Tax departments turn to technology in bid to meet worldwide challenges

* But messages are mixed on recruitment versus technology
* Outsourcing remains steady, offshoring very limited

Tax departments worldwide, facing increases in workload of up to 100 percent through demands for more documentation, more accuracy and more speed, are turning to training and technology to boost their capacity, KPMG member firms have found.

Although 42 percent of departments report plans to increase headcount, the greatest focus is in Asia where relatively low salary costs may support this route. Those in the Americas and Europe are overwhelmingly relying on better technology and training to meet the increasing challenges of tax compliance and reporting.

These conclusions come in two separate surveys, one in the United States by KPMG’s U.S. firm’s Tax practice, and the second worldwide by KPMG’s Global Tax Outsourcing practice, which together covered 753 tax professionals across 19 countries. Senior tax executives were polled to identify the main challenges that their departments were facing, and how they expected them to change in response.

“We weren’t surprised to hear that demands for more and better information from regulators and shareholders were placing a significant strain on tax departments,” said Chris Scott, partner in KPMG’s U.K. firm and the Global Tax Outsourcing practice, “but we did find real differences in the methods that departments are using to cope with the extra work.”

Ninety percent of respondents in India said that their first reaction to increases in pressure would be to add staff in their tax department, while only 23 percent of respondents in Switzerland said they would do so. In Mexico, 85 percent of executives said they would respond by enhancing technology, compared with only 35 percent in Korea.

While this difference in view clearly reflects local factors (for example, professionally qualified staff are likely to be less expensive in India than Switzerland), the surveys uncovered a lack of clarity in how to address tax challenges.

“Looking at the results,” said Mr. Scott, “we wondered whether the gap between value of activity and time spent on it is well understood and, even where it is, is there consensus on how to respond to it?”

“Without diminishing the importance of training and recruitment, an obvious way to close the gap between value and time is to improve efficiency. In our firms’ experience tax departments have not traditionally focused on process improvement or technology applications. But now there seems to be a growing realization among finance and tax professionals of the contribution better process and technology can make in helping tax departments meet their challenges.”

Asked about their future technology plans, 62 percent said they will adapt their financial software to deliver data that can be used for the tax return, and 55 percent plan on creating a bridging system to convert financial data into a form that can be used for the tax return. Thirteen percent reported other types of technology improvements, ranging from new reporting software through automation of tax functions to archiving software.

With the exception of Hong Kong, Singapore and Korea, few countries reported plans to increase the amount of work they outsource. Outsourcing remains the approach of choice for compliance and expatriate tax, and for areas where specialist advice is necessary. Departments said that they were cautious about the perceived cost of outsourcing, and the difficulties of educating a third party about the particular requirements of their company.

While outsourcing remains very well utilized as a strategy for managing tax resources and responsibilities, despite developments in other areas of business administration, offshoring - sending work overseas to be completed – was very limited. Only two percent of those asked the question reported that they did send work overseas, and half of these sent it to India.

“We were not too surprised at this.” said Mr. Scott, "In-country outsourcing is a valuable option for a corporate in seeking to manage its compliance and other tax responsibilities across many jurisdictions but, despite cost being cited as the main barrier to outsourcing, offshore facilities have yet to address the challenges of multi-language, multi-jurisdictional needs in one centralized location. Corporations are also still concerned over the efficiency of offshoring of tax work given its specialist nature and the fact that one of the key compliance challenges – quality of accounting data – is not something directly addressed by off-shoring.

The surveys concluded that there is a prize to be won in reduction of time spent on labor-intensive but routine compliance tasks, freeing up tax professionals to add value on business support and tax planning. “The leaders, those who can get this right, can expect to enhance their value in the eyes of their markets” said Mr. Scott.