A new global survey is currently in the field, and the survey of Latin America – which includes 200 respondents from Argentina, Brazil, Chile and Mexico – is complete. The latest research reveals that tax departments in Latin America are devoting more time to compliance work at the expense of more strategic, value-adding activities. Based on previous studies, integration and participation with all parts of the company – from boards and senior leaders to other functions such as Finance, Treasury, M&A, Markets, IT, HR, Sales and Procurement – is key to ensuring a company's tax affairs are well managed while boosting the tax function's value, profile and influence within the company. This latest research shows that in Latin American companies, tax leaders are interacting more with boards and senior executives in setting tax strategy, but they have yet to fully integrate their activities with the broader business groups within the company.
The good news is that we are beginning to see a shift: by aligning with other business groups and taking part in business strategy development, tax functions are starting to focus more on becoming front-line business partners.
Key findings from the Latin American portion of our 2012 survey are included here. Watch for our analysis of the worldwide survey results later in 2012.
The percentage of Latin American respondents who have a tax strategy that is consistent with their overall business strategy rose from 91 percent in 2009 to 97 percent in 2012. There also is a marked increase in respondents who say their tax strategy has board level approval. For 87 percent of respondents, the board and/or corporate leadership are directly involved in providing guidance on the tax strategy – a significant increase from 2009 (61 percent). Positive responses on documentation are slightly lower but still show the majority of companies paying attention to documentation.
Tax departments still focus most of their time on day-to-day compliance
When asked where they expect their tax department would devote its time over the next 12 months, tax compliance and financial reporting are the highest ranking activities. These activities are expected to occupy 22 percent and 20 percent of tax department time respectively. Other more forward-looking, higher value activities – such as cash tax planning, tax process improvement and integration with business groups – receive less time today.
Next steps – integrating with the wider business
While the survey reveals that tax leadership and the board are becoming more closely engaged, more work needs to be done to increase horizontal engagement across the company. Among Latin American respondents, integration with business groups and early indication of routine transactions rank low in priority, both in terms of how the tax function is measured and where tax function time is expected to be spent.
Among companies that say they have undertaken global or regional finance initiatives in the past 12 months, the tax department was "somewhat involved" in most projects, but "integrally involved" in only some of the cases:
- 38 percent of respondents say their tax department is integrally involved in process improvements
- 37 percent are integrally involved in risk management or controls improvements and finance function strategic reviews
- 31 percent are integrally involved in ERP implementations and benchmarking reviews
- 29 percent are integrally involved in each of technology improvement projects, shared service center implementations or reviews.
Respondents were asked whether they were addressing the structure of their tax department and, if so, why. Their responses show signs that Latin American companies are set to put more focus on integration of their tax departments with other business functions. Of the 40 percent of respondents who expect changes to their tax department's structure in the near future, 75 percent say that better alignment with the business and/ or the finance function are among the primary reasons.
In future surveys, it will be interesting to see whether this alignment is achieved and how the transformation affects the tax function's perceived value and effectiveness.
The big picture
Overall, an interesting picture seems to emerge from the Latin American results of our survey. Integration between tax leadership and the board and senior executives is getting stronger, which is vital for effective tax governance in the region.
However, the primary focus of the tax function remains on compliance and reporting related tasks. Fewer hours are being spent on the more value-added aspects of their role. Limited time is being devoted to process improvement and better integration within the business. Given that respondents generally seem to be satisfied with their levels of tax resources, these results suggest that, in the future, tax departments will need to sharpen their focus on efficiency, process improvement and better horizontal engagement with the business. That way, they can better manage their time in supporting the wider objectives of their businesses and contributing value. There are indications that some tax functions are taking steps in this direction, but they are still in the minority.
Finance function transformation, changing tax and business costs, aggressive transfer pricing audits, and rising tax disputes: as companies in Iberoamerican countries grow and expand into new markets, their tax teams will need to find ways to cope with complex global issues like these while adding value to their organizations.
Luckily, solutions to many of these issues have already been forged over time and with much difficulty by leading organizations in Europe, North America and around the world.
Iberoamerican companies can bypass these development phases by adopting systems, processes and technologies that are already proven and tested. In this section, we offer some ideas that Iberoamerican companies can employ to leap ahead.
Back to top