Initial Impact on Covid19 Crisis
When Covid-19 struck, plans were put on hold or rendered temporarily irrelevant. Here's a look at the biggest impacts corporate tax departments are seeing.
Initial Impact of the Covid-19 Crisis
How the pandemic has already changed priorities and challenges for corporate tax departments
When 2020 dawned, corporate tax departments were looking forward to having some well-deserved breathing room between legislative changes to focus on more proactive initiatives such as deploying new technology to improve staff efficiency and hiring new staff to better handle the compliance burden.
Then the Covid-19 crisis struck, and plans were suddenly on hold or rendered temporarily irrelevant. Here we look at some of the impacts corporate tax departments are already seeing.
As we’ve been doing for the past several years, we conducted our annual survey in January and February 2020 to benchmark corporate tax departments.
Analysis of the data was scarcely completed before the coronavirus crisis erupted in the U.S. It was suddenly clear to us that we would need to check in with our respondents to find out how the crisis was impacting their departments compared to earlier in the year.
We quickly conducted a follow-up survey in the second half of April. This sneak-peak preview of the full benchmark report gives you a fast look at how the crisis is already shaping the staffing plans, mandates, challenges, and concerns of corporate tax departments across the country.
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Tax Department Challenges
Legislative tracking regains its place as the top tax challenge.
Best laid plans are laid aside
When we reached out to corporate tax departments in early 2020, we discovered that many were planning to implement new technology and/or better leverage existing systems. This translated into 45% saying that deploying or improving technology was among the biggest challenges for their tax department in the coming year. It was the first time since 2017 that the most prevalent response hasn’t been tracking legislation and staying up to date on changes.
Now implementing new technology that automates repetitive, mundane tasks and improving usage of existing technology to drive efficiency gains seem to be off the table for 2020. In the follow-up survey, implementing new technology and/or improving usage of existing systems no longer ranks in the top five biggest challenges, dropping from the first to the tenth spot.
Instead, legislative tracking and staying up to date on tax changes regained the top position (47%), followed by limited resources and/or low budget (38%), the overall compliance burden (35%), finding time for and conducting planning activities (33%), and state treatment of federal tax law changes (32%).
We also asked about anticipated changes in investment in software or tax automation tools. Slightly less than half of respondents are not changing investment plans and 6% surveyed indicated they are considering further investments. So while it’s not their top challenge, many companies will still be investing in tax software and automation.
While implementing new technology/better using existing technology was the most prevalent biggest challenge in the beginning of 2020, it is now not even the top five biggest challenges.
Which will pose the biggest challenge for your organization this year?
- Legislative tracking
- Compliance burden
- Managing tax data
- Implementing new technology
- Limited resources/low budget
- Finding time to conduct planning activites
Growth takes a back seat, while staffing reductions loom large.
Plans to reduce staffing quadruple
In our 2019 report, 71% agreed that the tax function at their company was under-resourced. Therefore, it was no surprise that earlier in 2020 before the Covid-19 crisis more than one-third of respondents (39%) expressed plans to increase hiring this year.
Now with the crisis, those plans have changed again. Those who originally anticipated hiring additional staff are now planning to maintain current staffing levels instead, with only 9% indicating they still plan to increase staff and 64% saying that they plan to maintain current staffing levels.Further, those who had anticipated maintaining current staffing levels
are expecting to reduce staff,
more so in larger departments
(10 or more people) than smaller ones (less than 10).
Those planning to reduce staff quadrupled between February
and April, growing from 4%
before Covid-19 to 27% in April.
A majority surveyed (57%) anticipate changes in hiring plans for this year as a result of Covid-19.
Tax Department Mandate
Cost reduction drives the tax function now.
Reducing costs is the new mandate, even before the crisis
In our original results from early 2020, reducing costs and promoting efficiency in tax administration was the top mandate (43%) followed by reducing cash tax payments and/or the effective tax rate (39%).
Improving tax planning and tax-related decision support was third at 37%, which was already a slight drop in prevalence compared to end of year 2018, where improving tax planning was the top mandate according to 44% of respondents.
By late April, however, tax planning, while still third in terms of the most prevalent mandate, dropped from 37% to 25%. At the same time, the percentage of respondents citing reducing costs (55%) and cash tax payments (49%) increased significantly compared to earlier in the year.
Saving money is now clearly the top priority for the uncertain future.
Within the manufacturing industry, reducing cash tax payments and effective tax rate is the top mandate, increasing from 43% before Covid-19 to 59% after the pandemic hit.
At the same time, reducing costs and promoting efficiency, although not the top mandate, did become far more important for manufacturing, going from fifth place in February at 26% to second place in April with 49% saying it’s the tax function’s top mandate over the next two years.
While the prevalence of various mandates for those in the banking and insurance industry didn’t change much post-outbreak, the manufacturing industry experienced dramatic changes in prevalence especially with respect to:
The biggest worry? How to help the business with managing cash during uncertain times.
Given the current crisis, cash is the top concern
In April, we asked about the tax department’s most pressing concern and focus now. The responses are clearly driven by an uncertain future where no one knows exactly how the Covid-19 crisis and its aftermath will impact businesses going forward.
Respondents cited the most prevalent concerns and focus as:
- Tax planning to take advantage of opportunities and/or limit the downside (28%)
- Identifying ways to help with cash management (31%)
- Compliance with any changes in business activity such as a remote workforce or discontinued operations (22%)
Compliance with changes in business activities is the most likely area of focus for those in the banking and insurance industry. Tax financial reporting and financial disclosures as a result of Covid-19 impacts to tax provision are more likely to be an area of focus for those in public companies.