Corporate tax bills are on the rise, and so is compliance complexity

Diving brief:

  • The media is awash with reports of large companies paying little or no tax, but the reality is different, with 65% of large companies saying their taxes have increased in the last 12 months and a quarter of them claiming that their taxes have increased, a BDO survey results.
  • “Total tax liability is on the rise,” says the BDO 2022 Tax Outlook Survey, which compiles the views of 150 tax executives.
  • Relief is not in sight. Three-quarters of executives say they expect taxes on their corporations to rise further over the next 12 months. That’s without knowing what tax changes in the United States and around the world could become law. “The lack of clarity around which tax policies might ultimately progress underscores the importance for business leaders to understand the effect of business decisions on their tax position,” the report said.

Overview of the dive:

The higher charges can be difficult for non-tax executives to control, because total taxes encompass global, federal, state, and local taxes and also include indirect taxes that are passed on to the business, in many cases by suppliers, and secondary impacts. this can be difficult to calculate, such as the impact of transfer pricing under the OECD’s global tax reform. Then there are property taxes and the impact of linking rules as businesses see more employees working and more customers shopping remotely.

“The percentage of [executives] reporting a high level of understanding [of total tax] is declining,” the report says, “a reflection of increased tax complexity.”

Diving CFO BDO Data

Income tax tends to be the top concern for businesses, but for many the sources of their biggest increases outside of income tax are less publicized, such as employment taxes and duties. customs. Property, excise and indirect taxes are other sources of increase.

Despite growing complexity, only 45% of tax executives say they are present when strategic decisions are made, down 11% from last year.

“This decrease may indicate that when leaders successfully pulled their organizations out of pandemic crisis mode, they felt comfortable consulting with their tax departments less frequently about cash-generating strategies,” BDO says.

If they are not included in decision-making, tax executives are nevertheless increasingly called upon to explain the impacts of business decisions. Nearly 60% say they spend more time explaining the tax impacts.

Strategic role

Ideally, tax executives say, they would be brought in earlier on strategic issues such as restructuring, global mobility and mergers and acquisitions, especially when their company enters a post-pandemic business posture.

“The data suggests that the tax department could be better leveraged to help organizations accelerate the ongoing recovery from the pandemic,” the report said,

International trade, product or service development, geographic expansion, environmental, social and governance (ESG) implementation, digital transformation, supply chain management and cybersecurity are some of the areas where tax leaders could deliver strategic value beyond restructurings and mergers and acquisitions.

Sharon D. Cole