|Finance and Tax Execs Expect Little Relief from Tax Enforcement, Regulatory Reporting Requirements
|Regulatory and enforcement pressure expected to rise; finance and tax executives often see key tax challenges differently
|CFO Research Services|
|March 20, 2012|
Senior finance and tax executives at large U.S. companies see few prospects for tax relief on the horizon, according to the new report Under Pressure: Finance and Tax Executives on Tax Management in a Challenging Recovery by CFO Research Services, underwritten by BNA Software. The report is available for download on the CFO Research site.
The vast majority of respondents to the CFO Research survey (84%) say their companies will face more aggressive tax legislation and enforcement over the next two years. That increased regulatory and enforcement pressure is coming at a price: more than 60% of the finance and tax executives who responded to the survey say their companies are more exposed to tax-related risk today than they were five years ago.
"Pressure on corporate tax departments has been building since Sarbanes-Oxley became law in 2002," said Celina Rogers, Editorial Director of CFO Research, who led the study. "Of course, just as they were starting to adjust to that heightened degree of regulatory scrutiny, the downturn hit, which led to more aggressive tax-enforcement measures."
Companies increasingly strapped for resources were reluctant to invest in a support function like tax, Ms. Rogers continued. "Tax departments got hit with a triple whammy: regulatory scrutiny, increased enforcement, and few resources to meet either of those requirements," she said. "For this study, we wanted to explore how tax executives were responding to this situation in this study, and we also wanted to learn more about how finance executives and their expectations fit into this landscape. We found a lot of points of agreement between finance and tax executives--each group clearly has the best intentions--but several interesting points of disagreement, too."
CFO Research surveyed 118 senior finance and tax executives from U.S. companies with more than $1 billion in revenue for its study.
Tax departments are facing five major pressure points
The CFO Research report identified five major pressure points that companies are facing in tax:
Increased regulatory scrutiny and aggressive enforcement. Eighty-nine percent of finance and tax executives expect regulatory pressure for greater transparency in tax reporting to increase over the next two years. Nearly as many (84%) say their companies will face more aggressive tax legislation and enforcement over the next two years.
An expanding tax-function mandate. Over the past three years, tax departments were most often charged with finding savings by promoting administrative efficiency in tax (37%) and reducing cash tax payments (34%). But over the next two years, respondents expect tax departments will shift their focus to making a broader contribution by improving tax planning/tax-related decision support (47%) and improving the management of tax-related risk (42%).
Doing (even) more with (even) less. A majority of all survey respondents (59%) agree that their companies' tax functions are currently under-resourced and will require additional resources to fulfill a growing mandate over the next two years.
An influence deficit. Finance and tax executives often disagree about the role that tax should play in non-tax-compliance activities, such as finance and accounting, major transactions, major operating decisions, and risk management. Nearly three-quarters of survey-respondents working in tax (73%) say that the tax function should play a more substantial role in those non-tax compliance activities than it does today--compared to only 47% of respondents working in finance.
Challenges in building a business case for automation. Finance and tax executives disagree on the best approach to automation in tax, which could be complicating tax departments' efforts to gain funding for tax technology systems. A solid majority of tax executives (62%) agree, for example, that increased tax automation will play an "important" or "critical" role in improving tax effectiveness at their companies over the next two years. Far fewer finance executives--only 42--agree with that statement. Furthermore, tax executives are much more likely than their counterparts in finance to say that their companies prefer specialized, "best-of-breed" applications for tax activities (61% of tax respondents versus only 42% of finance respondents).
Differences in opinion between finance and tax matter
"When we compared the responses from finance and tax executives, it became clear to us that finance and tax executives are focused on different dimensions of the tax department's work," said Ms. Rogers. "Finance executives are understandably focused on the results that are flowing from their tax departments: they want to see higher-quality, faster reporting, reduction in the effective tax rate, improvement in tax efficiency. Meanwhile, tax executives are focused on the processęthe effortęthat produces those results. That difference in focus is completely understandable, but what we found is that communication lines between finance and tax are getting crossed."
The realm of fixed assets and depreciation provides is a kind of microcosm of the finance/tax dynamic, Ms. Rogers said. "We looked into the tax dimension of fixed assets in some depth, because fixed assets are closely connected with high-stakes decision making on capital budgets," she said. "One interesting thing that we found is that finance executives are a lot less likely than tax executives to say that accounting for fixed assets in financial and management reports is challenging. That's important, because it suggests that many finance executives don't fully understand how difficult it is for their tax functions to meet the minimum standard of reporting right now--much less a rising performance standard that includes tax planning, tax-risk management, and other high-value activities."
Results like this, Ms. Rogers continued, could serve as a starting point for conversation between finance and tax executives. "There's no doubt in anyone's mind that both finance and tax executives are committed to boosting tax's contribution to the enterprise," she said. "This research raises questions, though, about how well finance and tax are working together to figure out their shared objectives in tax and meet them. Are finance executives fully accounting for the changes that have taken place over the past several years when they set their expectations of the tax function? Are tax executives are making compelling cases for the resources they'll need to do everything they'll be asked to do in the coming years? This research suggests that the answer to each of those questions is 'no' in a lot of cases. Which means that a lot of finance and tax executives could have quite a bit to gain by coming to the table and starting a new conversation about the tax function."
About the survey
CFO Research Services surveyed 118 senior finance and tax executives at large companies across the United States for this study. Company revenues ranged from $1 billion to more than $20 billion. The online survey was completed in December 2011. Under Pressure: Finance and Tax Executives on Tax Management in a Challenging Recovery is available for download at www.cfo.com/research.
About CFO Research Services
CFO Research Services is the sponsored research group of CFO Publishing LLC, which produces CFO magazine, CFO.com, and CFO Conferences. For more than 25 years, CFO Publishing has been a trusted source of insight into the issues that matter most to finance professionals.
CFO Publishing LLC, a portfolio company of Seguin Partners, is the leading business-to-business media brand focused on the information needs of senior finance executives. The business consists of CFO magazine, CFO.com, CFO Research Services, and CFO Conferences. CFO Publishing's award-winning editorial content and loyal, influential audience make it a valued resource for its readers as well as an effective marketing partner for a wide range of companies. CFO Publishing has long-standing relationships with more than 500,000 finance executives. For more information, please visit www.cfo.com.
About BNA Software
Founded in 1983, BNA Software develops expert solutions for tax and accounting professionals. With category-leading software and top-rated technical support, BNA Software is the solution of choice for professional firms and corporations of every size. More than 70,000 customers, including the IRS, depend upon BNA Software for the highest degree of tax, regulatory, and compliance expertise available in the market. BNA Software is a Bloomberg BNA business. Bloomberg BNA, a wholly owned subsidiary of Bloomberg, is a leading source of legal, regulatory, and business information for professionals. Its network of more than 2,500 reporters, correspondents, and leading practitioners delivers expert analysis, news, practice tools, and guidance--the information that matters most to professionals.
Bloomberg BNA's authoritative coverage spans the full range of legal practice areas, including tax and accounting; labor and employment; intellectual property; banking and securities; employee benefits; health care, privacy and data security; human resources; and environment, health and safety.
CFO Publishing LLC
51 Sleeper Street
Boston, MA 02210
1801 S. Bell Street
Arlington, VA 22202