Tax departments are facing unprecedented challenges. These challenges are driven by technological advancements, escalating compliance burdens, talent shortages, and the shifting priorities of tax leaders who are taking on more strategic roles within their organizations.
According to BDO’s Global Tax Outlook Survey, modern tax teams are embracing three key strategies to address these challenges:
- Embracing technology like AI, automation, and data analytics
- Upskilling and training employees to enhance expertise
- Collaborating with and outsourcing to external partners
This article delves into the third strategy, exploring how tax teams can outsource and collaborate with external partners to fill capacity gaps and access specialized knowledge and resources.
Current challenges facing the in-house tax function
Organizations that can successfully address regulatory complexity, resource constraints, and talent gaps―while embracing digital transformation―will be better positioned to optimize their tax outcomes and achieve sustainable growth.
Improving tax efficiency through outsourcing
Outsourcing tax functions can offer numerous benefits to in-house tax teams. In BDO’s Global Tax Outlook Survey, 25% of respondents stated that if economic conditions worsen, they anticipate increasing investments in outsourcing. This statistic underscores the growing recognition of outsourcing as a valuable strategy for tax departments in navigating challenges and improving overall efficiency.
Here are some key advantages of outsourcing:
Outsourcing provides in-house tax teams with access to specialized knowledge and skills that may be lacking internally. This includes expertise in areas such as transfer pricing, indirect taxes, international tax, and tax technology. For multinational companies, outsourcing to firms with a global presence ensures that local tax regulations and practices are understood and correctly applied across all jurisdictions. Global firms have established networks of tax professionals in various countries, allowing for timely and accurate responses to complex tax challenges. By partnering with these firms, tax departments can benefit from their specialized knowledge, reduce the risk of errors, and enable compliance.
Outsourcing tax functions can be a cost-effective solution. By leveraging the resources of an external provider, companies can reduce overhead costs associated with recruitment, training, and retention of specialized tax professionals. Additionally, outsourcing provides the ability to scale services up or down based on the company's specific needs, ensuring that resources are allocated efficiently and reducing the costs of maintaining a large in-house team that may not be fully utilized year-round.
Outsourcing reduces administrative burden and frees up in-house teams to concentrate on more strategic tasks. External partners can handle routine compliance tasks like payroll and income tax returns, allowing in-house tax teams to focus on high-value tasks, such as tax planning, risk management, and advising on tax-related business decisions.
"Outsourcing allows companies to focus on what they're good at, recognizing that tax is not their core business,” Harry Chana, BDO’s international and Cross-Border Tax Services Leader said. “Companies can then allocate their time and effort more efficiently, honing in on their core competencies to drive success.”
Outsourcing to experienced tax firms can strengthen compliance and risk management practices. External service providers have robust processes in place to ensure accuracy, timeliness, and adherence to tax laws and regulations. In-house teams benefit from the expertise of these providers, minimizing the risk of errors, penalties, non-compliance, and audits.
External tax providers have access to cutting-edge tax technology solutions that can streamline processes, improve efficiency, and enhance data analytics capabilities. By partnering with these firms, tax departments can benefit from the latest technology while avoiding the high costs associated with developing and maintaining in-house systems. Additionally, tax technology allows for real-time reporting and better data management, leading to more accurate and timely compliance.
Factors to consider when outsourcing tax functions
When deciding whether to outsource tax functions, it’s important to consider the following factors:
Conduct a thorough cost-benefit analysis to determine the financial implications of outsourcing your tax function. Don't just focus on fees; consider the potential cost savings from reduced overhead, improved efficiency, and access to specialized expertise. Also factor in the ongoing learning and development that firms invest in their people, which can be significant compared to in-house training and HR costs. The decision should ultimately support your company's financial and strategic goals, ensuring that the benefits outweigh the costs.
Look for firms with a proven track record of success in the tax industry, a deep understanding of relevant tax laws and regulations, and a commitment to delivering high-quality services. Specialization in areas such as international tax, sales tax, government incentives, transfer pricing, and compliance is crucial. Also consider the provider's global network and their ability to adapt as your business grows and changes.
Outsourcing involves relinquishing a certain degree of control over tax functions to an external provider. Carefully assess the potential risks associated with outsourcing, such as data security, and compliance. Implement robust governance frameworks and SLAs to mitigate these risks and ensure the outsourced provider meets your organization's standards for quality, security, and compliance.
Outsourcing to harness emerging tax technology
27% of respondents in BDO's 2023 Global Tax Outlook survey identified the adoption and effective use of new technology, tools, and techniques as their top challenge for 2024. Outsourcing allows organizations to access a wide range of emerging technologies that enhance efficiency, reduce costs, and improve decision-making, without the full in-house investment.
As Morcombe shared, "Technology is top-of-mind for any CFO or controller right now. Even navigating the build, buy, or maintain decision-making process for tax technology is a massive undertaking. Executive teams are trying to make these decisions, but they risk being eclipsed by other organizations that have already outsourced this function and are benefiting from emerging technologies."
Here are some key technologies companies can leverage through outsourcing:
Automation streamlines repetitive tasks, such as data entry and report generation, reducing errors and improving efficiency. RPA also frees up time and resources for more strategic initiatives.
Cloud-based platforms offer secure storage, real-time data updates, automated workflows, and advanced analytics. By leveraging cloud-based technology, outsourcing providers can offer clients improved data, enhanced efficiency, and reduced IT infrastructure costs.
These tools provide valuable insights into tax data to identify trends, irregularities, and potential risks. Outsourcing providers can use these technologies to optimize tax planning, improve compliance, and support strategic decision-making.
BDO: a trusted partner for in-house tax teams
As a leading provider of tax services, BDO offers a comprehensive suite of solutions designed to support in-house tax teams in navigating the challenging tax landscape. Specifically, we offer:
BDO NeXus
Our one-stop resource hub offers valuable insights and strategies from industry leaders to help you stay ahead and navigate the complexities of a global market. From expanding into new markets to optimizing global tax strategies, BDO NeXus empowers decision-makers with a pragmatic approach to streamlining operations and driving efficiencies.
The information in this publication is current as of Sept. 4, 2024.
This publication has been carefully prepared, but it has been written in general terms and should be seen as broad guidance only. The publication cannot be relied upon to cover specific situations and you should not act, or refrain from acting, upon the information contained therein without obtaining specific professional advice. Please contact BDO Canada LLP to discuss these matters in the context of your particular circumstances. BDO Canada LLP, its partners, employees and agents do not accept or assume any liability or duty of care for any loss arising from any action taken or not taken by anyone in reliance on the information in this publication or for any decision based on it.