A new survey sheds light on how the COVID-19 pandemic impacted the strategic priorities of corporate tax departments in U.S.-based companies.
Acritas, a Thomson Reuters company, and the Thomson Reuters Institute conducted the 2020 Corporate Tax Department Survey in three phases:
- In January, they conducted 23 in-depth, qualitative interviews “to explore the current thinking of senior people in tax departments across the U.S.,” explained Lisa Hart Shepherd, vice president of research and advisory services at Thomson Reuters.
- In February, they surveyed 305 corporate tax professionals on topics including departmental objectives, challenges, strategies, resources, talent, and use of technology and external advisers.
- In April, they added a pulse survey to determine how priorities and operations had changed amid the COVID-19 pandemic. Fifty-two respondents participated.
The changes brought on by the pandemic were dramatic, the survey showed. Shepherd shared the details in a recent webcast, How Global Tax Departments Can Create Optimized & Predictive Teams. (Available on-demand.)
Before the pandemic, the study showed that U.S. corporate tax teams’ top strategic priorities were:
- managing regulatory requirements stemming from the sweeping tax reform legislation passed by Congress in December 2017;
- adopting and implementing new technology;
- improving efficiency;
- integrating acquisitions;
- managing specific tax workstreams;
- reducing costs; and
- improving data quality.
“Pre-COVID-19, the top two priorities — and these were far and away above the rest — were… becoming compliant with tax reform and, secondly, bringing in new technologies,” Shepherd explains in the webcast. “We then saw themes related to new technologies — improving efficiency, reducing costs, and improving data quality — as additional priorities.”
Tax department priorities changed after the COVID-19 epidemic upended daily life, business activity, and the global economy. Tax reform remained at the top of the list, but two new priorities vaulted to second and third position: reducing tax liability and delivering more savvy advice to the business. Reducing cost also increased in importance.
“Brand new to the top set of priorities was reducing the tax liability, particularly as (companies) become more financially constrained due to the pandemic,” Shepherd says. “But also providing more savvy advice to the business, taking that step up to become a trusted adviser to the board.”
And something interesting happened with regard to technology as well. On-boarding new technology was pushed to the back burner, and integrating existing technology rose in importance. “New tech dropped right down,” Shepherd notes. “It hasn’t gone away, but it’s on hold — and integrating existing tech became more important.” Priorities of improving efficiency, reducing cost, and improving data quality remained, she adds, but survey respondents suggested they were trying to achieve those goals with existing technology by making better use of what they had.
Leveraging the right technology
The webcast also delves into the differences in the way corporate tax departments operate based on their “levels of sophistication.” The survey asked respondents which of the following definitions best describe the state of their tax department and its ability to leverage technology:
- Chaotic— Organizationally disjointed and reliant on manual processes. Uses email, spreadsheets, and other manual processes to collect, review, and prepare compliance documents and respond to audits. Not integrated with individual tax departments in different business units and regions cross the company.
- Reactive— Uses tax department databases and third-party software with automated feeds, but they are not connected to enterprise data or other tax departments.
- Proactive— Systems are integrated with enterprise data and processes are coordinated across departments. Leverages tax automation software for file-ready compliance and storage of documents and data.
- Optimized— Data analytics drive decisions, reports are available on demand, and tax workflows are automated across the enterprise.
- Predictive— Leverages rule-based technology and embedded enterprise data for automated workflows, alerts, pre-audit analysis, and reporting across the enterprise. Provides analysis and guidance.
“It was interesting to see that, as the level of sophistication grew, the proportion of their budget that was allocated to technology grew,” Shepherd says. Specifically, tax departments that self-identified as Chaotic spent 12% of their budget on technology while Reactive departments spent 15%, Proactive departments spent 17%, and Optimized & Predictive departments allocated 18%.
“We also looked at their approaches to talent and, particularly, how they felt in terms of their resource levels,” she explains. “The Chaotic (departments were) much more likely to be feeling that pressure, feeling under-resourced… . Conversely, in Optimized & Predictive departments the majority were feeling about right.” Specifically, only 25% of the tax departments that described themselves as Chaotic said they had adequate resources to get their job done, compared with 47% of Reactive departments, 53% of Proactive departments, and nearly 60% of Optimized & Predictive departments.
The study further found that corporate tax departments differed in their resourcing strategies and approaches for keeping up with their workload. “Chaotic departments were much more likely to be relying on third-party resources and leaning more on existing team members than any of the other groups,” Shepherd notes. “If you look at Proactive, Optimized, and Predictive departments — the more sophisticated departments — they’re taking a different approach. They are looking to introduce more efficiencies and to recruit more analysts and tech support so they can better leverage those investments that were made in technology or put the right new tech in and use that moving forward.”