Thomson Reuters has published its annual report Annual report on the state of business taxation June 8. The report summarizes the results of an online survey of small and large business tax departments, both inside and outside the United States and across a wide range of industries.
Tax reform was cited as the most common challenge facing tax departments, echoing the results of the 2020 survey. “According to our latest survey of indirect tax departments, 57% anticipate major changes government, particularly around digital filing or, in some cases, real-time reporting,” said Sunil Pandita, president of companies for Thomson Reuters. A specific tax workflow and new technologies and automation complete the three main challenges. Reduced tax liability tied for fourth place through process improvements. The survey also revealed new challenges specifically related to the pandemic and its ongoing effects, including managing the impact of Covid-19 and providing an effective remote working environment.
Whether working remotely or in the office, survey respondents agreed that using technology to improve communication within the tax department improves team collaboration. Unfortunately, respondents also indicated that unless the rest of the company consistently adopts and implements the same communications technology, communications across departments do not achieve the same improvements. In other words, technology improvements have allowed the tax team to collaborate better with each other, but not necessarily with the rest of the company.
Almost half of the tax administrations surveyed indicated that they felt the pressure of insufficient resources. Among US companies surveyed, that number is 56%. “The potential risks from a compliance, work quality and talent retention perspective should be warned enough for departments to address this shortage, but a properly resourced team may also be able to find other tax savings.” Departments that considered themselves “right-sized” consistently reported higher spend (by about 14%) than companies that reported having insufficient resources. “One of the benefits of being a more sophisticated department is the greater likelihood of being the right size in terms of resources.” Of course, with increased sophistication comes a higher price. Again, departments that felt properly staffed and tech-savvy spent about 14% more than departments that felt they were “understaffed.”
The most common strategy used to overcome resource shortages is to introduce additional technology and automation. Pandita notes that “using technology saves time, which in turn reduces costs, improves time to value, and improves team member morale.” Technology related to direct tax compliance and tax provisioning was seen as the greatest added value. These technologies make personnel more efficient and improve accuracy. Technologies related to process management and workflow automation were the most underutilized, often due to the resources required to implement them. The report acknowledges that a lack of budget or skills could also lead to underutilization of certain technologies. The lack of resources can be compounded by the apparent complexity of certain tools or a lack of training. The report also states that “sometimes people simply resist change and stick with simpler technology that they are already familiar with.” The results, while not entirely surprising, highlight the challenges tax departments face in adopting technology to improve results and efficiency and adapting to a increasingly complex and constantly changing tax landscape.
Among North American companies, the tax department’s budget for technology upgrades and automation most often comes from the corporate finance and accounting department. In the UK and Europe, it comes from the Information Technology (IT) department. Direct cost savings were most often cited as the main argument when making the business case for implementing a new technology. Other reasons cited for saying a technology would be “money well spent” included the impact on quality, accuracy and standardization. Risk reduction, speed of treatment, and overall efficacy were also found to be compelling. Only 12% of survey respondents cite ease of use as a key criterion when choosing a new technology. Nonetheless, the report reminds readers that “given the common result of underutilization of technologies once implemented, we recommend that departments consider this as an important selection criterion.”
Today’s tax services need staff who excel in both tax and technology and it’s hard to find both in a single candidate. The survey indicates that finding quality people was the biggest recruiting challenge. Cutting-edge technology skills are the biggest skills gap within existing tax teams, and tax departments struggle to find good tax professionals (19% say this is the biggest challenge for new hires), in addition to those with specialized technological skills. Investments in training and retaining high performing staff are important. Nevertheless, survey results show that only a small number of tax departments use talent metrics to help their department succeed. Metrics related to timeliness, compliance, accuracy, and reduced tax liability were much more common. Given the role that staff play in achieving these other metrics, the survey finds that a lack of talent metrics can be a missed opportunity.
The report highlights and quantifies the challenges faced by corporate tax departments when implementing a corporate technology stack and ensuring that existing and new staff know how to use it.