The C-suite should listen more to tax executives, particularly when it comes to finding out what incentives and credits can help businesses save money, according to findings from an Ernst & Young survey expected to be released next week.
Conducted in July, the survey of 797 tax and finance executives representing Fortune 1,000 global companies will reveal that the C-suite doesn’t know enough about what tax incentives are available on the federal, state and local levels. The heads of corporate tax departments are traditionally the keepers of such information, and “there is a big gap” between what the tax executives know about the incentives and what the C-suite knows, according to Ali Master, national director in EY’s business incentives and tax credits division.
Thirty-six percent of the survey respondents said their C-suite was only “somewhat aware” of the potential benefits from tax credits and business incentives, while 20 percent said their C-suite is “not at all aware.” That compares with only 16 percent of those respondents who said their C-suite is “very aware” of the benefits.
The findings have changed just a smidgen from an E&Y study of over 600 executives performed in 2011, when only 15 percent said their C-suite was “very aware” of the incentives and tax credits available. However, more executives (53 percent) in that survey said they were “somewhat aware.”
The low awareness of the credits and incentives at the C-suite level, where strategy is made, can be explained by the traditional place that tax departments sometimes hold at firms, says Master. “Tax is not the first group to hear about transactions and the strategic decisions being made,” he explains, noting that “none of these behaviors is controlled by tax.”
But making the most of the tax incentives and credits available “requires much more than mere awareness, but also commitment and resources,” explained the report.
To be sure, the local nature of some of the tax credits and incentives do not cross a CFO’s radar very often. Cities and states have grown more competitive to keep companies located in their jurisdictions, with tax discussions often negotiated at the local plant level, says Master. In very large firms these kinds of discussions may often involve just the controller or human resource director along with the tax head.
If companies accept such credits, however, it usually means companies have to give something back on a local level and “follow through on their commitments to the local community with jobs, expansion and corporate giving,”the report explained.
Some C-suite executives, however, are ahead of the game. “Over the last few years, we’re starting to see this early adapter group that is starting to put departments and resources together to collaborate and capture” tax advantages, adds Master.
Indeed, better collaboration between tax departments and other internal groups should help firms take greater advantage of the incentives offered. As Master notes, tax groups often complain that they do not hear about a company’s projects early enough to take better advantage of tax breaks.
Considering the obvious advantages of such tax breaks, companies still fall a bit short on their collaborative efforts, however. Twenty-seven percent of the respondents in the EY survey said they were “very collaborative” with other groups, while 46 percent said they were “somewhat” collaborative.