Banking and Tax: 5 Steps for Navigating an Uncertain Future

Peter Torrente, National Sector Leader, Banking & Capital Markets

Mark Price, Tax Industry Leader, Banking & Capital Markets

Anticipate. React. Adapt. These three actions come to mind when considering how banks can best prepare for the future during a period of tremendous disruption and uncertainty. In the last year alone, new laws and regulatory guidance, unforeseen macroeconomic issues, and geopolitical unrest have pushed bank tax departments to operate in a constant state of transformation.

Bank tax personnel, executive officers and boards can expect to see a continuing evolution of the overall environment in which banks operate, according to a recent KPMG report: Shifting to a higher gear – Top issues for banks in 2022 and beyond.

Tax professionals, in particular, will need to stay poised to quickly adapt and consider how new rules and developments could impact their organization.

Here are five actionable steps bank teams and tax professionals can take now to prepare for the future:

1.??????Invest in the future

As the contour of the landscape continues to change, bank teams must make certain that their own tax teams have the proper funding to meet increased regulatory and legislative demands. Whether funding is allocated to increasing resources, advancing the department’s technology, or outsourcing or co-sourcing elements of the tax department, investing in tax teams will ensure a greater return for banks down the road.

2.??????Build an efficient team

Increased hiring of tax professionals with tax technical backgrounds may be necessary, or the bank may consider outsourcing to a third-party organization. Doing so will free up talent to focus on more strategic tasks and can reduce errors, ultimately driving cost savings for banks. Automation 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.

3.??????Consider ESG initiatives

Tax departments are also continuing to look for ways to drive value for the organization by managing the bank’s effective tax rate through tax-planning and tax-saving opportunities. However, a bank’s tax department must also keep in balance and align with the bank’s overarching ESG initiatives, in which reducing the bank’s effective tax rate may not coalesce with the bank’s broader ESG narrative.

4.??????Account for tax implications of a new digital and virtual environment

As digital assets are becoming increasingly ingrained in the world we live in now, we have seen clear signs of aims to spur crypto’s growth, from the administration releasing an executive order on crypto in March to the recently proposed bipartisan crypto bill from Lummis and Gillibrand. Banks should continue to stay alert and able to react swiftly to adapt to the ever-changing environment.

Alongside digital assets, the tax implications of a remote workforce should remain top-of-mind. A remote workforce has increased the state (and in some cases international) footprint in which banks operate, creating myriad tax complexities.

A remote workforce puts pressure on operating and compliance models, and both may need to be adjusted as the remote environment continues. Banks could also benefit from specialized education efforts and should consult with specialists on the remote work topic to understand if they have specific tax, regulatory, or administrative needs as working from home becomes the new norm.

5.??????Consider tax when structuring deals

With bank M&A activity continuing to accelerate, there are numerous tax considerations. M&A provides 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’re also rethinking traditional processes to better utilize new technologies and focus resources on core competencies that add value to the business. Improved processes and technology solutions help drive efficiency gains and cost savings in addition to lowering risk.

A relentless shifting of the competitive banking landscape has heightened the need for speed in the race to meet customers’ needs. As we look over the horizon, we expect that the ability of bank tax departments to swiftly anticipate, react, and adapt to challenges and opportunities will be among the critical success factors in the evolution of the bank of the future. While recognizing that each institution has its own unique challenges and opportunities, tax plays a key role in the successful operation of all banks.