Thomson Reuters will launch its annual Annual Report Status of the Corporate Tax Department June 8. The report summarizes the results of an online survey of tax departments for small and large corporations, both inside and outside the US and in a wide range of industries. Forbes.com is here with some exclusive pre-launch findings.
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 a major change in the government, specifically around digital presentation or, in some cases, real-time reporting, ”said Sunil Pandita, president of Corporations at Thomson Reuters. Specific tax workflow and new technologies and automation complete the top three challenges. Reduction of tax liability tied for fourth with process improvements. The survey also found some new challenges that are specifically related to the pandemic and its ongoing effects, including dealing with the impact of Covid-19 and providing an effective remote work environment.
Whether for remote or office work, respondents agreed that using technology to improve communication within the tax department improved team collaboration. Unfortunately, respondents also indicated that unless the same communication technology is adopted and uniformly implemented by the rest of the corporation, department-to-department communications do not get the same improvements. In other words, the technological improvements allowed the tax team to better collaborate with each other, but not necessarily with the rest of the corporation.
Almost half of the tax departments surveyed indicated that they are feeling the pressure of inadequate resources. Among US companies surveyed, that figure is 56%. “The potential risks from a compliance, work quality, and talent retention perspective should be sufficient warning for departments to address this shortage, but a well-resourced team can also find more tax savings.” Departments that deemed themselves “the right size” consistently reported higher spending (by about 14%) than companies that reported inadequate resources. “One of the advantages of being a more sophisticated department is the greater likelihood of being the right size in terms of resources.” Of course, more sophistication comes with a higher price. Again, departments that felt adequately resourced with respect to people and technology spent approximately 14% more than departments that were deemed “under-resourced.”
The most common strategy used to overcome resource shortages is the introduction of additional technology and automation. Pandita points out that “the use of technologies saves time, which in turn saves costs, improves value generation time and improves team member morale.” Technology related to direct tax compliance and tax provision were considered to have the highest added value. These technologies make staff more efficient and improve accuracy. Technologies related to process management and workflow automation were the most underused often due to the resources involved in their implementation. The report acknowledges that lack of budget or skills could also result in underutilization of certain technologies. Lack of resources can be compounded by the apparent complexity of certain tools or lack of training. The report also states that “Sometimes people just resist change and stick with using simpler technology that they are already familiar with.” The results, while not entirely surprising, highlight the difficulties tax departments face with adopting technology to improve results and efficiency and with adapting to an increasingly complex and frequently changing tax landscape. .
Among North American companies, the tax department’s budget for technology improvements and automation most often comes from the company’s 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 in arguing that a technology would be “money well spent” included the impact on quality, accuracy, and standardization. Risk reduction, processing speed, and overall efficiency were also found to be persuasive. Only 12% of respondents cited ease of use as a driving criterion when choosing a new technology. However, the report reminds readers that “given the common finding that technologies are underutilized once implemented, we recommend that departments view this as an important selection criterion.”
Today’s tax departments need staff who excel in both tax and technology, and it is difficult to find both in a single candidate. The survey claims that finding quality people was the biggest hiring challenge. Advanced technology skills are the largest skills gap within existing tax teams, and tax departments are struggling to find good prosecutors (19% say it is the biggest challenge for new hires) in addition to those with specialized technological skills. Investments in training and retention of high-performance staff are important. However, the survey results show that only a small number of tax departments use talent metrics to help their department succeed. Metrics related to meeting deadlines, compliance, accuracy, and reduction of tax liability were much more common. Given the role staff play in meeting these other metrics, the survey finds that the lack of talent metrics can be a missed opportunity.
The report highlights and quantifies the difficulties corporate tax departments face when implementing a corporate technology stack and ensuring that new and existing staff members know how to use it.