U.S. Tax Executives Anticipate Market Downturn, Adapt to Digital Imperatives

Madeline O’Connor
Bliss Integrated Communication
[email protected]

More Than One-Quarter of Tax Executives Expect a Market Downturn in One to Two Years.

Chicago, IL – Though tax executives continue to grapple with federal tax reform, the potential for a market downturn dominates their near-term agenda, according to BDO’s 2019 Tax Outlook Survey. Of the 150 tax executives surveyed at companies across the country, more than a quarter (27 percent) expect the economy to remain on the upswing for one to two years before beginning to constrict.

Given future economic unpredictability, now is an opportune time for tax executives to understand and optimize their total tax liability—the sum amount of all taxes owed across the entirety of an organization. According to the Tax Outlook Survey, however, only 58 percent of tax executives self-identified a “high” understanding of their companies’ total tax liability, while 32 percent said their understanding was “moderate.”

“By streamlining tax operations today, companies will be better positioned to manage any potential economic challenges in the months or years to come,” said Matthew Becker, Managing Partner in BDO’s National Tax Office. “It’s clear, though, that tax professionals have a long way to go to understanding their total tax liability, and to becoming critical business strategists who can pass that understanding to executive leadership.”

Technology Offers Benefits, but Implementation Challenges Persist
Tax departments have long been siloed from other key areas of the business, and even within tax departments themselves, challenges abound. Forty-nine percent of tax executives identified resource issues, such as talent and technology, as a top challenge, while 29 percent cited automating routine processes as a top issue this year.

Acknowledging the need for more real-time analysis and increased cross-functional communication, many tax executives are adopting digitalization as a tool to limit routine and manual processes, increase accuracy, and ultimately provide tax departments with greater capacity to serve as strategic advisors. According to the survey, 55 percent of tax executives are focusing on automating processes in 2019, while 24 percent are implementing data analytics. Despite the advantages of tax technologies, executives recognize the barriers to fully realizing their benefits.

“Evolving legislation and business dynamics continue to complicate tax regulation and increase the need for technological advancements to help tax professionals automate compliance functions and enhance their ability to consult on strategy,” stated Barbara Torzewski, Tax Transformation Services Practice Leader. “Today, the ideal tax professional is tech-savvy, familiar with emerging technology, able to adapt quickly to technological changes, and able to communicate tax strategies to business stakeholders.” 

Tax Reform and Geopolitical Issues Weigh on Tax Executives
More than a year after federal tax reform was enacted executives are still grappling with the new tax code, an effort complicated by additional guidance and regulations that have been released on an ongoing basis since enactment. According to the survey data:

  • Nearly half (46 percent) of tax executives said the burden of adjusting to the new U.S. federal tax code is their top issue this year, while the specific provisions around the reduced corporate tax rate and mandatory repatriation of foreign earnings have had the biggest impact on their businesses.

  • Next to the federal tax code, 31 percent reported that a top tax issue this year will be changes at the state and local level, such as the fallout from the South Dakota v. Wayfair Supreme Court decision.

  • 65 percent said the Wayfair decision has prompted them to reevaluate their companies’ sales and use tax compliance, and 53 percent have reassessed their state and local income tax compliance.

More changes related to global and digital services taxation are on the horizon, and tax executives are adjusting strategies in response to international trade tariffs and tensions. In fact:

  • 63 percent have reevaluated their companies’ international supply chain and logistics; 55 percent have analyzed their global import and export model; and 43 percent have altered their strategic sourcing processes.

  • 39 percent of tax executives said they are “only slightly” following the United Kingdom’s emerging digital services tax legislation.

“Tax executives must stay abreast of global changes related to digital taxation, including in countries that are reportedly developing their own versions of a national digital tax, as well as those proposed by the Organization for Economic Co-operation and Development (OECD), which recently announced intentions to spearhead changes to announced intentions to step-up efforts on a framework for allocation of jurisdictional taxing rights for the digitized economy,” said Monika Loving, International Tax Services Partner & National Practice Leader. “Any of these changes could have a material impact on businesses around the world.”

The BDO Tax Outlook Survey is a national telephone survey conducted by Market Measurement, Inc., an independent market research consulting firm, whose executive interviewers spoke directly to 150 tax executives at public companies, using a survey conducted within a scientifically developed, pure random sample.

About BDO
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