Policy uncertainty continues to dominate tax leader concerns
Tax policy and the need to be able to quickly pivot to respond to a fluid legislative and regulatory environment — whether US or global — is top of mind for the tax function. As US and foreign governments move from debating policy to implementing new laws, tax leaders will face a growing need to make sure that the tax function is prepared to manage increased reporting and planning demands.
In response to these continued challenges, tax leaders can bolster their resources with an investment in technology and alignment across digital strategies. As the business landscape evolves, our latest PwC Pulse Survey shows that tax is looking to cement its role as a valuable business partner.
The impact of OECD Pillar One and Two proposals
It remains uncertain how and when the OECD proposals will take effect, but their impact is predicted to be complex.
27%
of tax leaders say the timing and impact of global tax policy is their biggest concern.
With US policy action, tax leaders shift focus to global
The near-term scope of US tax policy has stabilized, which perhaps explains the slight shift in concern among tax leaders from US to global tax policy. The Inflation Reduction Act may have calmed fears over the direction of US tax policy. Still, while US policymakers do not expect the recently enacted Book-Income Corporate Alternative Minimum Tax to affect most taxpayers, the complicated interaction between the tax base and financial accounting will necessitate that many organizations perform the requisite analysis annually. By contrast, global tax policy concerns remain elevated over the risk of higher foreign taxes stemming from the Organisation for Economic Co-operation and Development’s (OECD) Pillar One and Two proposals.
In our January Pulse Survey, when the potential for US tax law changes was more uncertain, 29% of tax leaders thought US tax policy posed the greatest challenge to their business while only 16% were concerned about the implementation of the OECD agreement. Jump forward to August 2022 and uncertainty over direction of US tax policy drops to 21% among tax leaders as their biggest tax concern, while the timing and impact of global tax policy (e.g., OECD Pillars One and Two) increases to 27%.
Tax departments, already stretched thin, are concerned about the impact and complexity of the OECD proposals. These proposals seek to ensure that multinational companies pay at least a minimum tax rate, calculated on a country-by-country basis.
In some cases, tax leaders may be able to increase the benefit of new tax incentives that are being enacted to address climate change and promote US semiconductor manufacturing. At the same time, tax leaders continue to face uncertainty over unresolved US tax policies, such as the tax treatment of research expenses, limitations on interest deductions and incentives for capital expenditures.
What you can do: Despite continued uncertainty, there are still many ways tax leaders can proactively plan for what is ahead. An investment in technology can help you automate processes and improve the quality of available data for reporting and modeling. Enhanced modeling capabilities can enable you to deliver real-time, data-driven insights on these proposals to the C-suite for better informed decision-making.
Positioning tax as a strategic partner
Tax leaders are taking on a more strategic role in the business.
84%
of tax leaders said they are focused on business transformation as a result of the current business environment.
Tax-forward, value-driven insights
Now more than ever companies should be bringing tax to the forefront of every business and strategic conversation. Whether your company is contemplating a restructuring, trying to drive broader digital or workforce transformation, or evolving the operating model, each strategic decision has tax implications that should be addressed.
Upfront involvement allows the tax impacts — and opportunities — to be factored in as part of the ROI, potentially creating a higher return and reducing overall risk. Clearly this is the end game for the tax directors we surveyed: Nearly 84% tell us they’re focused on business transformation as a result of the current business environment.
What you can do: By contributing data-driven insights and making tax part of the overall planning for broader business decisions, you as a tax leader can be a valuable business partner who contributes ROI and cash to the company’s bottom line.
Tax aligns across executive functions
Many companies continue to evaluate operating models and supply chains as part of the geopolitical and economic issues disrupting models. Tax leaders can serve as strategic advisors on these critical decisions.
68%
of tax leaders say their company is improving supply chain resiliency as a result of the current business environment.
Building relationships, creating value — where it counts
Given the role tax plays in both M&A and treasury management, it’s no surprise that tax leaders tell us they’re most aligned with these two broader business functions. Whether in the US or overseas, tax plays an important role in M&A transactions and managing cash, investments and other financial assets.
Interestingly, just behind these two more traditional areas, 19% of the surveyed tax leaders say they’re most aligned with the priorities surrounding operating model transformations. Pairing this with the fact that 68% of tax leaders are reporting that their company is improving supply chain resiliency, the data indicates we’re seeing a trend toward tax’s increased collaboration with their COO counterparts.
Any adjustment to the supply chain — like manufacturing or procurement strategies — has tax implications. As companies adjust supply chains in response to shifts in the business landscape, there can be significant impacts on a company’s tax liabilities, which presents an opportunity for tax leaders to serve in an advisory role. What may seem like a simple operations decision could have a large, unexpected effect on the company’s tax liabilities.
What you can do: This is where the tax function can enable the broader C-suite. By anticipating the potential ramifications of proposed transactions or business decisions, tax leaders can also help their COOs — and the broader C-suite — make more informed and strategic decisions, making sure that the value anticipated is the value delivered.
Making digital strategy a priority
Alignment across broader digital strategies presents another opportunity for a more efficient and effective transformation process that meets the needs of tax, while at the same time creating an opportunity to be a value driver for the company.
55%
of tax leaders plan to increase investments in digital transformation in the next 12 months.
Tax and tech: A digital strategy to transform the tax function
Fasten your seatbelts … the speed of change may be here to stay. Although tax teams have an increased operating tempo to manage legislative and regulatory change, they’re quickly realizing that this may not be a one-time surge. Instead, this new pace of change is likely to be our new norm due to transactions and transformations that continue to strain all aspects of their ecosystem — most importantly, their people.
The bottom line is that tax executives are reflecting on their function’s overall approach and operating model — can they execute effectively at this enhanced pace?
Competing priorities and an increasingly complex workload are causing disruption for tax functions. Many may be reaching a tipping point where a lack of capacity, capabilities and skill sets inhibits their ability to deliver successfully. These investments are reflected in the tax leader’s operating model plans. Over the next 12 months, 66% plan to invest in automation, 57% plan to upskill the tax function and 52% plan to spend on technology to improve data collection and analytics. Pairing that with the 18% of tax directors who are concerned about hiring and retaining talent, the data certainly paints the picture that tax organizations are leveraging automation to tech-enable their teams and drive down costs.
Tax leaders tell us they’re taking a critical, honest look at their current state and continually evaluating whether their current operating model addresses these challenges and is “fit for purpose.” They’re embracing an array of operating model approaches, including strategic insourcing, co-sourcing, outsourcing and even a full managed services approach to leverage a wider scope of talent and achieve cost reduction goals. Simultaneously, they’re drilling into pain points such as manual bottlenecks and gaps in process, data and technology, and they’re seeking a tailored ecosystem that embraces cross-functional synergies.
There are opportunities for cost savings if tax leaders team with the CIOs, CFOs and controllers to align to broader digital strategies — but early involvement is key. More than half of all surveyed executives are increasing investments in digital transformation to support business strategy (53% overall, 55% tax). CFOs and controllers are embracing digital to drive reporting efficiency and new reporting requirements like ESG. Innovative transformation project costs like these may be eligible for R&D tax credits, and tax leaders can make sure these benefits are considered and obtained. By getting tax involved at the beginning of cloud transformation projects, for instance, CIOs can build effective automation processes to help transform the tax function. These improvements can help reduce costs for the company while also delivering better quality and more accessible data that can help companies discover areas where they may be overpaying taxes.
What you can do: Examine your current operating model and make sure that it is “fit for purpose.” Collaborate with your C-suite to align your objectives to broader digital strategies.
About the survey
Our latest PwC Pulse Survey, fielded August 1 to August 5, 2022, surveyed 722 executives and board members from Fortune 1000 and private companies about the current business environment, the risks executives are facing and the impact those risks have on company strategy and growth plans. Of the respondent pool, 95 are tax leaders.
Managing business risks
Past surveys
Related content
Contact us
Follow us
