available tax technology talent. In place, two-thirds say they are increasingly willing to outsource or co-source their tax function to enhance its technological capabilities. “Companies know they need more data and technology, but given the pace of change, they’ve concluded they couldn’t keep up if they implemented these tools themselves,” says Engel.