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Corporate Tax Departments

Corporate tax departments: chaotic and reactive

David Wilkins  Content Manager / Tax & Accounting / Thomson Reuters 

David Wilkins  Content Manager / Tax & Accounting / Thomson Reuters 

Acritas, a Thomson Reuters company, recently interviewed tax department leaders from nearly two dozen large, U.S.-based companies and surveyed more than 300 others to better understand their operational challenges.

More than half of the survey respondents described their department’s approach to technology as chaotic or reactive.

This is a wake-up call for CEOs and CFOs. When corporate tax departments struggle, they are more likely to make mistakes, miss deadlines, lose talented personnel, and fail to comply with tax regulations.

The 2020 Corporate Tax Departments Survey, released last week, covers departmental objectives, challenges, resource levels, skill gaps, use of technology, and use of external advisors. Survey participants’ responses were startling, especially when they were asked to describe the state of their tax department and their ability to leverage technology.

Some key findings of the survey include:

  • 25% of respondents described their departments as chaotic — This means that these departments are seen as organizationally disjointed and reliant on manual processes. These departments use email, spreadsheets, and other manual processes to collect, review, and prepare compliance documents and respond to audits. Also, individual tax departments within different business units and regions operate independently from each other.
  • 33% said their departments are reactive — They use tax department databases and some third-party software with automated feeds, but they are not connected to enterprise data or other departments across the company.
  • 28% are proactive — Their systems are integrated with enterprise data, they leverage tax automation software for file-ready compliance and storage of documents and data, and they coordinate their processes with other departments.
  • 4% describe themselves as optimized — In these tax departments, data analytics drive decisions, reports are available on demand, and tax workflows are automated across the enterprise.
  • 6% are predictive — They leverage rule-based technology and embedded enterprise data for automated workflows, alerts, pre-audit analysis, and reporting across the enterprise. This enables the tax team to proactively manage risk and advise key decision-makers with analysis.

One of the corporate tax executives we interviewed said: “I was frustrated at how (little) time my team was spending on value-added work — I don’t pay them to manipulate data in Excel. I pay them to analyze data, understand what it means to us, and file returns.”

Another respondent added this succinct summation: “That mindless cut-and-paste stuff…  It’s not the best use of talent.”

Tech investment & ROI

Survey respondents who described their corporate tax teams as chaotic were significantly more likely to feel under-resourced, addressing the strain by leaning heavily on team members and external advisers. Specifically, 70% of chaotic tax departments feel under-resourced compared with 54% of the reactive teams, 44% of proactive teams, and 38% of the optimized and predictive teams.

You can access the full 2020 Corporate Tax Departments Survey, here.

Unfortunately, it’s a common dilemma. When a business function — like the tax department — is viewed as a cost-center, it may not receive the needed investment from the organization. As a result, it is unable to add talent and technology that would improve performance and deliver a better return on investment (ROI). Team members struggle, it becomes difficult to recruit and retain talent, and results continue to erode.

Companies that break this cycle and invest in technology, our survey suggests, can change the game. Indeed, corporate tax departments surveyed reported spending an average of 10% of their budgets on technology. However, departments that allocate more than 10% to technology spend less overall, relative to revenue. This strongly suggests that tech adoption leads to greater efficiency and lower overall costs.

Changing course

That’s not to say it’s easy to deploy technology. In fact, the selection and implementation of technology and automation is one of the top two challenges facing corporate tax teams, according to the survey. (Managing regulatory changes is the other.)

For the 58% of tax departments identified as chaotic or reactive, here is a framework for course correction:

  • Play the long game Revamping the tax department is likely to be a low priority while companies are battling the existential threats posed by the COVID-19 pandemic. While you focus on the crisis, however, hold onto the vision of a proactive tax department with the talent and technology to deliver strategic guidance and a quantifiable ROI. Lay the groundwork now so you are prepared to advance the plan when the opportunity emerges after the crisis.
  • Map the business case for investment Understand the allocation process in your organization. Who controls the budget? Who will have input into decisions regarding tech investment for the tax department? What are their interests and motivations? What do they need to know? Be prepared to describe your strategic plan and its benefits to these decision-makers. How will costs be reduced — through headcount reductions or lower tax bills? In what ways will accuracy and efficiency improve?

The survey found that nearly one-third of corporate tax teams have little or no involvement in making the business case for tax technology investment. For these organizations, the first step is for tax team leader to become a participant in those deliberations.

  • Engage with the business — Tax departments benefit and are more effective when they have a higher profile in the company. This allows them to stay informed about corporate actions such as acquisitions and market entry that will impact their workload, showcase successes and challenges, demonstrate the need for resources, and provide strategic commercial advice.
  • Ensure existing technologies are delivering value Many survey respondents said their tax technology was under-utilized because their teams lacked the skills, training, support, or time to use it effectively. In such cases, tax team leaders need to evaluate work processes, IT support, and team members’ skill sets to confirm whether tech tools are fully operational and to identify where improvements can be made. Have you established ROI goals and key performance indicators? Are you achieving them? If not, address these outstanding issues and build a track record that will merit additional investment.

It will take strong leadership for chaotic and reactive tax departments to make strides, particularly when faced with the unique challenges the global pandemic brings. Tax team leaders need hard skills to set strategy, secure budgets, and select the right technology and soft skills to communicate that strategy, inspire their teams, and manage needed change.

For those that get it right, there’s great opportunity to deliver improved performance, measurable ROI, and genuine strategic value.

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