LAW & COMPLIANCE

Transforming the Tax Function in an Age of Reform

When US tax legislation was signed into law in December 2017, many CFOs may have felt a sense of relief. After all, a corporate tax cut ranked as their top public policy concern based on a 2017 CFO Signals™ quarterly survey. But, as it turns out, reduction does not mean simplification. In fact, the new legislation introduced a host of complexities and uncertainties that may not be clarified for years.

That may be why in the most recent CFO Signals survey, 60% of respondents said they expect high complexity in implementing the new laws – and one-third cited the need to strengthen or restructure their tax function.

In other words, whatever bottom-line benefits tax reform may usher in, it also is creating a need for CFOs and tax leaders to rethink their tax departments – and how much they want to invest in them – as the overall tax liability seems poised to drop, perhaps significantly.

In this issue of CFO Insights, we’ll explore why and how CFOs should reevaluate how the tax function is structured, and how it might contribute a new level of value to the organization.

Tax leaders will need to frame their roles more broadly, moving beyond the traditional responsibilities of compliance, reporting, and management to address issues such as risk mitigation and tax-aware decision-making

Multiple forces for change

Even before the recently enacted US tax legislation, tax departments were confronting several internal and external challenges that seemed likely to impact the function.

Internally, there has been pressure to significantly reduce costs, embrace automation, and recalibrate talent. For example, given that, on average, tax compliance consumes more than 50% of a tax department’s time, many companies are looking at a combination of automation and third-party service providers to lower the tax function’s overhead.

Externally, the impact of new regulations, increased collaboration among tax authorities, and public attention on what amount of tax is “fair,” all seem likely to have an impact on how the tax function is evolving. As one example, the impact of the Organization for Economic Cooperation and Development's (OECD) work on Base Erosion and Profit Shifting (aka, “BEPS”) calls for greater international cooperation and information sharing, which could lead to greater scrutiny and more tax audits.

Without greater insights regarding their global tax position and more real-time access to data, tax executives could find that governments have a deeper understanding of their business than they do.

Moreover, as globalization accelerates, tax issues are becoming more relevant to an organization’s strategy, both in terms of tax-specific concerns (think repatriation) and overall challenges (think expanding into new geographies). In response, CFOs are asking tax executives to proactively partner with the business – and for the function to add more value.

To do that effectively, however, tax leaders will need to frame their roles more broadly, moving beyond the traditional responsibilities of compliance, reporting, and management to address issues such as risk mitigation and tax-aware decision-making.

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