Ask the Pro: The tax offshoring debate continues: Working towards a thoughtful, strategic service delivery approach
Raffi Markarian, Principal, Deloitte LLP
As our company’s global services leader, I’m expected to continually grow our offshore captive’s value to the business. I think one opportunity would be to have it prepare our U.S. tax returns. The CFO agrees with me – but the tax director doesn’t. The proposal has been in limbo for months while they go back and forth, and I’m getting frustrated. How can I help them get unstuck so they can make a decision?
Many CFOs and tax directors start out on opposite sides of the issue of sending U.S. tax work (specifically, U.S. income tax compliance and provision) offshore. Fortunately for you, these differences are usually more about tactics than goals. After all, CFOs and tax directors have the same objective: increasing tax department efficiency while keeping tax compliance risk within acceptable bounds. The difference is often that tax directors are more skeptical that an offshore service center can deliver.
The problem is talent. It’s virtually impossible to find professionals conversant in U.S. tax law offshore, and it takes considerable time and investment to train people in U.S. tax law from scratch. The relatively small size of many U.S. tax groups could amplify the challenges, as well as make turnover more of a business continuity risk.
Unless your company has enough U.S. income tax work for some 50-plus offshore professionals, your tax director is probably justified in his or her reservations about an offshore tax captive. But that doesn’t mean you can’t use offshoring to make tax more efficient. Here are two ideas you may want to share with the CFO and tax director.
The first takes advantage of the fact that U.S. tax professionals typically spend much of their time, not preparing tax returns, but collecting, manipulating, and reconciling the entity-specific financial accounting and management data they need as inputs - which could (and arguably should) be done by accountants, not tax professionals. If your company has already offshored accounting, and if the CFO is willing to move pre-tax data preparation to offshore accountants, the tax department would likely gain U.S. capacity to redeploy to higher-value tax planning activities.
The second, not mutually exclusive idea is to hire an external service provider to do your company’s U.S. income taxes, stipulating that it perform a certain percentage of the work offshore. This could still cost less than your current U.S.-based model, even factoring in the provider’s margin. Essentially, the margin buys you access to qualified offshore tax talent without having to manage that talent yourself.
Granted, neither of these options may be exactly what you had in mind, but both can help you demonstrate the value of a thoughtful, strategic service delivery approach. Ultimately, what should matter is increasing the service delivery organization’s value as a whole, not just that of the offshore captive.
Raffi Markarian, principal, Deloitte LLP
As used in this document, “Deloitte” means Deloitte LLP and its subsidiaries. Please see www.deloitte.com/us/about for a detailed description of the legal structure of Deloitte LLP and its subsidiaries. Certain services may not be available to attest clients under the rules and regulations of public accounting.