How CFOs and Tax Leaders Can Align for A More Strategic Tax Function

11 March 2024

CFOs and tax leaders share responsibility for the financial stability and continued profitable growth of their businesses — but that doesn’t mean they’re always aligned on the strategic value of the tax function.

BDO’s Tax Strategist Survey found that 78% of CFOs believe that the tax function offers strategic value to the broader business, and 75% believe the tax function is invited to weigh in on business decisions before they are made. In both instances, there is a clear signal that CFOs see the merits of fully engaging with the tax function.

Tax leaders’ responses to the same survey seemed to tell a different story. Only 27% of tax leaders indicated that they were sufficiently involved in a wide enough range of business decisions to meet the threshold of a “tax strategist” — the type of tax leader who regularly takes a seat at the table to provide strategic input outside the traditional areas of responsibility of the tax function.

This disconnect creates an interesting challenge: if CFOs believe tax leaders are already adding sufficient strategic value, they may fail to include them in the wider decision-making process. This oversight could prevent leveraging the full potential of a tax team, leading to missed tax opportunities or even increased tax risk or liability. Tax leaders, for their part, believe they can be more involved, so something appears to be lost in translation. How can CFOs and tax leaders work together to enable a more strategic tax function?

 

Expanding Roles: CFOs and Strategic Tax Functions

Traditionally, the CFO has functioned as a financial steward, with a strong focus on profitability and the company’s bottom line. But today’s CFOs are also strategic advisors and leaders who are active across the whole business. A strong financial background has become increasingly valued in the C-suite, which has seen a blossoming in the working relationship between CFOs and CEOs: Recent research from Forbes indicated more than half of CEOs surveyed nominated the CFO as the member of the C-suite with whom they most closely collaborate. It is not just that the CFO’s financial intelligence is being deployed more broadly across the business — BDO Global and the Association of Certified Chartered Accountants (ACCA) found that today’s CFO is called upon to report on and drive an organization’s environmental, social and governance (ESG) values as well as metrics.

The tax function’s role is also expanding and becoming more complicated. Tax leaders must navigate increasing regulatory complexity, as major domestic U.S. tax policy changes occur with greater frequency. International trade treaties and regulations have changed markedly due to new presidential administrations and with expanding geopolitical conflicts. Globally coordinated tax systems present even more challenges, as seen with the OECD’s two-pillar solution to address base erosion and profit shifting (BEPS), the second pillar of which many member nations already have or will implement in 2024.

Tax leaders also play an important role in aligning tax strategy with business and ESG goals. Tax leaders are increasingly involved in reputation management amid heightened demand for tax transparency from regulators and other stakeholders, as signaled by, for example, the EU requiring public disclosure of country-by-country reporting information by large, multinational enterprises beginning in 2025 and Australia proposing similar public disclosure rules. It is becoming increasingly important for companies to proactively anticipate potential questions from stakeholders about their tax profile, tax strategies, and total tax contribution. Tax leaders and CFOs must work together to manage competing priorities of maximizing shareholder value and ensuring the company is not overpaying tax, while at the same time managing public scrutiny related to total tax contribution.

As the roles of both CFOs and tax leaders evolve and they take on more complex responsibilities, it is essential they seek alignment in how they perceive each other, how they communicate, and how they set about achieving their goals.

 

Connecting the Dots Between CFOs and Tax Leaders

The data from BDO’s Tax Strategist Survey suggests that a lack of adequate communication could be driving the disconnect between CFOs and tax leaders, with 17% of tax leaders believing their recommendations carried little weight in decision-making, and 12% of the belief that they were consulted only after important business decisions had been made. For CFOs, unlocking the full strategic potential of their tax team means connecting with tax leaders who feel unheard and working to include them in the decision-making process in areas of the business where they may not currently be involved. For tax leaders, bridging the gap means seeking out these strategic discussions and making sure their insights are understood.

 

Tax Leaders: Learn to Speak the Same Language

Tax leaders need to understand how the CFO’s role is evolving. Learning to speak the language of business and finance beyond tax means understanding the strategic priorities of the CFO and the business and how the tax function can positively impact those goals. Tax leaders must make sure that their highly technical tax language translates across the business so that tax planning strategies can be effectively communicated to the C-suite and accurately deployed to drive value.

Expanding the range of metrics and key performance indicators (KPIs) used to measure the tax function’s impact on the company can also help align goals and foster communication. Alongside essential benchmarks like effective tax rate or accuracy of tax returns, new benchmarks — such as goals related to tax transparency — may dovetail with the CFO’s ESG goals, helping to bring the tax function’s insights to a wider audience.

Developing the ability to calculate and communicate the tax implications of business decisions and policy shifts in terms that matter to the broader business is key to the tax leader becoming a trusted advisor to the CFO. Showing leaders across the company that the tax team can focus on bottom-line impacts while attending to technical tax details can demonstrate how the tax function’s abilities extend beyond compliance and into strategic value.

 

CFOs: Keep the Lines of Communication Open and Provide the Right Support

For CFOs, keeping the lines of communication open with tax leaders is key to successful strategic tax planning. Inviting tax leaders to the table when major decisions are made is important, but risks becoming purely symbolic if tax leaders do not have the resources they need to make strategic contributions. The CFO should work closely with tax leaders to ensure the tax team is equipped with the necessary resources, including skilled personnel, an effective staffing model, advanced technology, and ongoing training and development. This support addresses the complexities of a dynamic tax landscape and enables tax leaders to concentrate on strategic contributions through automation of routine tasks and access to actionable data insights.

The CFO should act as a champion of the tax function as it relates to the broader business, working to break down silos to facilitate access to essential tools and data, while advocating the use of the tax team’s insights and knowledge across the company.

 

CFOs and Tax Leaders: Foster Alignment in Action

When CFOs and tax leaders set goals together and keep each other accountable, their relationship can change from top-down or purely consultative to one that is more strategically aligned. Alignment helps drive better business outcomes, from maintaining corporate reputation to enhancing decision-making, mitigating tax risk, and improving operational resilience.

When well-aligned CFOs and tax leaders are strategic partners, they can unlock the full potential of the tax team and leverage highly technical knowledge to provide bottom-line value to the entire business.

 

For more information, please reach out to a member of our Tax Team. 

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