The COVID-19 pandemic revealed the importance of an effective and agile tax strategy. This year, as jurisdictions look to recoup revenue, tax professionals are ready to transform their organisations to adapt to what lies ahead, according to the BDO 2021 Tax Outlook Survey.
The emergence of the COVID-19 pandemic in the U.S. in March 2020 quickly turned speculation into hard reality — one without modern comparison. Businesses across industries suddenly faced the simultaneous challenges of continuing their operations, protecting their employees’ health and safety and reacting to unexpected demand fluctuations and supply chain issues. In response, companies had to quickly pivot and adapt their near-term plans.
For tax departments, this often meant shifting to remote work and pushing to meet key deadlines while continuing to look for opportunities arising from the Coronavirus Aid, Relief and Economic Security (CARES) Act and other relief programs. In fact, 99% of tax executives said they’ve been involved in their organisation’s response to the economic slowdown caused by COVID-19.
Although the impact of the pandemic varied across industries, liquidity and access to capital were universal keys to survival, and the tax department proved crucial to steering their organisations through the crisis. Nearly half (49%) said they have seen the role of tax as a strategic partner enhanced in the last six months, and 97% said they “always” or “sometimes” are included in strategic planning and decision-making, up from 89% in 2020.
Tax executives leveraged a variety of strategies in 2020 aimed at preserving cash when businesses needed it most. They expect the effects of the pandemic will continue to keep them busy in 2021: 50% said their primary tax issue would be mapping the impact of COVID-19-related business strategies, followed by digital taxation at 17%. Executives plan to adjust their focus from immediate savings to longer-term optimisations, such as supply chain shifts and outsourcing certain tax functions to external vendors.
Corporate tax rate and total tax liability expected to increase
If 2020 was the year that put the tax function on the map, 2021 will be the year that pins it there. Tax executives see significant challenges on the horizon, including a potential corporate tax rate increase. 92% of tax executives said they believe the U.S. federal corporate tax rate will increase this year, and 70% believe their total tax liabilities will increase in the next 12 months.
Digital taxation goes global
The perception that existing tax systems need to be adjusted to address the digitalisation of the economy is widespread and overwhelmingly supported by U.S. tax executives. Potential impact of taxation of digital products and services is predicted to the be the #1 factor in total tax liability this year.
COVID-19 underscores the need for tax technology adoption
Tax technology is seen as key to managing the areas competing for tax executives’ attention: More than half (56%) of respondents said technology and process limitations had a major impact on their ability to keep pace with tax changes. Not surprisingly, nearly the same percentage said the pandemic accelerated digital transformation within their tax departments.
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