- Latest EY Tax and Finance Operations survey shows 95% of respondents see a need for improved data and technology skills among their people
- 95% plan to shift budget toward more strategic activities over the next two years and 84% are adapting their tax and finance function operating models
- 70% anticipate making changes to their tax and finance functions in the next two years as a result of the COVID-19 pandemic
Businesses around the world are transforming to future-proof their tax functions against an array of persistent challenges that are disrupting the way they operate, according to the latest EY Tax and Finance Operations survey, “Realizing the value of your Tax and Finance function.”
The survey canvassed 1,650 tax and finance leaders in more than 40 countries around the world. It found that most organizations (84%) are planning to transform their tax and finance functions over the next two years, galvanized by a need to tackle critical challenges related to talent, regulation and technology, often with budget constraints.
The survey examined some of the approaches tax and finance leaders plan to take. A large proportion (81%) of respondents said they are “more likely than not” to co-source certain tax and finance activities within the next 24 months, with this figure rising to 96% for organizations with revenue of US$30b or above.
The findings also show that the COVID-19 pandemic has served as a catalyst for change, with 70% of those surveyed saying that the experiences of the past two years have sharpened their focus on the need to transform their functions. Almost all the leaders surveyed (95%) say they are reallocating budget so that they can focus on strategic priorities.
Talent, legislative developments and technology – pressures that are driving change
Talent issues are a major driver of the transformation trend and present two distinct but related challenges for tax departments. Firstly, the “work from anywhere” response to the COVID-19 pandemic, that is now entrenched in many industries and presents new considerations for companies, including those relating to where they are operating. Fifty-five percent of respondents say they will face additional tax and reporting obligations in the coming years because of a more geographically dispersed workforce, adding unanticipated complexity to their tax compliance obligations.
The second issue companies face is finding properly skilled tax professionals. Ninety-five percent of the business leaders surveyed pointed to a skills gap in the tax function and believe there is a need for tax and finance professionals to update their skills in relation to data, processes and technology over the next two years if they are to keep up with the fast pace of change.
These pressures are compounded by the volume and pace of global tax reforms, including the development of new global minimum tax rules. Almost one-third of respondents (32%) say uncertainty about their ability to identify, evaluate and respond to looming regulatory and legislative change is the biggest barrier to success. Many also harbor concerns about increasing costs.
Fifty-nine percent say compliance with new digital tax filing obligations will ramp up expenditures, and 83% expect to spend at least US$5m and an average of US$11.1m over the coming five years, to help ensure they adhere to the new rules.
The pandemic also made many businesses realize they lacked up-to-date data and technology tools when their workers ended up being separated from their files during COVID-19 lockdowns. Half (50%) of the largest businesses said their lack of a sustainable plan for data and technology is the biggest barrier to delivering their tax function’s purpose and vision.
Businesses are clearly under pressure to do more with less, with 87% of companies planning to reduce the costs of their tax and finance functions in the next two years. Nevertheless, most still plan to invest, with 70% saying they intend to spend US$2m or more on tax technology over the next three years.
Finally, the tax function is under growing pressure to play a bigger role in helping their organizations address environmental, social and governance (ESG) objectives. Nearly half (46%) of respondents said environmental and climate risks are the most important ESG issues facing their organization in the next two years; and nearly all (94%) say they are co-sourcing ESG reporting activities or considering doing so.
Kate Barton, EY Global Vice Chair – Tax, says:
“The tax function is making steady progress as a strategic engine to business. Organizations that have started transforming their tax and finance functions are seeing the value that is yielding dividends in this unprecedented market and legislative environment. They are clear on the benefits of modernizing their tax function to drive value, manage risks and take out costs, while facing mounting talent and technology pressures.”
Dave Helmer, EY Global Tax and Finance Operate Leader, says:
“The COVID-19 pandemic has accelerated the drive to transform. Businesses are under enormous pressure to bring added value to their organizations while meeting their essential tax compliance obligations. Many are confronting these challenges and – whether it’s through working with third-party providers or managing more in-house – they are looking at ways to make their tax functions fit for the future.”
To learn more about the EY Tax and Finance Operations survey, visit ey.com.
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