Four in five U.S. tax executives expect their total tax liability — the sum of all taxes across the entirety of their organizations — to increase this year, according to a 2020 tax outlook survey released Wednesday by the accounting network BDO.
When tax reform legislation was passed in December 2017, many businesses cheered the reduced corporate tax rate and other provisions intended to boost American companies.
BDO said the expected increase in total tax liability in 2020 points to the degree of tax complexity at every level, starting with federal tax reform.
Tax professionals in the survey identified the need to adjust to continued guidance on federal tax reform as their biggest tax challenge in 2020. Moreover, 97% of those surveyed said further changes were likely following the November presidential election, with 55% expecting this to occur regardless of who is elected.
“As we enter a new decade, the tax environment is more complex than it has ever been — and complexity is accelerating rapidly,” BDO’s national managing partner of tax, Matthew Becker, said in a statement.
“To thrive in these circumstances, tax professionals need to focus on understanding and optimizing their total tax liability, and ensure taxation is factored into broader business strategy.”
Rabin Research Co. polled 151 senior tax executives in the fourth quarter at companies with revenues ranging from $100 million to $3 billion.
The survey found that further changes to the tax code were not tax professionals’ only concern. Tax authorities at every level are trying to get ahead of the ascendant digital economy, which has fundamentally altered the way business is done.
BDO noted that the U.S. Supreme Court’s decision in South Dakota v. Wayfair gave a green light to states to enact economic nexus standards, which consider criteria other than physical presence in evaluating a seller’s connection to a state.
In response, tax professionals have had to reevaluate their processes. Sixty-one percent of survey participants reported that they had upgraded their state and local tax technology.
On the international side, countries are starting to come together to attempt to standardize the way digital services are taxed across borders.
While several countries have tried to create their own digital services tax structure, the Organization for Economic Cooperation and Development is striving to generate a global framework for allocating and taxing profits related to digital business.
BDO said a number of proposals were under review. All would focus nexus around the location of customers rather than sellers, which would result in a worldwide economic nexus standard.
The survey data showed that 64% of tax executives were very familiar with the OECD’s work in this area. Indeed, understanding the effect of the organization’s work on digital taxation is professionals’ top international tax concern this year.
Eight-eight percent of executives surveyed said a global framework was needed for taxing the digital economy.
“While global standards around digital taxation are still in flux, they will undoubtedly have a significant impact on any business that sells across borders,” Monika Loving, BDO’s international tax services practice leader, said in the statement.
“Any business that conducts cross-border sales should pay close attention to the OECD’s work in the coming year and should map the effect potential scenarios would have on their overall tax liability.”
Turn to Technology
As taxation rules in the U.S. and abroad become increasingly complicated, BDO said tax professionals must be able to quickly understand the effect of any changes and be able to meet more frequent reporting requirements.
Absent up-to-date tools, this can be a daunting task nearly impossible to complete. Two in five tax executives said limitations in their tax technology had significantly impeded their ability to respond to new regulations.
However, tax professionals appear to be acting to update their capabilities:
- 69% are making their biggest 2020 investment in identifying and implementing new technologies
- One in three rank training professionals to use technology as their department’s top challenge
- 73% already deploy real-time monitoring technologies
- 67% leverage data analytics
“Tax technology, when used effectively and with standardized processes, can help manage complexity, facilitate collaboration across the business, and streamline the compliance and reporting processes,” Paul Heiselmann, BDO’s national tax managing partner, said in the statement.
“While the right tools are essential to optimizing total tax liability, businesses need to be sure to empower the people behind the technology — investing in recruiting and training staff to effectively leverage the technology at their disposal.”