History has long shown that businesses with the ability to identify changes in their environment, pivot effortlessly, and quickly adapt to the new setting are the ones that end up on top. Whether or not we have come to grips with it, the reality is that we are living in a “post-tax-reform” world, and there are still a lot of businesses scratching their heads, having more questions than answers. Regardless of your opinion on the change, there are two things for certain: tax reform is here to stay and businesses need to adapt or they will be left behind.
The Tax Department Has a Seat at the Table
The Tax Cuts and Jobs Act (TCJA) ushered in a new era of how businesses interact with their internal tax team and cross-functional departments. Gone are the days of reactive tax departments who were often overlooked during key business-decision-making conversations. Questions such as where to set up new operations, how to structure deals, how to conduct intercompany transactions, and how to leverage debt were once decisions made by finance, operations, and treasury, often leaving tax departments in the dark. Today, companies are looking to tap into all available resources to aid in making the most effective and practical decisions, while maximizing profitability.
For many companies, the total tax bill has decreased. It will be interesting to see how these companies allocate the savings. Some are using the savings to boost returns to shareholders, others to their employees. Some are taking the savings obtained from tax reform and investing in themselves with technology, enterprise resource planning upgrades, cloud migrations, and so on, indirectly benefiting shareholders and employees by creating efficiencies to reduce man-hours and errors, both of which can be costly.
Companies have already committed resources toward implementing such ideas as information sharing, creating synergies, and developing robotics process automation within other functions, but the tax department seemingly “never got the memo.” Including tax departments in decisions such as these gives them an opportunity to add strategic value to the bottom line and raise their visibility within the organization through process improvement, tax collaboration tools, and automation of tax data. The lines of communication between those in corporate tax and those in operations are opening, increasing the understanding of how the company is conducting business.
Doing More with Less
Tax reform is not only transforming how businesses operate internally, but it is also transforming how tax departments are structured to maximize their strategic role for the company. On average, most tax departments report that over half of their time is spent working on tax compliance, which can involve hours of manipulating raw data or interpreting incomplete data to file the most accurate and complete tax return possible. Too much time is spent combing through vast amounts of information – some useful, much not – leaving little time on the back end to add value to the company by analyzing the results, looking for trends, and identifying potential opportunities.
Tax reform did not simplify things, but it did give tax departments a reason to rethink existing procedures and fine-tune where needed. A new list of business requirements has emerged for compliance, financial reporting, and planning, especially on the international side. Companies are investing in technology tools that enable them to capture information and make it accessible to all departments, fostering collaboration and efficiency. Despite all the complexities and additional reporting requirements, tax departments are not getting bigger. In fact, the opposite is happening: businesses are trending toward leaner tax departments to counter the pressures of cost reduction and savings enhancements. As a result, there is more attention given to the flow of information, the quality of such information, and building far-reaching synergies across every area of the business. Additionally, there seems to be an uptick in the use of third-party service providers for various tax department functions. This frees up the internal team to focus on other areas that perhaps never got the attention they deserved in the past, such as tax planning and strategy.
Tax Authorities Seek Transparency Across Borders
Corporate America is transforming how they think and operate as globalization becomes the norm. Operations are crossing new borders and continents to produce, package, and ship a single product. But businesses are not the only ones transforming how they think and operate; tax authorities are working hard to close the gap between what is happening in the real world and how they should be enforcing the laws. Taxing authorities across the globe are broadening their view and investing in new technologies to allow them to monitor and enforce compliance within and outside their legal jurisdiction. They are showing an increased ability to gather the mass amounts of data provided within tax filings and comparing it across other reporting segments for trend analysis and fraud detection. They are connecting the dots between banking reports, tax filings, and other regulated agencies to build better profiles of companies based on several factors, such as industry, size, and location. This newfound connectivity is helping to alert tax authorities of outliers – those whose tax reporting seems to deviate from peers with similar fact patterns and tax footprints, indicating that a closer look in the form of a field audit may be needed. In addition, foreign jurisdictions are now sharing information across borders with other countries, something that was unheard of a few years ago.
Change Is Good
If tax reform has done anything, it has shed light on the fact that the world is transforming, and that having a well-designed infrastructure, with full input from all stakeholders, is key to success. It also reminded us to always be ready to adapt and to expect the unexpected, perhaps for the next tax reform, whenever it should hit.
James P. Swanick, CPA, and Michael J. Tighe, CPA, are managing director and senior tax manager, respectively, in Global Tax Management Inc.’s Wayne office. Both are members of the
Pennsylvania CPA Journal Editorial Board. Swanick can be reached at firstname.lastname@example.org and Tighe can be reached at email@example.com.