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Pillar Two is dominating the headlines, but there are other macroeconomic pressures — possible recession, global inflation, rising interest rates and geopolitical challenges — that put tax at the forefront of business decisions.
While Pillar Two is an unprecedented change to the global tax system with impacts across the entire business it's not the only challenge ahead. You’re also facing regulatory uncertainty, the tax implications of sustainability measures, the competition for talent and digital transformation. As a tax executive, you’re uniquely positioned to help drive trust and strategic business outcomes, from new business ventures to supply chain and digital transformation across the enterprise.
Pillar Two is one of the highest priorities on the tax leader’s plate, but compliance and regulatory issues that go beyond the global framework are just around the corner, our Pulse Survey shows. Technology may help you balance the increased responsibilities, but getting the most return on any tech investments – and to prevent higher costs – will require organization-wide alignment.
Pillar Two is an unparalleled shift in how companies have been taxed on international operations for decades, and there’s little time before the new rules take effect on January 1, 2024. Don’t underestimate the additional pressures it may place on your team — and the opportunity it presents to help modernize operations and drive value.
If your company is part of a multinational group with annual consolidated revenues exceeding €750 million, you may need new tax calculations in every jurisdiction where you operate. Connect now with colleagues beyond tax, including financial reporting controllers, IT, human resources and other corporate stakeholders. They own data that lives outside your systems, including enterprise resource planning (ERP) or financial consolidation, employee benefits and other systems, information you’ll need for calculations in every jurisdiction where you operate.
A holistic data and technology strategy is essential to navigating Pillar Two alongside your other compliance obligations. Now is the time to build your data models and to choose a calculation engine to help you determine global and local tax obligations. A multifunctional team can help you create an implementation plan based on operational readiness, data strategy and quantitative analysis. Automation can streamline your ability to extract, cleanse and organize the data.
Skilled tax talent is getting tougher to find, as the number of CPAs declines. Tax technical professionals can be working through repetitive tasks, such as combing through spreadsheets to meet reporting requirements. Digital transformation, combined with new talent sources, could free tax technical professionals for activities that can drive greater value.
Consider hires with non-traditional experience, such as data specialists and project managers, who can help aggregate data for increased compliance and efficiency. Data automation tools can coalesce real-time data from enterprise-wide platforms to inform better decision-making. And managed services, outsourcing, or co-sourcing models may help you reduce costs by providing access to investments that third parties are making in technology, so you don’t have to. When used responsibly, emerging technologies like generative AI can help deliver efficiencies that support your human-led workforce.
Generative AI, automation and cloud transformation can help integrate and enhance almost all aspects of business operations — from customer service to finance, legal and human resources. Align with your CIO on your enterprise technology transformation strategy. Be intentional about use cases and prioritize a responsible and trusted approach to manage risks and encourage responsible innovation.
The public’s expectations of business continue to expand, and transparent reporting around tax strategies and compliance can support your company's efforts to earn stakeholder trust. The European Union’s enactment of public country-by-country reporting and the Financial Accounting Standards Board’s proposed amendments to income tax disclosures — expected before year’s end — are just two examples.
Compliance can also help unlock greater visibility into where the business needs help, which can further bolster stakeholder confidence. To get there, make sure your underlying core tax reporting and planning processes are fit for purpose. Understand your data needs to meet the growing compliance and reporting obligations. Sensitize ERP systems during cloud upgrades to help deliver tax-ready data, and consider centralized data platforms for critical analytical capabilities.
Digital transformation is essential to building trust and moving the tax department forward. A tax function that’s data-powered and tech-enabled can anticipate change, enhance deliverables and respond quickly to requests from taxing authorities. Operational readiness is a critical way to build trust with stakeholders. Cultivate efficiencies that will not only help reduce costs, but can also enhance accuracy and can scale as needs and resources change.
Global tax policy will continue to increase risks of higher tax costs and administrative challenges for multinationals. And while you may expect few changes to US tax policy, reality may be different after the 2024 presidential election, with key provisions of the 2017 Tax Cuts and Jobs Act set to expire in 2025. At the same time, guidance surrounding the credits and incentives within the Inflation Reduction Act (IRA) is evolving.
Globally, Pillar One, which would change where sales to customers in other jurisdictions are taxed, is in limbo. There’s also much to learn about the Carbon Border Adjustment Mechanism, a pillar of the European Green Deal, which aims to establish a competitive playing field by compensating for differences in carbon prices between domestic and imported products.
As you prepare for domestic and international changes, coordinate across the C-suite to increase the return on investments eligible under the IRA. Partisanship in the US may limit the near-term scope of new tax and spending legislation. But as election season ramps up, so will questions about the effects on tax policy. You’ll need to stay ahead of the prospective changes in domestic and international tax policy issues and remain engaged with policymakers to communicate the prospective impacts of their decisions on economic growth.
As the C-suite recognizes how early strategic planning with tax can support growth initiatives, tax is becoming a driver for sustainable enterprise growth and change. For example, working with the CIO, you can help bolster return on digital spending by identifying research and development-credits that could lower the overall cost for qualifying expenses. And as your COO tackles supply chain bottlenecks, you can help identify pressure points, simplify transaction flows and processes, and avoid unexpected tax costs.
One way to bring value as a business partner? Seek opportunities to identify funding for transformation initiatives through proactive planning. Governments increasingly offer tax incentives to encourage responsible corporate behavior and meet sustainability goals. By coordinating cross-functionally, you can increase the return on investments that are eligible under the IRA. Case in point: Energy-related credits and incentives within the IRA can improve cash flow and fund broader initiatives, and direct payments and transferability of tax credits can provide alternative financing structures for investments.
Lean into technology, including generative AI to help strengthen your strategy and support innovation, responsibly. By providing valuable, real-time insights to the business, you can help shape investment decisions, identify the potential impacts of mergers, acquisitions or expansions into other territories or digital transformation strategies.