Nearly half of the corporate tax departments participating in a new survey say they are under-resourced — and the problem is more pronounced among companies in North America than in Europe.
In the US, 56% of respondents said they have strained resources, compared with 46% in Canada, 37% in mainland Europe, and 25% in the UK, according to the 2021 State of the Corporate Tax Department report from Thomson Reuters. The report is based on a survey of 821 tax specialists.
Indirect tax teams, heavily represented in the study, are also strongly impacted by resource constraints. Half of the survey respondents are responsible for their companies’ determination, collection, and remittance of value-added taxes (VAT), sales and use taxes, and other indirect or transactional taxes. In addition, the resource gap is widening for indirect tax specialists as they contend with expanding regulations that require companies to file digitally and remit tax payments in real time.
Download the full 2021 State of the Corporate Tax Department report to learn how 800+ tax professionals have upskilled team members, met multi-jurisdictional tax demands, and effectively adopted new technology solutions.
The study found that under-resourced companies spend approximately 14% less on average than their sufficiently resourced peers. It also noted that closing this budget gap can improve tax compliance, work quality, efficiency, and talent retention while equipping tax departments to identify and secure greater tax savings.
Technology and automation lead the strategic response for indirect tax teams
Throughout 2020, the study found, corporate tax departments employed multi-faceted strategies to address resource shortages, and adopting technology and automation was the most common strategy in every region. “This strategy offers two immediate benefits,” the study notes. “It enables existing team members to focus on higher-value tasks and it reduces human error, which is likely to increase when people are overworked.”
Here are the top five strategies for addressing resource gaps:
- Introducing more technology and automation, cited by 45% of survey respondents.
- Streamlining processes to create more efficiencies, cited by 41%.
- Hiring more qualified tax professionals, cited by 31%. (However, the study also concluded that finding quality candidates was the biggest recruitment challenge facing corporate tax departments.)
- Relying more heavily on the existing team, cited by 29%.
- Relying more on third-party specialists to fill gaps in in-house skills or capacity, cited by 24%.
“Technologies that make the most positive impact are those that create efficiencies and improve data quality,” the study says. “This might be saving time and therefore cost, turning work around quicker, and reducing errors. Others see the impact as improving reporting or enabling better control. There are many benefits seen to having more organized and well-managed [indirect] tax data, as well.”
Indirect tax challenges exacerbated by talent gaps
Unfortunately, the lack of adequate resources and the talent gap undermine indirect tax teams’ efforts to use tax engine software to realize these benefits and close the resource gap.
Tax departments under-utilize technology, the study found, because they lack time, resources, and staff with the necessary skillset. About one-fifth of tax departments say their existing teams lack advanced technology skills.
Tax leaders’ efforts to expand their teams’ technology capabilities through hiring, however, can prove difficult. While nearly one-third of tax departments said they intend to recruit more qualified tax professionals, 19% can’t find good people, 14% can’t find candidates with sufficient tax experience, and 7% have been unable to find candidates with advanced technology skills.
It’s unclear how well indirect tax departments are upskilling their existing teams, the study says, because few of them assess their investments in training and development or measure employees’ well-being, morale, or performance against goals.
Learn how to overcome technological skills gaps in your indirect tax team in our free webinar, Exploring the technological skills gap and how technology can help tax departments do more with less.
Sophisticated tax departments leverage technology to address resource constraints
The 2021 State of the Corporate Tax Department report provides a framework for defining the technological state of corporate tax departments and investigates their journey to becoming sophisticated. To this end, survey respondents were asked to categorize their operations as chaotic, reactive, proactive, optimized, or predictive.
Those that described themselves as significantly challenged — as chaotic or reactive — were twice as likely to say they were under-resourced than the optimized and predictive teams. “Effective technology and streamlining processes take significant investment, as do advanced technology skills,” the study says. “We found that optimized and predictive departments were spending three times as much per dollar of revenue on the tax department budget, when compared to chaotic and reactive departments.”
Securing budget for indirect tax technology and skill enhancement
Under-resourced indirect tax teams operate chaotically, struggle to attract and retain well-qualified staff, and lack the budget, time, and skills needed to effectively adopt automation.
The study advises tax leaders to tackle these issues head-on when implementing new technology by securing adequate budget for integrating and onboarding the new solutions, revamping processes to ensure they deliver value, training team members, and engaging specialists and consultants as needed.
When justifying spend for tax technology, survey respondents said their most powerful argument was ROI — the direct cost savings to be derived from the upgrade. They said it was also important to emphasize improved quality of work, accuracy, and standardization. Other benefits cited included risk mitigation, speed, efficiency, and the opportunity to free team members to do more valuable, strategic work that could impact the bottom line.
Download the full 2021 State of the Corporate Tax Department report for more indirect tax findings. For information on how to transform and modernize your indirect tax department to become more technologically sophisticated, take a look at our free resources: