The 2022 KPMG State of Banking Survey features insights from 100 senior executives. This article shares the findings related to tax.
Tax: Navigating an uncertain future
The survey results indicate how a convergence of forces have altered tax department’s actions even from the start of the year. Our survey found:
Banks are increasing their budget to expand their tax department’s capabilities due to domestic and global tax reform discussions
Tax risk was one of the greatest threats to their bank’s potential growth rate over the next 3 years
Banks will be focusing on potential tax consequences stemming from a remote, mobile, and nomadic workforce
Anticipate. React. Adapt.
These three actions were top of mind as we began 2022 – even before inflation roared upward, the federal government raised rates even higher than many thought, and geopolitical issues rattled economies and markets. Now, the pressure continues to mount on the banking industry’s tax professionals
In the current environment, Mark Price, KPMG Tax Industry Leader, Banking & Capital Markets, suggests these five steps to help manage anticipated challenges:
- Invest in the future
Make certain that tax teams have the proper funding to meet increased regulatory and legislative demands. Whether funding is allocated to increasing resources, advancing the department’s technology, or outsourcing or co-sourcing elements of the tax department, investing in tax teams can help with the goal of producing a greater return for banks in the future.
- Build an efficient team
Hire tax professionals with sophisticated tax skills - or outsource the work to a third-party organization with those same qualifications. The aim is to free up talent to focus on more strategic tasks, reduce errors, and ultimately drive cost savings for banks. Automation of certain tax functions has become critical.
- Consider ESG initiatives
Seek ways to drive value within the organization by managing the bank’s effective tax rate through tax-planning and tax-saving opportunities. A bank’s tax department must also keep in balance and align with the bank’s overarching ESG initiatives, in which reducing the bank’s effective tax rate may not coalesce with the bank’s broader ESG narrative.
- Account for tax implications of a new digital and virtual environment
As digital assets are becoming increasingly ingrained in the world we live in now, we have seen clear signs of aims to spur crypto’s growth, from the Biden administration’s release of an executive order on crypto to the recently proposed bipartisan crypto bill from Lummis and Gillibrand. Banks should continue to stay alert and able to react swiftly to adapt to the ever-changing environment.
Alongside digital assets, the tax implications of a remote workforce should remain top-of-mind. A remote workforce has increased the state (and in some cases international) footprint in which banks operate, creating myriad tax complexities.
A remote workforce puts pressure on operating and compliance models, and both may need to be adjusted as the remote environment continues. Banks could also benefit from specialized education efforts and should consult with specialists on the remote work topic to understand if they have specific tax, regulatory, or administrative needs as working from home becomes the new norm.
- Consider tax when structuring deals
There are numerous tax considerations relating to M&A, which often provides opportunities for banks to step back and strategically focus on their target operating models. While bank tax departments continue to do more with less and seek efficiencies, they’re also rethinking traditional processes to better utilize new technologies and focus resources on core competencies that add value to the business. Improved processes and technology solutions help drive efficiency gains and cost savings in addition to lowering risk.