Economic uncertainty, evolving regulations and other factors are prompting boards to reassess the tax function and its role in strategic planning. Board collaboration with the organization's tax department is especially critical to help mitigate risk, build resilience and achieve key business objectives.
Today's tax leaders often play a dynamic role in their organizations, acting as key drivers — and guardians — of growth. BDO's 2023 Tax Strategist Survey analyzes 150 tax executives' priorities and involvement across various business areas and highlights several key insights for boards, including:
- Tax leaders who participate in setting business strategy drive positive business performance.
- Most tax leaders expect tax liabilities to increase in the next 12 months.
- Tax leaders plan to invest more resources in tax technology.
- Outsourcing will continue to be a critical component of workforce strategy.
Overall, it is critical for management to involve the tax function in strategic planning, and boards can play a key role in helping ensure tax leaders are well-positioned to support growth and success.
The Rise of the Tax Strategist and What It Means for Boards
The Tax Strategist Survey divides respondents into two categories: strategists and tacticians. Strategists have greater influence in decision-making than tacticians do — and greater resources in terms of budget, staffing, technology and more — which correlates to better business outcomes. Strategists also have better visibility into their businesses' operations, goals, opportunities and threats.
Organizations with more tactical tax departments should consider evolving their tax function to enhance planning for strategic objectives. Directors can provide value to the tax function by engaging with management to inquire specifically about tax implications of existing strategies and expand the conversation to identify opportunities that may be less apparent.
Technology Helps Prepare for New Tax Policy
While significant changes to U.S. federal tax policy may not occur before the 2024 election, there have been several notable changes recently, and tax leaders should proactively prepare for expected changes to domestic and international tax policy. Key focus areas include:
- New corporate alternative minimum tax and credits and incentives in the Inflation Reduction Act.
- Reporting requirements in pillar two of the OECD framework regarding base erosion and profit shifting used by multinationals.
- Heightened scrutiny and more frequent audits resulting from increased IRS funding.
- New international trade regulations.
As the IRS plans to expand its own use of technology and data analytics, most tax departments are increasing their investments in technology as well. However, there are notable gaps in how strategists and tacticians deploy tax technologies:
Technologies Currently Deployed in the Tax Function | Strategists | Tacticians |
ERP software | 68% | 37% |
Tax compliance software | 68% | 51% |
Data analytics/visualization/predictive modeling | 66% | 46% |
Extract, transform, load software | 64% | 44% |
Virtual/augmented reality | 50% | 26% |
Informed boards are active in overseeing how management addresses changes in tax policy through discussions with the CFO, auditors and other stakeholders who engage regularly with tax executives to evaluate the quality of the tax function.
Tax Department Decisions on Workforce and Human Capital Management
Workforce strategy, specifically co-sourcing (where internal staff work with external professionals to perform key functions) and outsourcing, is another key area of divergence among strategists and tacticians. Strategists are much more likely than tacticians to co-source or outsource work related to the following areas:
Areas Co-Sourced/Outsourced in the Last 12 Months | Strategists | Tacticians |
Tax technology implementation | 77% | 41% |
Global tax compliance | 75% | 41% |
Tax credits | 75% | 47% |
The survey shows the top two challenges for recruitment and retention of qualified tax professionals are a lack of candidates with specialized knowledge (25%) and lack of strategic vision for the tax department (18%). Those challenges are compounded by fewer professionals entering the accounting industry, which highlights the importance of co-sourcing and outsourcing.
People are critical to leveraging technology successfully. Co-sourcing or outsourcing arrangements can free capacity for your in-house staff and allow them to focus on employee development. Upskilling talent to enable effective use of tax technology can enhance employee engagement and equip people for more productive, strategic work.
Facing a long-term talent shortage and rapidly advancing tax technology, boards should review management's workforce strategies to help ensure the organization has the tax talent it needs, leverages tax technology appropriately, uses high-quality data inputs, and evaluates options for co-sourcing and outsourcing.
Tax and ESG Strategy Alignment
As company-specific material ESG risks receive greater focus from boards, tax leaders will be expected to navigate the intersection of ESG and tax. Once again, the survey reveals a maturity gap between strategists and tacticians for boards to work with management to address.
Organization has strong understanding of tax/ESG strategy intersection | 84% of strategists vs. 29% of tacticians |
Tax department has a formal mandate for advancing ESG strategy | 89% of strategists vs. 58% of tacticians |
The ability to produce quantitative and qualitative ESG tax disclosures requires transparency in the business's tax data. Tax transparency is a key part of mitigating ESG risk factors, especially amid ongoing policy changes and closer scrutiny of tax practices from regulators, shareholders and stakeholders.
Overcoming transparency challenges for ESG reporting requires new data collection and analytics tools. While there is not yet a single U.S. regulation that dictates how businesses report tax-related ESG initiatives, tax leaders who develop and codify their data collection and disclosure processes now will be much better prepared to meet future requirements.
Boards should continue to develop a thorough understanding of how tax strategy and ESG strategy intersect, and tax executives have a significant opportunity to demonstrate how their organization is making measurable progress toward ESG goals — whether through tax transparency, sustainability-related tax credits and incentives, compliance with regulations against forced labor or in other areas.
Leveraging Tax Leaders as Key Stakeholders
Tax leaders who serve as influential decision-makers can help their organizations mitigate risk, build resilience and achieve business outcomes — becoming invaluable strategists for their organizations and supporting key priorities for boards. In order to facilitate this collaboration, boards are encouraged to ensure tax departments play a more involved role in strategic planning and that directors connect regularly with the CFO, auditors and others on tax ramifications of management's business decisions.