In a recent post, my colleague Bernadette Pinamont described several benefits that “tax-aware” companies appreciate. The term, which is examined in a research report prepared by CFO Publishing in conjunction with Vertex, describes organizations that have integrated the tax function into strategic decision-making processes.
Now that we have a sense for what tax-aware companies do, I want to discuss how companies can become more tax aware.
The CFO Publishing/Vertex research is based on a survey of 105 senior finance executives at large U.S. companies (the report also contains qualitative insights from leading finance executives). When respondents from non-tax-aware companies are asked to identify the greatest obstacles they point to the following three hurdles – along with some approaches to working through each issue:
- Recognition: Forty-five percent of respondents identify “lack of recognition for the tax function’s ability to contribute to business strategy” as the greatest obstacle to becoming a tax-aware company. Clearly, including the tax team at the table during strategic decision discussions will help clear this hurdle. That’s easier said than done, of course. One way to get tax an invite is through a finance function and a CFO who are well-versed in the importance of tax, notes FedEx Corporation Chief Accounting Officer John Merino. FedEx’s CFO is “very savvy in terms of potential implications of tax and accounting issues on any transaction,” Merino explains. “So early and often [in strategic decision-making] the question comes up, ‘What are the tax implications?’”
- Collaboration: Forty-three percent of respondents identify “lack of collaboration among tax, finance, and/or operations staff” as the greatest obstacle to becoming a tax-aware company. Training and education can stimulate the tax understanding the rest of the business needs to more clearly see the value of working more collaboratively with the tax function. Vodafone Group Tax Director John Connors reports that a two-pronged training approach – one that informs business partners of the tax implications of their decision-making and one that equips the tax team with “skills to be effective business partners” – has been highly effective.
- Complexity: Forty-one percent of respondents identify “highly complex tax profile (e.g., many legal entities, multiple tax jurisdictions)” as the greatest obstacle to becoming a tax-aware company. One way to reduce complexity is by freeing tax professionals from reporting and compliance activities so that they have more time to address sources of complexity – and add value. “It comes down to having reliable data and spending less time managing and manipulating data to understand it,” notes Freescale Semiconductor Director of Global Tax and Regional Controller Giovanni Pacelli, “so that I can sit back and look at a report or a roll-up and determine what strategic implications it may have…”
Addressing these obstacles does not guarantee that tax consideration will be automatically integrated into strategic decision-making activities; however, these areas represent an excellent place to begin the ongoing effort of becoming a more tax-aware company.
The tax-awareness effort requires time and dedication, Connors emphasizes. “Maybe 10 years or so ago, tax was seen as something of a back-office, back-room function, sometimes for better, sometimes for worse,” he adds. “But I think as far as we’re concerned, tax really has to be integral to all of the commercial decisions, whether it’s billing systems, location decisions, or anything else.”
Please remember that the Tax Matters provides information for educational purposes, not specific tax or legal advice. Always consult a qualified tax or legal advisor before taking any action based on this information.