Corporate tax execs expecting big changes next year

Chief tax officers are anticipating some major developments in the New Year when it comes to international taxation, mergers and acquisitions, technology, talent and more, according to a recent survey from KPMG.

KPMG’s 3rd Annual Chief Tax Officer Outlook polled 126 CTOs from companies across various industries about global taxes, M&A, tech, hiring, sustainability, and more.

The survey found that 46% of the CTOs who responded to the poll expect international agreement on the Organization for Economic Development and Cooperation’s Pillar I and II proposals for corporate taxation. Over three-quarters (78%) of the CTOs polled believe regulatory risk is the greatest threat to their organizations over the next three years, with talent risk coming next at 52%.

In case some form of the Biden administration’s Build Back Better Act passes next year, tax leaders will be bracing for any possible tax increases, although corporate tax increases appear to be unlikely to win agreement for now from moderate Democrats in the Senate like Sen. Joe Manchin, D-West Virginia, and Kyrsten Sinema, D-Arizona. What-if scenarios and modeling may help companies with their tax planning just in case.

“CTOs anticipate an array of legislative changes but what those changes will be and how they will impact their organizations is where the greatest uncertainty lies,” said Manal Corwin, principal in charge of KPMG’s Washington National Tax Practice, in a statement. “Modeling and scenario planning remain key essentials for organizations to effectively and quickly assess how changes will impact their businesses. Those who are most proactive in their modeling will be best prepared to adapt.”

Environmental, social and governance reporting has become more of a concern as the pace of climate change continues to accelerate, but 60% of the respondents said tax has been engaged with ESG initiatives only periodically, while other teams are leading the charge.

“We’re seeing a global movement to consider ESG more broadly across business activities and adopt greater responsibility,” said Brett Weaver, national leader of value chain management at KPMG U.S., in a statement. “This includes a company’s approach to tax. However, tax plays a unique role in ESG in that it is both a measure and a driver of sustainability. While companies are scrutinized over whether they are paying enough tax, governments are providing tax incentives to promote broad ESG initiatives. This leaves significant room for external stakeholders to misinterpret a company’s ESG tax contributions and may highlight a need to publicly ‘tell your story’ around tax.”

Technology has been growing in importance too, with 79% of the respondents indicating that data management, extract, load and transformation tools will be some of the key technologies that tax functions will need to operate effectively in the “new normal” of the pandemic.

“Companies need to embrace digital transformation, or risk being left behind,” said Greg Engel, vice chair of tax at KPMG, in a statement. “In today’s quickly evolving and increasingly complex tax environment, with a tsunami of tax changes on the horizon, tax leaders must leverage technology to make their functions more efficient, accurate and future-ready.”

Over half (58%) of the CTOs who responded to the survey are increasingly training or reskilling their existing tax professionals as their top talent strategy, with 38% saying they are adding tax technologists.

“Retaining good talent in this current environment comes at a price,” said Rema Serafi, national managing partner at KPMG U.S. Tax, in a statement. “With the ‘great resignation’ and talent shortages across the board, it’s more vital than ever before to retain your highly-skilled professionals by continuing to upskill and train them, offering them flexibility in their work arrangements and continuing to be nimble in a quickly changing environment.”

Mergers are another trend to watch for next year, with 50% of the CTOs polled saying their team’s connectivity to M&A transactions is high. Tax will play an essential role there too.

“The success of your tax function and deal terms are not mutually exclusive,” said Jim Todd, U.S. national leader of M&A tax at KPMG, in a statement. “That said, every transaction has tax implications and the most strategic and forward-thinking tax functions will ultimately only increase M&A success and drive value throughout the deal lifecycle.”