Whatever the eventual outcome of the presidential election, tax uncertainty is probably going to continue next year, especially with a divided Congress.
A global tax survey released last month by BDO found that 80 percent of the business leaders surveyed by BDO in the Americas said the focus of tax legislation changes constantly as the result of the elected party and/or it is difficult to predict, compared to 65 percent globally. Globally, 68 percent of the survey respondents said that keeping up with new tax legislation and regulation is a leading priority, and only 20 percent believe tax authorities have a coherent approach and operate in a predictable manner.
“The tax function still has significant concerns about compliance,” said Matthew Becker, national managing partner of tax at BDO USA. “There are significant issues in understanding reporting requirements and getting compliance done in the current environment. The second big takeaway that I had is it’s clear that there’s still a lot of uncertainty with respect to new legislation and regulation. Close to 70 percent of the people who participated in the survey told us that keeping up with new legislation and regulation is a top priority for them, which suggests they’re spending a significant amount of time on it. That clearly is not just a domestic thing; it’s a global thing.”
The global COVID-19 pandemic has put the corporate tax function in the spotlight as an important way to conserve cash as businesses struggled with worldwide economic disruption. BDO found that 68 percent of the tax and finance leaders it surveyed expect the tax function to shift to becoming a “true business partner” in the next two years, compared to 39 percent currently. In the Americas, that shift seems to be even more pronounced, at 78 percent in two years compared to 39 percent today.
For the survey, BDO polled 256 tax and finance leaders from more than 50 countries across the Americas, EMEA (Europe, Middle East and Africa) and the Asia-Pacific region between February and May.
The report found tax and business leaders from across the globe are coping with similar challenges, with compliance and compliance costs outweighing other concerns. Taxing the digital economy is considered to be a “top 3” issue for 27 percent of the business leaders surveyed. Among larger businesses, that figure increases to 37 percent.
Maintaining compliance amid uncertainty over the pandemic and tax legislation is difficult for the business and tax executives polled, with 60 percent indicating compliance is the most significant issue, and at least 40 percent saying their boards or executives are spending more time on compliance and planning. However, only 20 percent said they have a documented tax technology strategy, and spending on technology is low. For the majority of survey respondents, only 5 percent of their tax budget is spent on technology.
“The tax function is becoming more integrated with strategic decision making,” said Becker. “This is an observation that we’ve made domestically in the United States many times, where you really sense this when you meet with tax executives one on one. They always seem to be focused on trying to determine how they can have a deeper role in the business’s strategy, and not just be a compliance function. That’s starting to happen. I think we’re starting to see tax executives view the tax function more strategically, and that really came through in our survey results, with 68 percent globally and 78 percent in the Americas expect the tax function to be seen as a true business partner, a value-add in the future. That was a big increase from a survey perspective over what we’ve seen in the past.”
The executives are experiencing high levels of uncertainty about changes to the global tax situation. Tax risk management is turning into more of a focus for them, with 79 percent indicating they expect to be managing tax risk proactively in two years, compared to only 43 percent today.
The concept of total tax liability, or TTL, is spreading among tax executives, but it’s still not widely understood or deployed at many companies around the world. Only 23 percent of the survey respondents globally said they are currently calculating TTL across their business in real time using automated tools and factoring it into business decisions. That figure increases to 55 percent in the next two years. In the Americas, 74 percent of the respondents indicated they expect to calculate TTL using automated tools and factor it into business decisions in the next two years, while 78 percent expect their boards to be more involved going forward.
Not all regions are engaged with the TTL concept equally and many organizations are failing to calculate it effectively. The Americas are furthest along, with 55 percent of the business leaders surveyed expecting the board to be more involved with the process going forward. That proportion rises to 73 percent in the Americas.
“The concept of total tax liability is starting to become very well known,” said Becker. “We spend a lot of time with our clients focused on total tax liability, and 62 percent of the organizations in the survey calculate total tax liability. Not everybody is using automated tools to do that. That’s clear, but when we talk about total tax liability, what we mean is all kinds of taxes, from income taxes in every jurisdiction, value-added taxes, other indirect taxes, state and local jurisdictions, sales taxes, payroll taxes, property taxes, every kind of tax that a business or organization pays, and kind of framing that and understanding what the total tax liability footprint is. That’s something that we’re seeing an increased focus on every single year.”
The outcome of the November election has been weighing on the minds of tax executives not only in the U.S., but in other parts of the world. “I think where that’s coming through in the survey is the uncertainty around new legislation and regulation,” said Becker when he was interviewed last month. “Where corporate taxation in the U.S. goes from a legislative perspective is a big open question, and people are concerned about that. It’s hard not to be, just given the uncertainty alone. Whatever your political persuasion is, the uncertainty of the election leaves a lot of open questions.”