Embedding a tax lens into the design and delivery of your company’s strategic plan is now a commercial imperative. Pending policy changes on the horizon are drawing more attention to tax — but that’s not all. Demands for execution around cost, technology transformation and the overall business model agenda are calling for the kind of capabilities that tax can bring.
Tax has levers across the enterprise to contribute meaningfully to cost-cutting initiatives, strategic redeployment of resources and reduced regulatory risk. Put another way, successful execution — in terms of optimal utilization of funding sources, sustained risk mitigation and achieving the goals for post-tax ROI — is likely to become far more challenging if companies continue with an after-the-fact approach to tax.
And for tax leaders, by positioning your department as a value creator — able to enhance operational, technical and financial value — you can drive home the importance of considering tax in every aspect of business strategy.
Consider how to advance your capabilities in these three areas:
Operational value: Streamlining processes and enhancing efficiency
Integrating tax into the broader operational processes and systems should ultimately reduce risk exposure and enhance your company’s ability to capitalize on new opportunities.
Tax departments can and should integrate into company-wide productivity and efficiency efforts. By doing so proactively, important cross-functional hand-offs and decision-making can be more efficiently managed while meeting cost and workforce model targets.
Tax can make its own contributions in technology enablement and data management, too. Tax departments that use AI and automation tools can process higher volumes of tax data with improved accuracy and speed. These improvements not only reduce the cost of compliance but also free up resources for more strategic tax team activities such as scenario planning for different regulatory environments.
You can strengthen operational and supply chain resiliency with digital solutions and by rethinking or streamlining related processes. This often means taking the long view, strengthening capabilities today to bring about incremental improvements that can set up your organization to succeed in the future.
Technical value: Navigating and mitigating complex regulations
Tax interdependencies are becoming more and more complex thanks to changes in policies such as the expiration of the Tax Cuts and Jobs Act (TCJA), rising interest among policymakers to use incentives and credits to fuel domestic growth, and new international requirements like OECD’s Pillar Two tax reform. Your tax department’s ability to handle these regulatory shifts is essential to company growth and risk management.
Tax can translate complex regulatory requirements into business-accessible language, helping your business to gain confidence in its decisions. You’ll need to clearly articulate the dependencies between the regulatory requirements and functional, locational and investment elements of the business.
Tax leaders will want to ensure that reporting dependencies, data dependencies, controversy management and risk mitigation factors are understood by all decision-makers. This can prevent costly mistakes, minimize the risk of audits or disputes and help ensure that your company remains compliant across jurisdictions.
Once baseline regulatory requirements are efficiently managed — with the right balance of risk mitigation, scenario planning and education — the tax team can help your executives make timely decisions regarding potential shifts in the tax landscape as well as those decisions that relate to operational footprints, the supply chain or any other jurisdictional move that has financial and tax implications.
Financial value: Driving profitability and cash flow management
Communicating how your tax department manages the company’s effective tax rate (ETR) is crucial. ETR management directly impacts post-tax ROI targets on important investment initiatives for the company. Tax leaders will want to be sure that all executives are up to speed on what drives the ETR. Related planning can enable the subsequent management of earnings and free up cash that can be reinvested or returned to shareholders.
Maximizing available credits and incentives has become an increasingly important element of effective utilization of funding sources. By coordinating with the project design team and investment modeling at the outset, the tax team can identify ways to boost profitability, whether it’s through R&D tax credits, energy-related tax incentives or jurisdiction-specific tax incentives or holidays.
A continuous focus on cash tax management also generates financial value for the company. The tax team can help the company preserve or manage liquidity needs between timing-related methods and payment planning and appropriate structuring to manage or optimize cash outflows. This becomes especially important during periods of economic uncertainty and during deal integrations and divestitures.
Making a compelling case to elevate tax to a strategic level
Tax needs a champion who can explain the technicalities in a way that inspires more collaboration. Tax discussions can feel intimidating or worse, a necessary evil best left to the experts once the major decisions have been made.
Here are some thoughts on how to bridge the divide and position tax as a strategic partner:
1. Demonstrate tax enablement around current initiatives
Articulate the tax implications in terms of value generation potential and risk mitigation steps, whether the strategy involves expanding into new markets, launching new products or restructuring operations.
2. Establish your value card
The perception of tax as a cost center or compliance function is a common challenge for tax leaders. Tax leaders can change this narrative by regularly communicating how the department drives value. Case studies and data-driven presentations can show the operational and financial benefits and risk-adjusted outcomes being facilitated by the work of the tax team.
3. Be part of the technology story
Modern tax departments use modern tools to analyze data and drive insights. Tax leaders should push for investments in tax technology, including AI-driven analytics and automation, to improve efficiency and decision-making. Showcase how technology enhances the department’s performance.
4. Build relationships across the organization
Tax leaders must invest the time to forge strong relationships with their peers in other departments and ensure that their talent also is tagged to key businesses. This will help the tax team understand the broader strategy and business imperatives as well as the key projects and investments so that they can identify ways to generate value. With closer collaboration on a project or investment level, the tax department can better align its strategies with your organization’s broader goals, ensuring that tax considerations are part of every major decision.
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