Tax leaders shift gears as implementation takes precedence
OECD Pillar Two is one of the highest near-term priorities for tax executives. Sixty-four percent in our latest PwC Pulse Survey say they’re focused on making sure they have the data feeds and systems they need to handle all aspects of the OECD’s global framework.
Meanwhile in the US, the 2024 presidential and congressional elections will determine control of the legislative agenda, and many provisions of the Tax Cuts and Jobs Act (TCJA) will expire or tighten in 2025. As of now, only 27% of tax leaders say they’re actively engaging with lawmakers on US or global tax policy. To keep up with the mounting demands and help drive strategic business outcomes, tax executives are investing in new technologies and tapping into third parties to help lighten the load.
Pillar Two is reality — January 1 is just the beginning
64%
The main focus of 64% of tax directors is on the requisite data feeds and systems to handle all aspects of Pillar Two
With only a few months to go before many aspects of Pillar Two become effective on January 1, 2024, tax leaders are determining how to comply with the rules long term. To prepare, 41% say one of their main focus areas is confirming that they have the time and resources to adequately respond. That includes assessing current systems, data structures and sources of data, as well as significant cross-functional teaming and coordination among stakeholder groups beyond tax, including controllership, financial planning and analysis, information technology and others.
Fifty-one percent say their main focus is assessing the potential impacts Pillar Two could have on their financial statements and cash flows. Many companies will need to reflect the impact on their financial statements and may have to make estimated tax payments starting in the first quarter of 2024. And, while there’s no denying that Pillar Two is a heavy lift, tax leaders will need to manage compliance while also focusing on other coming tax policy changes. TCJA provisions are scheduled to expire in 2025.
What you can do
Assess your data and systems structures for Pillar Two readiness and remediate gaps.
Perform an impact analysis and model the potential effects global tax changes will have on your business.
Assess and select a Pillar Two calculation engine that incorporates all aspects of the rules to manage provision, compliance and modeling needs.
Get a handle on Pillar Two now to free your time for communicating with US government officials about the impacts that the scheduled TCJA changes and new tax laws could have on your business in 2025 and beyond.
Get more on this topic
- Executives are increasingly optimistic about the business environment and their companies’ ability to mitigate risk. Find out more.
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- What else is important to tax executives right now?
Compliance: there’s no need to go it alone
67%
of tax leaders say they’re outsourcing a portion or all compliance duties to juggle the increased demand
The past few years have stretched tax departments thin, and there’s no sign of easing. Talent remains an elusive resource as the number of candidates entering the field continues to dwindle.
Only 18% of tax leaders strongly agree that their companies successfully attract and retain the talent they need, according to our August 2023 Pulse Survey. With regulatory and compliance responsibilities at an all-time high, tax leaders are looking to technology and alternative resources through co-sourcing or outsourcing. Sixty-five percent of tax leaders say they’re using technology to create capacity for employees amid the increased reporting and compliance requirements. And more investments are planned. Sixty-three percent say new technology is one of the strategic business changes they plan to invest in over the next 12 to 18 months.
Thirty-four percent of tax executives say increased reporting and compliance demands have left them unable to support business transformation as much as they’d like. With the recent shortage of resources, the conversation has shifted to alternative approaches out of necessity. Tax leaders wonder if it’s more cost effective to transform the department with the people they have, co-source or move toward a managed services model. Our survey shows 40% are outsourcing a portion of their compliance and 27% are outsourcing all or most aspects of their compliance.
What you can do
Consider the capabilities and tax operating model you’ll need to create an agile function that can anticipate change and respond to new tax laws, along with the technology necessary for modeling and driving deliverables with increasing complexity and volume.
Incorporate new technologies into your tax strategy to eliminate manual and time-consuming tasks, freeing your people to focus on activities that add higher value.
Stay aligned with your C-suite peers to formulate a cohesive transformation strategy.
Tax leaders want to align with and drive business strategy
Only 47%
of tax leaders rank strategic cloud and digital initiatives as one of the top-3 areas their function is most aligned with company priorities
Eighty-five percent of all executives say the cost of adopting new technologies is a challenge to transforming. Given their ability to provide efficiencies and help reduce costs, it’s important to include tax leaders in the overall design and implementation of tech transformations. But only 47% of tax leaders rank strategic cloud and digital initiatives as one of the top three ways their function is most aligned with organization-wide priorities. This is a missed opportunity. Tax can help identify ROI associated with any technology discussion, such as credits and incentives and alternative funding structures to pay for these investments.
Undertaking any business transformational effort without considering tax implications can result in higher costs and greater overall risk. Because of the holistic nature of operating model transformation, it’s even more critical to structure the business in the most tax-efficient way. However, only 34% of tax directors have time to focus on business transformation because of increased compliance and reporting requirements.
What you can do
Help create incremental value and reduce business model reinvention costs through potential tax savings or tax credits, while also dealing with the complexity and cost implications of Pillar Two and future regulatory changes.
Emphasize how tax fits into the technology agenda, not only to provide an overall return on investment for the organization but also to enhance efficiencies in the tax function.
About the survey
Our latest PwC Pulse Survey, fielded August 1 to August 8, 2023, surveyed 609 executives and board members from Fortune 1000 and private companies about the current business environment, the risks executives are facing and their company’s strategic plans and priorities. Of the respondent pool, 97 were tax executives.
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