The business and tax landscapes have been unlike any other for decades. Uncertainty and complex shifts dominate play in the U.S. and global political arena, according to PwC’s analysis in the Tax policy 2022 Youtlook. And the effects create onerous challenges for companies in strategic planning and reporting.
But there are silver linings to this story: we’re seeing trends that could lead to longer-term, sustainable efficiency for companies that respond quickly. One is the growing awareness that alignment across management functions is critical to effective and holistic problem solving. And that includes the tax function.
C-suites realize that proactive tax planning can unlock greater value for their priority programs. Taxation can be a catalyst for building trust and generating policy outcomes, but only if put on the table from the start. Here are some ways that tax-based decision making can help you gain a competitive advantage.
Large enterprises are embracing digital transformations through cloud migrations and automation. Enterprise Resource Planning (ERP) and Enterprise Performance Management (EPM) reconfigurations are other ways companies are improving operational efficiency, as well as prioritizing analytics. and data security.
When quantifying return on investment, the tax function can identify benefits and incentives early in the planning process, such as tax credits that provide dollar-for-dollar compensation. Smart tax planning can help “finance” these investments while avoiding costs that could later dilute overall spending.
At the same time, educating ERP systems to deliver tax-ready data can bolster C-suite cost-benefit analyzes for their digital spend while helping to mitigate reporting issues. Benefits include reduced manual errors and associated risk to tax processes, as well as higher-level analytics that can enable tax planning, forecasting, and collaboration on new business activities.
Around 93% of CIOs said they are looking to align digital strategy with tax strategy at some point in a project’s lifecycle, based on PwC analysis. While CIOs seem to recognize the value of bringing tax to the table, only 30% of CIOs currently include tax, while the remaining 70% may introduce it too late to add meaningful value.
COOs address supply chain obstacles and vulnerabilities. The design of the supply chain is evolving, while capabilities are being improved in sourcing, production, logistics and crisis planning. Meanwhile, recurring customer revenue models such as “everything as a service” are on the rise.
These changes in business footprint often involve changing revenue streams, sales channels, and the location of internal capabilities and employees, which can change the distribution of costs and margins across tax jurisdictions. The tax function can help identify pressure points and simplify transaction flows and processes, while avoiding unexpected tax costs, both above and below the line.
Talent retention, recruitment, training, and organizational culture become essential to compete in the talent war. Talent management is increasingly tied to business growth goals, prompting chief human resources officers, or CHROs, to renew employee value propositions.
Tax functions are no exception to this trend, as many struggle with resource scarcity. It may no longer be possible to simply hire employees to meet resource requirements. Instead, tax executives are looking for creative and sustainable approaches, such as tailored managed service agreements that maximize efficiency by leveraging specific tax technical skill sets and advanced technology tools.
ESG-related initiatives are quickly turning into business imperatives. Important focus areas include climate and environment to meet customer and stakeholder expectations, as well as build public trust.
Taxation can be a critical part of these efforts as taxes paid are a key component of a company’s tangible contribution to communities. It is increasingly common for stakeholders to request information on how much tax is paid and to whom. We also see how credits and incentives can help offset the cost of ESG activities, and that stakeholders expect more transparency on overall corporate tax strategy.
Layer on the global fiscal tumult. Tax can bring incredible value to the C-suite program, despite the strong headwinds the global tax landscape produces.
The increase in complexity becomes a major obstacle as the OECD proposals on pillars one and two take shape, coupled with the potential for US tax legislation. Both could create unprecedented reporting and compliance burdens that would likely require significant changes to a company’s tax reporting processes globally.
Ahead of the curve
The good news is that we are seeing more and more tax functions developing a vision of their future state that is deeply aligned with the business – to be more of a strategic partner. Core tax functions embrace a “networked” organizational mindset that focuses on solving cross-functional issues, such as aligning financial data systems to meet upcoming tax reporting and compliance. Promoting close collaboration with your tax function can help businesses build resilience for whatever comes next.
This article does not necessarily reflect the views of the Bureau of National Affairs, Inc., publisher of Bloomberg Law and Bloomberg Tax, or its owners.
Ken Kuykendall is the US tax practice leader at PwC and has over 29 years of experience working with businesses on a wide range of tax and business matters. Ken brings deep knowledge of the US tax system and decades of experience advising clients across industries to deliver quality, differentiated, technology-enabled results to US and multinational clients.
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