U.S. Tax Executives Believe Effects of Tax Reform are Far from Over
U.S. Tax Executives Believe Effects of Tax Reform are Far from Over
Bliss Integrated Communication
97% believe more change will come after the 2020 election
Chicago, IL—When tax reform legislation known as the Tax Cuts and Jobs Act was passed over two years ago, many businesses cheered the reduction in the corporate tax rate and other provisions intended to boost American companies. Despite their optimism, today 83% of U.S. tax executives believe that their total tax liability—the sum of all taxes across the entirety of the organization—will increase in 2020, according to BDO’s 2020 Tax Outlook Survey.
This points to the degree of tax complexity at every level. At the forefront is federal tax reform, the effects of which are still reverberating through many tax departments. Adjusting to continued guidance on federal tax reform is the issue tax professionals identified as their biggest tax challenge in 2020—and with the 2020 election right around the corner, they believe additional federal changes are on the horizon. Of the 151 tax professionals surveyed, 97% say there will likely be further changes following the election, and more than half (55%) believe this will occur regardless of who is elected.
But more changes to the tax code aren’t the only concern. The rise of the digital economy has fundamentally altered the way business is done, and tax authorities at every level are scrambling to catch up. The Supreme Court’s decision in South Dakota v. Wayfair opened the door for states to enact economic nexus standards across the country, and tax professionals in response have had to reevaluate their processes: 61% report having upgraded their state and local tax technology. On the international side, countries are starting to come together to attempt to standardize the way digital services are taxed across borders.
“As we enter a new decade, the tax environment is more complex than it has ever been—and complexity is accelerating rapidly,” said Matthew Becker, National Managing Partner of Tax. “To thrive in these circumstances, tax professionals need to focus on understanding and optimizing their total tax liability, and ensure taxation is factored into broader business strategy.”
International Taxation Tackles the Digital Economy
While several countries have attempted to create their own digital services tax structure, the Organisation of Economic Cooperation and Development (OECD) is attempting to generate a global framework for allocating and taxing profits related to digital business. While there are several proposals under review, they all would focus nexus around the location of customers rather than sellers, essentially rolling out a worldwide economic nexus standard.
According to the survey data:
64% of tax executives are “very familiar” with the OECD’s work in this area
Understanding the impact of the ongoing OECD work on digital taxation is the top international tax concern in 2020
88% of executives believe a global framework is needed for taxing the digital economy
“While global standards around digital taxation are still in flux, they will undoubtedly have a significant impact on any business that sells across borders. While these rules could bring some standardization to the patchwork quilt of current regulations, they could also multiply the compliance and reporting requirements for multinationals,” said Monika Loving, Managing Partner and International Tax Services Practice Leader. “Any business that conducts cross-border sales should pay close attention to the OECD’s work in the coming year and should map the effect potential scenarios would have on their overall tax liability.”
In the Face of Change, Tax Executives Turn to Technology
As taxation rules at home and abroad become increasingly complicated, it is critical that tax professionals be able to quickly understand the impact of any changes and be able to meet more frequent reporting requirements. This can be a daunting task that is nearly impossible to complete without up-to-date tools. While 41% of tax executives say limitations in their tax technology have significantly impeded their ability to respond to new regulations, there are signs they are making moves to update their capabilities.
Additional findings include:
69% are making their largest 2020 investment in identifying and implementing new technologies
1 in 3 tax executives rank training professionals to use technology as the #1 challenge for their department
73% are already deploying real-time monitoring technologies, and 67% are leveraging data analytics
“Tax technology, when used effectively and with standardized processes, can help manage complexity, facilitate collaboration across the business, and streamline the compliance and reporting processes,” said Paul Heiselmann, National Tax Managing Partner. “While the right tools are essential to optimizing total tax liability, businesses need to be sure to empower the people behind the technology—investing in recruiting and training staff to effectively leverage the technology at their disposal.”
For additional survey findings, including data on the impact of Wayfair and the evolving role of the tax professional, download the full report.
The 2020 BDO Tax Outlook Survey polled 151 senior tax executives at companies with revenues ranging from $100 million to $3 billion in October and November 2019. The survey was conducted by Rabin Research Company, an independent marketing research firm.
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