BDO Tax Outlook Survey

February 2019

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What does business reinvented mean for taxes? Today’s tax professionals face a sea of change in every direction. Evolving legislation and business dynamics are complicating tax regulations and increasing the need for technological advancements that tax professionals can use to automate compliance functions and consult on strategy. That’s why BDO surveyed 150 tax executives at companies across the country to hear their takes on tax reform between jurisdictions, the impact of digital transformation, and how tax professionals will need to adapt to changing industry standards in 2019.
 


Takeaway #1

With a market downturn likely drawing closer, now is the time for businesses to optimize their total tax liability.

 
By optimizing lean tax operations today, companies will have more time and resources to manage any potential broader economic challenges in the months or years to come. But getting ahead of a potential downturn means tax directors need to accurately understand their total tax liability and communicate it effectively to executive leadership. Concurrently, tax executives should work to emphasize the importance of tax strategy throughout their organizations to strengthen collaboration and efficiency during both prosperous and challenging times.
 

What is total tax liability?

It is the sum amount of all taxes owed, factoring in income, indirect, property, payroll, excise and other taxes as well as credits, incentives, customs, duties and deductions at the international, federal, state and local levels. Understanding this concept is key to the success of any truly comprehensive tax strategy.

The role of the tax professional is rapidly evolving towards being a truly strategic advisor to the business. In order to fulfill this role, identifying, communicating, and optimizing total tax liability is crucial.
 
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Strategic tax planning today will help companies understand their total tax liability ahead of any market changes, putting them in a better position to respond.

Tax execs believe the economy will grow for...
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Takeaway #2

As the tax function evolves, tax professionals’ digital and soft skills are deemed equally important as their technical tax prowess.


As the siloes between businesses’ departments break down, establishing open conversations about where tax liabilities arise will enhance transparency, trust, and productivity between the tax department and other divisions. It also ultimately facilitates the maximization of shareholder and stakeholder value.

To leverage these opportunities effectively, tech savvy is rapidly becoming a required attribute of a successful tax professional. When used strategically, automation, data analytics, and other digital tools can help professionals share information more frequently, accurately, and concisely to strengthen these conversations as well as optimize their own work processes.


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For more information on the evolution of the tax function and how focusing on tax transformation can benefit the entirety of a business, read our Tax Transformation Guide.

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Takeaway #3

Tax execs want automated processes to help them work smarter, but indicate it will take time for digitalization to be fully realized.

 
Fueled by technological innovation, growing compliance obligations, and both competitive and internal pressures, the tax function has reached a turning point. Static spreadsheets are increasingly delaying real-time analysis and communication. Transforming an organization’s tax department can increase operational accuracy, provide actionable insights, and strengthen the department’s position as a strategic driver of revenue. But successful transformation doesn't happen overnight—it requires a customized strategy that balances the long-term vision with realistic short-term achievements.
 
For companies that have undertaken some level of digital transformation, efforts are paying off. According to BDO’s new Digital Transformation Survey, 74% of businesses saw an increase in profitability from digital transformation initiatives in the past year, and 79% anticipate an increase in profitability in the years ahead.


According to the Tax Outlook Survey...

Tax execs will focus on automating processes in 2019.
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Top Challenges to Tax Transformation in 2019
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At the same time, executives say resources and implementation will pose the greatest hurdles:
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One way tax executives are funding innovation is through Research & Development tax credits.

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Within the past year, 77% of executives who claimed R&D tax credits say they reinvested the capital saved into their businesses' operations. 

 
TOS_ExecSurv_3-5.pngAccording to the Digital Transformation Survey, 40% of businesses plan to use R&D tax credits to fund future digital initiatives.
 


Takeaway #4

U.S. federal tax reform and state and local tax changes are both weighing on tax execs.

 
More than a year after federal tax reform’s enactment, executives are still adapting to the new tax code as additional guidance and regulations have been released nearly every month since. While they’re reevaluating their federal tax strategies, many are also faced with revising their state and local tax processes to conform to the new economic nexus standard established by the U.S. Supreme Court’s South Dakota v. Wayfair decision this past summer. One thing is clear—changes to the U.S. tax code aren’t going anywhere, and the ripple effects of reform will be felt for years to come.

TAX EXECS' TOP TAX ISSUES IN 2019
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FEDERAL TAXES
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The reduced corporate tax rate and mandatory repatriation of foreign earnings have had the most impact on their businesses.

STATE AND LOCAL TAXES
Following the U.S. Supreme Court’s watershed South Dakota v. Wayfair decision in 2018, tax execs have…

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Takeaway #5

While companies are still adapting to BEPS implementation, significant shifts to global taxes lie ahead as international trade relationships shift and the concept of digital taxation gains momentum.

 
This year, executives shouldn’t overlook global taxes while conforming to U.S. tax changes. The Organization for Economic Cooperation and Development’s Base Erosion and Profit Shifting (BEPS) project is still making waves around the world, and more changes related to the taxation of digital services are on the horizon. Many businesses should consider upgrading their global tax processes in tandem with their federal, state and local operations ahead of expected developments abroad.

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As the U.K. outlines a digital services tax, 39% of tax execs say they are “only slightly” following the emerging legislation’s potential impact on future digital taxation. 
 
 
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Yet tax execs might want to pay more attention, as several countries around the globe are reportedly developing their own versions of a digital tax while the OECD attempts to standardize digital tax rules across its member nations. 
 
 

What does this mean for tax professionals?

While federal tax reform has been the dominant issue on the minds of tax executives for the last year, it’s clear that tax reform is just one manifestation of the changes happening across the tax function. What was once a relatively routine field now faces shifting regulations and compliance issues both at home and abroad.
 
The role of the tax professional is changing from numbers-cruncher to strategic leader, and adept tax professionals in 2019 and beyond will need to prioritize adaptability, process efficiency, data analysis, and effective communication around total tax liability to maximize their impact.
 

About the 2019 BDO Tax Outlook Survey
The 2019 BDO Tax Outlook Survey is a national telephone survey conducted by Market Measurement, Inc., an independent market research consulting firm. The firm’s interviewers spoke directly to 150 U.S. tax executives—or those with tax director responsibilities—at public companies with revenues of over $1 billion. The survey was conducted within a scientifically developed, purely random sample.

About BDO Tax
The Tax practice at BDO is among the largest tax advisory practices in the United States. With over 60 offices and more than 550 independent alliance firm locations in the United States, BDO has the bench strength and coverage to serve you.
 

CONTACT:
 
Matthew Becker
National Managing Partner
  Mathew Demong
Northeast Tax Regional Managing Partner

 
Paul Heiselmann
National Managing Partner
  Andy Gibson
Southeast Tax Regional Managing Partner

 
Karen Stone
Atlantic Tax Regional Managing Partner  
  Ron Martin
Southwest Tax Regional Managing Partner

 
John Marquardt
Central Tax Regional Managing Partner  
  Hoon Lee
West Tax Regional Managing Partner