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Managing talent in middle market tax functions

Companies should mirror the leading practices of larger multinationals by designing road maps for hiring, training and succession that anticipate their expanding needs.

We recently conducted a survey to assess the challenges that middle market companies face — both internally and externally — as they manage their tax compliance and reporting responsibilities. The survey attracted responses from 270 companies in 26 markets, with revenues ranging from approximately US$50m to US$3b. This article takes a deeper look inside the middle market tax function.

Not surprisingly, 81% of the companies responding to our survey said they have a dedicated in-house tax function.

Reflecting the range of new tax challenges that continue to unfold, the number of companies that say their tax resources have increased over the last three years exceeds the number that say they have decreased by a factor of more than 10-to-1 (42% vs. 4%).

Fifty-two percent say tax resources have stayed at the same level.

“A tax practitioner needs to be able to set out the cross-border tax implications of a transaction and be in a position to defend it, not only to the tax authorities of multiple countries, but potentially in the public square.“

John Schlafly, Senior Tax Counsel for Europe, The Coca-Cola Company

Sixty-six percent of those reporting resource growth say it came from professionals assigned to both tax planning and tax operations.

Thirty percent saw an increase in resources assigned to tax operations (including controversy management) only, while just 4% saw an increase in resources assigned solely to tax planning.

Among Americas-based respondents, the divergence was more pronounced: 63% reported that the tax function has grown, while only 33% say it has stayed the same.

Four percent said that it has decreased in size.

The ‘shadow’ tax function

Dedicated tax function resources are but one part of the tax puzzle, whether the company generates US$30m or US$30b in revenue.

The role of the “shadow” tax function also merits scrutiny.

This group of individuals — typically finance personnel who may not be fully dedicated to tax activities but who certainly help grease the wheels of the tax life cycle — sometimes attracts less attention than it deserves.

Leveraged to its full advantage, the shadow tax function can provide both ongoing support and valuable on-demand, just-in-time support to dedicated tax resources.

But left unmanaged, it can be a source of error and oversight.

Thirty-seven percent of companies in our survey responded that between one and four of their headquarters-country tax team typically sit in the finance function.

As 67% of respondents reported having on average only one to four dedicated tax resources to begin with, maintaining visibility and control of the shadow tax function is mission-critical.

And, of course, this fact becomes even more crucial when you consider that, whether a shadow tax function exists or not, the finance function usually performs all the upstream record-to-report activities that the tax department relies upon for accuracy in its data, so the tax-finance interface is a critical enabler in the process to get right.


Eighty-one percent of global respondents report that their tax function has “excellent” or “good” relationships with the finance function, with that figure rising to 88% for Americas-based companies.

But when asked about their relationships with other parts of the business (such as manufacturing, R&D, marketing or legal counsel), global results fell to 52%.

As middle market companies expand, identifying and sustaining these relationships are imperative.

Business units are the source of many future transactions and the epicenter of their execution.

Likewise, upward communication to the C-suite, board and audit committee is also important, both in terms of gaining a better understanding of company affairs and to raise awareness of the changing world of tax.

Having these relationships in place today is easier than trying to build them from scratch tomorrow.


More than half of all respondents (54%) report that their tax function members receive less than 20 hours of training per year.

Respondents based in Brazil, Russia, India and China (BRIC) reported the fewest training hours, with 78% receiving less than 20 hours per year.

Results also show that companies tend to provide more training the larger they are.

The vast majority of training (79% of companies) was delivered by an external vendor or provider, while ad hoc reading of articles, publications and tax alerts was reported by 69% of respondents.

Forty-two percent of respondents say that attendance on webcasts or similar virtual channels forms part of their training, while 39% deliver in-house training or seminars.

Performance management

Globally, 44% of respondents say that tax performance is formally measured, while 36% say that tax function performance is not formally measured.

The rest did not know the answer to the question, or felt it was not applicable to them, as all tax activities were outsourced to an external provider.

Creating tax savings, lodging returns or regulatory filings on time, and having success in dealing with tax authorities were the three highest-ranked performance measures (in that order), with no more than 4% difference among the votes cast for the three.

Meeting tax operating budgets, having tools available for creating the tax provision and peer benchmarking were the three lowest-rated performance measures.

Key insights from business leaders

1. Anticipate how expansion and business transformation may impact your tax talent

Today’s tax leaders think dynamically, work collaboratively with other business functions and focus on continually improving processes, whether these process are tax-owned or shared with finance function colleagues.

Middle market companies should mirror the leading practices found in larger multinationals, designing tax hiring, training and succession road maps that anticipate their growing needs.

As middle market companies expand, operating models will naturally need to change.

Shared services centers and centers of excellence may play their part.

And while managing the complex and fast-paced relationship between tax and finance personnel has always been a challenge, the trend toward the transformation of finance operating models can put connectivity between these key groups under more pressure than ever.

Their good intentions aside, finance transformation exercises can negatively affect tax resources in two ways.

Loss of resources

First, and because of their very nature of regionalizing or centralizing activities, they can result in the loss of highly knowledgeable tax resources at the local level.

As they standardize and consolidate their operations, companies are trying to do more with less.

While this may be achievable (and desirable) from a cost perspective, it risks neglecting the fact that tax remains a highly national issue.

For instance, centralizing European finance operations may well make sense, but the fact remains that any company operating widely across Europe may expect to file almost 60 national-level tax returns each year, not to mention at least that many statutory reporting obligations.

Without access to key local know-how and experience, many companies now find that meeting their record-to-report obligations in all the countries where they operate is a real challenge.

Erosion of skills

Second, the globalization or regionalization of processes can lead to an erosion of skills and competencies.

“Take value-added tax (VAT),” says Patrick Trapp, our Tax Performance Advisory Leader for Europe, the Middle East, India and Africa (EMEIA). “It could be that in the past, you had a very low probability of a VAT failure because the people who were taking care of the operation of VAT matters had a full department that had been there for a long period of time.

“They had a big staff, many of whom were cross-trained. Under a finance transformation, all of that activity may get moved to a shared services location, in a different part of the globe, with people who have been newly hired. That’s a real challenge. It’s not insurmountable, but if you ignore it, it can bite you.”

So as middle market companies become newly multinational, they should not only bear in mind the impact of finance transformation but also have people in both global and regional roles to leverage talent and maximize accountability.

2. New trends, new skills

The growing use of technology in business models, by tax administrators and by the tax function itself, will also drive future demands for different skills.

“In the future, tax professionals are going to need to be not only technicians and relationship managers, but also data and systems analysts,” says Tim Zech, Tax Director for Germany at Daimler AG.

“Whether it’s due to country-by-country reporting, the use of a common consolidated tax base in Europe or just to get your arms around huge growth in data volumes, every tax function is going to need a strong technology competence in the future. The people who can move data around and manipulate it into the formats required will be hugely important moving forward.”

The rapidly changing tax landscape also means that some members of the tax department will need to have the skills to team extensively and effectively with external stakeholders, whether in the public or private sectors.

The rapid growth of technology, too, will require the acquisition of new skill sets.

Finally, developing future talent will likely include more global mobility to nurture key leaders.

The tax department of the future should be a place where career satisfaction and talent development are key priorities.

That requires putting the right mechanisms in place now.

A culture that fully leverages available talent takes time to build.

3. Develop and sustain the right relationships throughout the business

As business models evolve, the core relationship between tax and finance becomes ever more important.

But more widely, the world’s leading companies are building and sustaining relationships that span all business units.

Maintaining open lines of communication is not easy, however.

Whether communication is solely within the tax function or between tax and finance or tax and marketing, companies of all sizes tell us that the simple fact that tax now has to juggle more and more sources of risk and more changes in legislation and regulation — all without adequate resources in place — is diminishing the time to effectively communicate with others on complex tax issues.

The value of visibility

Having visibility into all parts of the business is an important foundation stone in the tax strategy of the world’s leading companies.

“We align our tax resources to the business functions,” says Ian Brimicombe, Vice President of Corporate Finance at AstraZeneca. “Business partnering is the ongoing engagement whereby our tax team has responsibility for understanding activities within commercial, R&D, business development and manufacturing functions, as well as the enabling functions like legal, human resources and IT. Our objective is to achieve tax efficiency by mitigating risk and identifying opportunities to support business transactions.

“The business, of course, is focused on its own objectives, but we stay close to provide an interpretation of what their activities mean in terms of tax consequences,” he adds. “Generally, the business takes our tax perspective on board and adjusts the way it does things, so we’re able to support them in achieving their objectives and, at the same time, achieve our goals in tax efficiency. It’s a hand-in-hand partnership.”

4. Leverage training and education opportunities to the fullest possible extent

Today, changes to tax law and tax enforcement approaches are more rapid, voluminous and complex than at any other time in memory.

Many countries are undergoing significant tax reform exercises.

Others are making major changes more regularly, either as part of their annual budgetary cycles or as ad hoc, new pieces of legislation.

And all countries are eyeing the output of the Base Erosion and Profit Shifting (BEPS) project of the Organisation for Economic Co-operation and Development (OECD), not only for proactive implementation opportunities but also for defensive purposes, to counter instances in which neighboring countries may have shored up their own tax base to the detriment of others.

Taken together, these issues mean that staying fully educated on developments may be perceived as an expensive, resource-intensive activity.

But that does not have to be the case.

A wealth of knowledge

The volume of freely available news, information and insights accessible via the internet and other platforms of a more physical nature surpasses previous highs.

Most professional services providers publish alerts on new developments.

Many also present valuable webcasts (which, incidentally, typically offer continuing professional education credits) on a broad range of topics.

Many hold free-to-attend training sessions and briefings.

Finally, most service providers will also publish thought leadership — reports, white papers and surveys — on key issues and trends (such as this report, for example).

These can be a valuable source of collective insights from others in either the tax industry or in your specific sector.

Service providers are there for a reason — to provide service.

It is therefore quite appropriate to ask your service provider to furnish you with the latest insights and materials to supplement your current training programs.

5. Identify the skills and competencies of the future

The growing importance of technology will rightly drive many talent decisions for the foreseeable future.

Technology and digitization are changing working methods.

They are also supporting an increase in the use of managed services and outsourcing as companies shed lower-value, repetitive tasks.

And of course, technology provides business with substantial opportunities to drive value and manage risk through exciting new data analytics opportunities.

But each of these areas requires the fostering of new skills and competencies if business is to exploit opportunity to its fullest potential.

‘The language of the business’

Simon Grimwood, Head of Tax, UK and Europe at Barclays, explains that it’s not just technology where new skill sets will be in demand.

“One of the key skills for the future is that the tax function is going to have to be far more commercial,” he says. “In fact, that’s already happening. If you went back 15 years, you’d see a tax function that in essence was a group of technical experts who knew the law.

“But it’s coming through strongly now that not only do you need those people and those competencies, but you also need people who thoroughly understand the business, marrying up their technical competencies with a deep knowledge of your operations and strategy. That way, rather than giving just a technical answer, they can give what I would call an ‘actionable insight’ to management.”

Grimwood explains this principle: “The boundaries of tax are moving more into the business and are becoming more blurred. Rather than just giving a technical answer, people with these skills can offer a range of different options, all of which they know will work in a commercial environment.

“That’s far higher value to management than saying: ‘Here’s the tax answer; go and mold the commercials around it.’ On top of that, I think another useful skill for the future overlays this ‘actionable insight’ principle, and that’s the ability to communicate the essence of very complex tax principles in very simple commercial terms. That requires talking in the language of the business, not in the language of tax.”

A new set of skills

Similar thoughts are echoed by John Schlafly, Senior Tax Counsel for Europe for The Coca-Cola Company, who says, “Practicing tax no longer is just about being technically proficient in tax with respect to an isolated transaction. A tax practitioner needs to be able to set out the cross-border tax implications of a transaction and be in a position to defend it, not only to the tax authorities of multiple countries, but potentially in the public square.”

Schlafly continues: “This will require strong technical, negotiation and verbal skills, allowing one to make what will certainly be judgment calls in certain cases, which will inevitably need to be explained later in the light of 20/20 hindsight.”

6. Understand what drives your talented individuals — now and in the future

All companies compete for talent.

Middle market companies must attract the right tax talent by making people feel excited, purposeful and responsible.

The future will see flatter hierarchies and organizational de-layering.

Today’s younger generation wants a higher degree of personal responsibility earlier in their careers.

They want international experiences and work-life balance.

And they want to feel that their work is purposeful and helps to improve society.

All companies, regardless of size, need to look within and understand the changes needed to provide that future platform.

Read more: Middle market companies – the tax function in focus

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EY refers to the global organization, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients.

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