PricewaterhouseCoopers has been building its managed tax services business since bringing over the tax department at General Electric in 2017, but now it sees an opportunity to help companies who are dealing with the ever-changing tax laws and regulations this year during the novel coronavirus pandemic.
The CARES Act and the extensions of the tax due dates this year, along with other tax changes, have made it difficult for corporate tax departments to keep up with it all while trying to operate remotely as many offices around the country remain closed while the COVID-19 pandemic spreads across states. Other countries too have introduced various tax changes and relief packages to help their citizens and businesses survive. More tax changes are sure to be on the way as governments around the world try to close their tax revenue shortfalls.
“It’s not just in the U.S.,” said Doug Thomas, managed services platform leader at PwC. “It’s all over the world. Then you marry that up with the fact that the revenue base for the government is based on the profitability of the companies that pay taxes. So when you start looking at the potential for very significant fiscal deficits in governments around the world, the long-term projection in the tax world is that something’s going to have to give. We’ll get through the pandemic. We’ll have continued stimulus, I’m sure. But when things start to ease, one thing in my mind for sure is we will see changes to the tax law. We will see increased controversy. We’ll see an increase in the compliance burden, maybe more pressure on transparency, and those kinds of things, because at some point we’ll have to close that gap.”
PwC has more than 11,000 tax people in the U.S. and over 40,000 around the world who are helping corporate tax clients, in some cases by effectively bringing their tax departments in-house, as it did with 600 people from GE in 2017 and 19 from the financial services firm Synchrony last year. PwC has been doing other such deals in recent years, but it’s aiming to expand its managed services offering this year as its clients need to deal with the tax complexity arising from the pandemic.
“With the CARES Act and similar types of legislation from countries all around the world, which provided very welcome relief, just performing the technical assessments, running through all the calculations, the interrelated modeling and scenario planning that was required, it took effort and it took time to make sure companies did the adequate assessments to determine if they could avail themselves of the offered relief measures,” said Margie Dhunjishah, tax reporting and strategy leader at PwC.
Other Big Four firms have also been providing managed services, including KPMG, which recently announced a global co-sourcing deal with HP’s tax department (see story).
PwC has been growing its managed services business in recent years ever since the GE deal (see story). “We actually started the managed services business as a result of that transaction a few years ago,” said Thomas. “That transaction really was the foundation for managed services in the industry, so we’ve been able to grow that into a business just based on the interest out there from companies that want to engage in that managed services transaction. We actually have several clients that have done the exact same thing. The number of people that we brought over from GE has only grown from the transactions we have done with other clients.”
PwC has been able to hire more tax talent as a result of the deals by bringing in employees from its clients’ tax departments. “It’s a win win for us,” said Thomas. “We get the opportunity to work with companies in a managed services engagement. We get the opportunity to work with their people who have the historical knowledge of the organization, and then we also get the advantage of having all of that in-house corporate experience embedded within our firm. It’s incredibly valuable when you go out and meet with clients, to have somebody who has that type of experience, somebody who has sat on the other side of the desk and knows the inner workings of the corporate department. It’s really valuable for the organization, and it’s been very effective.”
A managed services model can produce efficiencies for both PwC and its clients. “There are also some economies of scale here because of the investments in technology that are needed for you to be compliant around the globe,” said Dhunjishah. “In addition the investment that you need to do in your people to keep them technically proficient, and then also upskilling them with the technology skills that they need because most of these calculations require large volumes of data to be carefully analyzed and scenario plans and models, so there are large investments that are done to have a well operating, technically proficient risk management tax organization. For individual companies to be able to bear that cost burden to comply with all the global requirements, that’s a high bar to meet, so to be able to share those costs across larger economies of scale gives clients and companies the deep technical expertise that they need.”
The economic downturn from the pandemic could prompt more companies to offload their tax departments in an effort to cut costs and reduce headcount. “Like every finance function, there are instances where people have had furloughs and job reductions, and things like that we’re seeing in the marketplace,” said Thomas. “The uniqueness of what we offer from a managed services perspective is that we’re taking on the responsibility for the operations of their tax department, and so what’s really critical for us is to assure that we have the historical knowledge of the company embedded in the people that are going to be doing the work. Our model is really to work with the company, to provide the opportunity for people within their organization to come and join PwC. It’s never 100 percent of the tax department, but 100 percent of the function that we’re talking about doing managed service for. It’s a situation where we can provide an opportunity for many of our clients to provide a soft landing for some of those employees that were in the tax department that, due to the cost reductions that people expect, may have resulted in furloughs or job elimination. We may have an opportunity to take some of those people and bring them into our organization for a soft landing.”
Those tax employees could also benefit by potentially advancing their careers further at a Big Four firm. “In the corporate environment, particularly when things start to tighten up, the development opportunities for people in the corporate world may start to get limited,” said Thomas. “So they may have less opportunity to advance within their own organization and, as they make this transition to a managed services world, in that we take employees over to PwC, we can use those folks on other engagements where there are managed services opportunities or more broadly they can have opportunities for future professional development.within our firm even beyond managed services. So it is a bit of a unique opportunity for clients to be able to match up that need for cost reduction with the opportunity to instill the historical knowledge of the company within their managed services provider.”
Hiring and training new staff brought over from such deals during the pandemic hasn’t been as much of a problem as it initially seemed at PwC. “We actually onboarded a client and did it 100 percent remotely,” said Thomas. “PwC has invested heavily in our digital acumen. All the tools that we have set up in the firm have excellent remote capabilities. In our situation, we’re using Google Hangouts, Microsoft Teams and Zoom, the tools that you would expect we would use to communicate through video and otherwise. But also our system is set up such that everybody has the ability to collaborate through our tools on a remote basis. It’s been very effective in terms of being able to deliver the work and be in this remote environment. With respect to the onboarding and the communication with clients, in talking to clients about this, it’s felt a little different, as you can imagine, when you’re meeting someone for the first time over video, but it’s really been very effective. In one case in particular, we actually used virtual reality to share some experiences around managed services, which is a fascinating experience.”
In some ways, the videoconferencing technology has allowed for more face-to-face meetings than in the traditional office environment. “I’ve actually spent more face time with my clients and my team, and I’ve been in home offices and living rooms that I otherwise would never have set foot in,” said Dhunjishah. “The remote work environment with the videoconferencing tools, etc, has been a non-issue as far as teaming together with others. Everybody’s learned and grown through this and developed new habits, and now we’re all onto the next phase and continuing with business as needed.”