Tax: Reduce compliance risks and costs

Effective responses to new banking tax rules and developments.

The banking industry faces several challenges due to recent economic, geopolitical and regulatory developments. KPMG has identified the top 10 issues facing banks in 2022 and beyond, and in this article we examine the topic of tax.

Debates rage on how much change … and, when

Bank tax personnel, executive officers and boards can expect to see a continuing evolution of legislation, regulations, and the environment in which banks operate.  New laws and guidance are regularly being proposed or released, and developments in macroeconomics and geopolitics are impacting bank tax departments like never before. 

Tax professionals will need to stay poised to quickly adapt and consider how new rules and developments could impact the organization.  The implications go beyond traditional day-to-day operations and impact more highly developed departments, where work is being done (at home or in the office), and the permutations that grow out of M&A deals that continue to occur.

It is a time for more focus, funding, and follow through.

Taking Action in 2022 - Tax

Click on each section below for actionable steps you can take now

Increase the bank’s tax department funding; recruit more specialists

Bank teams must make certain that their own tax teams have the proper funding to meet the stepped-up regulatory and legislative demands, and the banks may need to recruit more tax specialists (or reach out to third-parties for assistance) as the contour of the landscape continues to change.

There is an increasing need for tax departments to obtain significant amounts of data to comply with the complexities of the tax laws.  Capturing the right data can cost significant amounts of time and money and may require collaboration with other departments.  Importantly, however, accurate data reduces compliance risk and could reduce costs through gains in efficiencies.  Digitalization of certain tax functions will become even more important. In some cases, these new focus areas will require banks to recruit talent that bring sophisticated technology skills into the fold.

Tax departments are also continuing to look for ways to drive value to the organization by managing the effective tax rate through tax-planning and tax-saving opportunities.  These efforts are also being kept in balance with ESG initiatives taken on by banking organizations, in which the tax department can play a crucial role. 

At the same time, a bank’s tax department should continue to mitigate tax risk that may be managed outside of the tax department.  For example, information reporting and indirect taxes may be handled by bank professionals outside of the bank, and proper communication should be occurring to ensure that professionals stay apprised of changes and developments. Legislative and regulatory changes continue to increase requirements for information reporting, such as newly enacted reporting requirements related to cryptocurrencies.

Stay current on state-by-state WFH rules

One of the newest areas in the tax realm that has gained traction involves the tax implications of a remote workforce, even as progress is being made in the ongoing health challenges gripping the world.

For example, a remote workforce has increased the state (and in some cases international) footprint in which banks operate, creating myriad tax complexities.   A remote workforce is putting pressures on traditional business operating and compliance models, which may need to be adjusted as a work-from-home (WFH) arrangement appears to be lasting longer than many businesses initially expected. There is discussion that at least some of the WFH phenomenon may last quite a long time.

There may be a need for specialized education efforts, and banks should consult with specialists on the WFH topic to understand if they have specific needs as WFH has become more common.

Bank M&A has broad tax implications which require even more rigorous attention

As bank M&A activity continues, we note there are specific tax areas of interest for those doing deals, even as debate continues about possible further limitation of mergers of banks of a certain size.

Nevertheless, M&As provide excellent 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 also are rethinking traditional processes to better utilize new technologies and focus resources on core competencies which add value to the business. Improved processes and technology solutions help drive efficiency gains and cost savings in addition to lowering risk.

A related element in banking may also need attention when a deal is pending, as well as in day-to-day business: The cessation of the London Inter-Bank Offered Rate  (LIBOR) continues to be a key focus area for financial institutions and requires keen attention from bank tax departments as improper preparation could lead to traps for the unwary.  Bank tax departments must be engaged in conversations that the broader organization is having about the transition from LIBOR and must know the tax implications of the various routes that institutions are considering.

Shifting to a higher gear
Download the full report to learn about all of the key issues impacting banks in 2022 and beyond

Connect with KPMG

Mark Price

Mark Price

Principal, Financial Institutions & Products, KPMG US

Elizabeth B. L'Hommedieu

Elizabeth B. L'Hommedieu

Principal, Financial Institutions & Products, KPMG US

+1 614-249-1849