Tips to Achieve Tax Agility in 2021

Jamie Eagan - VP Product Management Tax & Transfer Pricing

Jamie Eagan is VP, Product Management of Longview products at insightsoftware. Jamie holds a B.Sc. in Accounting and a minor in Economics from State University of New York at Fredonia.

Tax Agility Hero

By any measure, 2020 has been a difficult year for organizations to navigate. Changing tax laws, global regulatory scrutiny, and rigid reporting deadlines have already contributed to a challenging environment for corporate tax teams. But the emergence of COVID-19 layered even more complexity on their ability to predict ETRs and to support their organizations with accurate forecasts.

So, what lies ahead of us in 2021? The only outcome of which we can be absolutely confident is that more change is on the cards, but that much of it remains unknown. The first area of transformation is the new political regime in the US, in which President-Elect Joe Biden is due to take the reins in the White House on January 20, 2021.

Tax Agility Inline

According to the Tax Foundation, the new administration will introduce a number of changes to business tax, including:

  • An increase in the corporate income tax rate from 21% to 28%
  • Doubling of the tax rate on Global Intangible Low Tax Income (GILTI) earned by foreign subsidiaries of US firms from 10.5% to 21%
  • Expansion of renewable energy-related tax credits, including tax credits for carbon capture, use, and storage

The Tax Foundation also highlights that there may also be a new 10 percent surtax on corporations that “offshore manufacturing and service jobs to foreign nations in order to sell goods or provide services back to the American market.”

The Democrats were discussing such measures before the pandemic struck, but as the Organisation for Economic Co-operation and Development (OECD) states in its Tax and fiscal policy in response to the Coronavirus crisis: Strengthening confidence and resilience report, even more change may well be on the way as a result of the crisis.

Some academics and other stakeholders have recommended extraordinary revenue-raising measures, says the OECD, and “suggestions to use the tax system to tax back additional income earned during the crisis are being floated.”

Further to this, the OECD adds that “reforms of the prevailing tax landscape could be considered anew, such as base-broadening measures and tackling inefficient tax expenditures, which could be easier to address in the context of a broad reconsideration of the tax system. Governments may also consider new and under-used tax bases.” In the UK, where the Office for Budget Responsibility (OBR) expects Government borrowing to be more than £370 billion for 2020, there is speculation that corporate and personal tax rates will need to rise to fill the gap.

The Make Tax Digital (MTD) initiative that was already underway to overhaul the way that UK taxes are collected has continued to be rolled out over the past 12 months. In addition, HMRC aims that it will address friction and improve transparency in the business tax payment process. And, of course, large organizations operating within the UK face the uncertainties that still exist around new post-Brexit trading relationships with the EU and beyond.

On the positive side of the ledger, recent news about the availability of COVID-19 vaccines has raised hopes for a return to normality in work, travel, and trading activities in 2021/22. Again, it is too early to say what impacts mass testing and vaccination programs will have, which means it’s still necessary to be as prepared as possible for unforeseen events and outcomes.

As covered in a recent webinar organized by insightsoftware, all of this unpredictability makes long-term tax forecasts extremely difficult, and the only possible response is to “relax into the uncertainty, get the right tools in place, and prepare to pivot and be flexible as change unfolds.”

Unfortunately, many tax teams are still spending a great deal of their time on manual and administrative tasks, such as maintaining spreadsheets and emailing, chasing, and querying local teams about their data submissions. They don’t have the time needed to keep up with shifting government policies or evolving corporate goals.

Automating manual processes is the best way to enable tax teams to spend more time providing strategic input from a tax perspective, following these three key stages:

1. Adopt a standard, centralized framework

The best way to address shifting regulations happening all over the world is to establish a standardized framework that enables the tax team to prepare and report on tax numbers across the whole organization. By automatically merging data sources and converting values into a standardized single source of truth, the overall framework will reliably provide consistent, consolidated numbers even when different jurisdictions are individually updated.

A structured, proactive approach simplifies audits, laying out clear trails leading to every relevant jurisdiction’s set of rules with corresponding updates. It also releases tax teams’ time to be spent on more valuable efforts: comparing tax data across reporting cycles, considering the implications of different scenarios, and feeding insights into future tax planning and forecasting.

2. Let the tax team own tax reporting

A self-serve system that does not rely on the IT department ensures that reporting is managed by financial experts who understand the data and general ledger structures. When the team has total control over reporting, they will naturally build confidence in the numbers they share with stakeholders. Periodic and ad hoc reporting will be faster, conclusions more nuanced, and the strategic value to the organization more apparent.

3. Scale systems to deal with fluctuations

When tax rules change, reporting needs to change, too. If the tax team is dependent on static spreadsheets and manual processes to make all the frequent updates we’re witnessing today, there will never be enough time in the day to see everything through. If spreadsheets are used, the data themselves could likely be outdated, and there is additional risk in potentially breaking formulas when you make updates, which means the resulting trend and variance reports will then prove to be inaccurate.

One way or another, we will still be in for a bumpy ride over the next couple of years. Consider equipping your tax team with the tools they need to cope with changing market conditions, as this can add huge value. Such tools provide one central source that consolidates critical data and provides shared access among stakeholders, making everyone’s jobs easier while delivering insights into fast-changing data for the good of the organization.

Find out more about how you could use Longview Tax from insightsoftware to reshape your tax function. Book a demo, or drop us a line.