With engagement and education, finance leaders can foster a better understanding of taxes and help their organizations create tax-saving strategies.
Financial leaders can be forgiven for relying on tax attorneys and specialists. It takes an expert to make sense of the byzantine systems of state, federal, international and non-income taxes. Still, the complexities of taxes shouldn't stop finance leaders from pursuing tax-saving strategies. CFOs should have regular conversations with their tax executives to not just improve their personal understanding of taxes but to also spread that knowledge throughout the organization.
Embrace Tax Strategies
The intricacies of taxes seem to be a barrier for many organizations. According to EY, more than 50 percent of organizations pursued financial transformations without considering the benefits of tax activities. This lack of strategy means they're likely missing valid tax savings, carrying high levels of tax risk and losing valuable forecast data that could help after the transformation process.
While there are indeed many aspects of taxes that are best left to experts, finance leaders can still boost their organizations' financial standing by engaging in tax-saving strategies that foster participation throughout the organization. Tax-minded approaches that benefit the bottom line can only go as far as financial leaders and their employees take them. As Deloitte notes, CFOs can unlock the "black box" of taxes by taking the following five approaches with their tax teams.
1. Develop a Succession Plan
Stop believing taxes are so specialized that only outside experts can fill positions that require tax knowledge. Instead, include tax proficiency in executive succession plans, including the replacement for your own position. Future leaders can possess leadership and influence skills as well as technical tax chops. Training and promoting these tax-minded leaders can advance tax strategies and save money on outside searches and onboarding.
2. Support Compliance and Reporting
Not all organizations have clearly defined and documented compliance and reporting processes, partially because it's sometimes unclear who is accountable. Tax functions should be held to the same standards as the rest of an organization.
You already hire consultants. Why not hire a point person to oversee the compliance process? If that's not possible, split oversight between executives who have a large role in taxes. Either way, dedicated compliance and reporting oversight can catch process deficiencies before they become problems.
3. Understanding the Value of Taxes
Fully understanding how taxes function can allow leaders to articulate how taxes affect their organizations and how their staffs can accordingly plan fiscal strategies. For example, knowing the numbers and consequences of the effective tax rate illuminates the path to finding value in taxes. With this knowledge, cash taxes could be reduced or risk could be minimized.
Tax cuts can have a profound impact on compliance costs, and finance leaders need to stay on top of this. Effective planning means educating employees about difficult topics, but the payoff is they can better shape your organization's strategic priorities.
4. Leveraging Technology for Tax Work
It's important to review how taxes influence technology and how technology influences taxes. For instance, how much tax information lies outside of your enterprise resource planning (ERP) system and is found on spreadsheets?
An exploration of technology can determine whether employees are wasting time on data manipulation or if they're infrequently using programs and applications. The insight will better plan for how employees use tax-specific technology.
5. Articulate the Need for Resources
It's a universal reflex to want more help but a lot harder to make a detailed case for additional resources. Instead of citing risk management as a reason for more employees — and potentially causing friction with departments that make due with fewer people — try another approach.
Create a holistic business case for the deployment of tax resources. This means making a successful argument for people, process, technology and data. Also, use good judgment in making build-versus-buy decisions as resources are deployed. Success here can decrease the costs of tax efforts.