US companies are under pressure to make more tax disclosures, as it becomes part of the environmental, social, and governance (ESG) and AI conversation, but a lack of technology and skills are holding many back. This is one of the findings of a survey by KPMG in the US, which polled 500 executives at companies with turnovers of more than US$1b (€890m).

The study reveals that six out of 10 (59 per cent) are already using AI in their tax and finance departments to ease workflows and soothe the strain on workers. However, only 10 per cent of those polled said that their organisations were ready to share their ‘total tax contributions’, a disclosure many regulators and market observers, including investors, have moved towards as part of a growing drive to see tax join ESG and sustainability disclosures.

It won’t be easy. More than half of those polled (54 per cent) say that the difficulty in gathering tax information from global operations is the biggest obstacle to more reporting. However, a hefty one-third say that the issue is the absence of technology needed to collect and process the data.

ESG disclosure

US companies face a push from the Financial Accounting Standards Board, the US accounting watchdog, to provide more details of their tax contributions. A consultation document says that investors, lenders, creditors and providers of capital seek ‘enhanced’ tax disclosures to see how worldwide operations manage tax risk.

According to KPMG, executives believe pressure is coming from shareholders (51 per cent), employees (47 per cent), the general public (44 per cent), the board (44 per cent) and clients (43 per cent). According to Greg Engel, vice-chair, tax at KPMG US, tax transparency is increasingly part of the worldwide ESG agenda, and artificial intelligence a key tool in the effort to manage the information.

“With mandatory tax disclosures on the rise, companies must act now to prepare,” he says. “Embracing AI tools may be the solution to help companies make sense of their vast amounts of data to avoid the risks of having their tax story potentially told for them.”

Investment and skills

Executives interviewed by KPMG say that they have plans to invest in AI tools. Almost a third (29 per cent) plan to use AI for tax in the next year; 40 per cent plan to invest US$10m or more, and another 30 per cent say their organisations will spend US$1m-US$10m.

However, there are impediments to using new technology, including a lack of talent. Just over a quarter of those polled (26 per cent) say that they don’t have the skills to make sense of their tax data, while 23 per cent say they don’t have the people to collect and collate the data.

According to Rema Serafi, KPMG’s national managing principal of tax in the US, the emergence of AI in tax departments makes having the right talent more critical. “The modern tax department requires a convergence of skills to understand the tax technical landscape, operate cutting-edge technology and analyse complex data,” she says. “A tech-first mindset blended with tax skills is the winning formula to unlock the full potential of tax departments in the digital age.”

Changing perceptions

There is some effort under way to source new talent. Most appears to be going into changing the perception of tax as a career option, with 47 per cent of respondents saying that it is one of their key strategies.

Meanwhile, 46 per cent say they are upskilling existing employees and 45 per cent are actively recruiting data scientists or technologists.

This represents a change in priorities. Last year the leading strategies were seeking out talent from ‘non-traditional’ colleges and universities or reaching out to under-represented social groups. The survey shows they remain important recruitment tactics, despite declining in importance.

KPMG acknowledges that there are difficulties in drawing candidates to work on tech in a tax department. “No one,” says the report, “has ever confused a tax job with a high-tech career. To make tax more attractive to tech specialists, organisations are beginning to demonstrate to candidates that their tax or finance department is deploying the latest technologies, like AI.”

Value creation

Part of the problem may be leadership. More than half of C-suite leaders (59 per cent) say that their tax departments are ‘not viewed as a value creator to the overall business’. This is largely because tax department may be ‘solely focused’ on a ‘compliance/rear-view-mirror’ approach to their work.

There is agreement with this among finance and tax leaders, too. Of chief tax officers, 71 per cent say that the ‘compliance/rear-view-mirror’ perception is the main reason tax is not considered a ‘value creator’, while 56 per cent of CFOs think likewise.

However, the research suggests that technology remains an emphatic part of the equation. More than a third of CFOs (35 per cent) put the value creation perception down to their tax departments’ ‘ineffective use of tech’. A not insignificant 27 per cent of chief tax officers say the same thing.

Tricky intersection

US tax departments find themselves at a tricky intersection. Their companies face increased demands for more transparency while at the same time needing the latest tech and up-to-the-minute skills to use it. Capital investment and recruitment will need to combine to solve the problem. But that may depend on whether tax management can be viewed as adding value.

The issue may be pressing for those who have yet to turn to AI, according to Brad Brown, chief technology officer tax at KPMG: “AI will create a corporate reality of the ‘haves’ versus the ‘have nots’, between those who adopt the technology to transform their tax departments and those who get left behind.”

Author: Gavin Hinks, journalist

Source: ACCA Accounting and Business magazine