Building Your Tax Department Bench Strength: Benefits of Tax Co-sourcing

Updated March 2023

Organizations are faced with the challenge of increasing operational efficiency while reducing costs and retaining the personnel they need to be strategic. Talent shortages and the resource drain associated with recruiting, onboarding, on-the-job training and continuing education have many organizations looking for a more efficient and practical approach. Having the flexibility to allocate resources to align with organizational objectives is imperative.  

Strategies such as co-sourcing and outsourcing can help fill gaps and meet growing demands of the tax department. Generally speaking, co-sourcing is when an outside professional services firm performs anything from a single departmental function to almost every function in the department, with the ability to scale based on fluctuating needs. With high turnover and a hybrid workforce that is here to stay, many tax departments are readily turning to outside firms to address their staffing concerns.

As organizations evaluate the bench strength of their tax function, they should consider how the department is organized.

• Is it staffed with the right number of resources?
• Are team members in the right roles to be successful?
• Do they have the skills required to succeed in a dynamic tax environment?

Determining When to Co-source or Outsource Tax Services

Maintaining specialized tax department resources and the expertise to manage everything in house may not always be the most judicious or cost-effective approach. Organizations may prefer to work with an outside vendor or consultant as part of a tax co-sourcing or outsourcing arrangement. According to BDO’s 2022 Tax Outlook Survey, 92% of tax executives planned to outsource or co-source a global tax compliance solution by the end of 2022.

Tax Areas Being Co-sourced/Outsourced

A flexible co-sourcing arrangement can scale services up and down as needed based on the demands of the tax department, allowing internal talent resources to focus more time on value-enhancing activities. Taking routine and repetitive tax compliance tasks off the plate of top performers can help create a path forward for them in the organization, improving engagement and retention. With the right arrangement in place, the organization not only benefits from cost savings but gains access to an advisor who stays current with regulatory and legislative changes and can consult on organizational strategy.

An organization may decide to pursue a tax co-sourcing arrangement when:

• Experiencing an inability to fulfill strategic priorities due to resource constraints.
• Encountering gaps in tax specialty areas or technology.
• Going through a tax system implementation or integration.
• Experiencing turnover or difficulty hiring the right talent.
• Wanting to reduce time and costs spent on recruiting, training and onboarding.
• Desiring flexibility to scale resources based on fluctuating workloads.
• Undergoing a merger, acquisition or divestiture/spin-off.
• Facing headcount reductions for budgetary or other reasons.

Establishing a Tax Outsourcing or Co-sourcing Arrangement

When embarking on an outsourcing or co-sourcing arrangement, organizations should consider what type of work to outsource and for what length of time. An assessment of the current state of the tax department can help identify and prioritize where there is potential for improvement and the top areas of impact to co-source.

While areas to outsource or co-source will vary based on the organization, tax returns and other tax compliance projects with repetitive tasks and/or a high volume of work may be a good place to start. For example, income tax and sales and use tax compliance continues to increase in complexity, making this a prime candidate for outsourcing. Organizations may decide to start with a short-term project to meet an immediate need before determining what the long-term strategy should look like.

In addition to the type of work, it is also important to consider how the work will be managed and delivered. Streamlined processes and an established method for communicating and sharing information is essential for success. In a co-sourcing arrangement, the use of common technology platforms makes it easier to collaborate across teams.

Case Study

Challenge: A billion-dollar retail company appointed a new CFO whose first order of business was to evaluate the company’s finance function. The CFO engaged BDO to do an analysis. A review of the company’s structure, processes, technology, costs and use of external vendors revealed that the tax function was not operating at an optimal level to benefit the company. Processes were outdated, manual work put the company at high risk of error, spend was not optimized and employees spent all of their time on compliance without time for strategic planning. The company had two options: elevate their existing team or consider a different resource model. 

Solution: BDO recommended a co-sourcing arrangement and outlined the recommended tax and finance department structure, roles and responsibilities, and segregation of duties between the company and BDO. This model allowed the company to be more proactive and work toward its strategic business goals. By developing a plan with the end goal in mind, BDO was able to not only develop a transition and change management plan for the interim, but also consider the long-term plan for technology and people resources. 

Outcome: It was estimated that the company could save approximately $400,000 annually by adopting a flexible approach to resource management. In addition to cost savings, other benefits included risk mitigation, better use of resources, greater strategic focus and access to a breadth of tax knowledge from BDO advisors.

How BDO Can Help

BDO offers a flexible tax delivery framework to help find the right mix of services that align with your organization’s strategic priorities. Explore BDO’s Total Tax Approach and request a consultation to see how your organization could benefit from tax co-sourcing or outsourcing.