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The pandemic has reshaped the relationship between state and society, with governments across the world interfering in people’s lives in a way that would have been unthinkable in 2019

Going forwards, as the immediate impact of COVID recedes—at least in the developed world—one of the most important ways in which that changing relationship is expressed is through tax policies. What impact will this have on demand for tax services?

We estimate that the global market for tax services was worth around US$40bn in 2021. Just over 40% of this came from corporate tax work; international tax and transfer pricing accounted for a further 24% and 12% respectively. Global employer/mobility services, while a very active part of the market as organisations reconfigured location policies in light of travel restrictions, accounted for around just 6% of the market.

Almost 90% of tax services are provided by three types of professional service firms: the Big Four and other accounting firms; law firms; and specialist tax firms. But there are strong arguments to say that the dominance of these firms is likely to come under attack as non-traditional players invest in this space.

We see three reasons for this.

The first and most obvious is that tax rates are going to rise. There isn’t a government around the world that hasn’t been left significantly more indebted than it was before the crisis: All of them will be looking to recoup some of what they’ve spent on healthcare, vaccination programmes, and supporting people and businesses, especially as interest rates rise. As business tax rates—in various guises—increase, organisations will invest more in tax services. Most demand will focus on ensuring that business decisions are made in a tax-efficient fashion. A new supply chain configuration, for example, designed to ensure greater resilience in the face of continuing post-crisis shocks, will need to be designed with the tax implications in mind if it’s not to become ruinously complex and expensive. Similarly, a planned large-scale investment in technology could be derailed by unexpected tax charges. The Big Four have long talked about the advantage they have around tax-efficient supply chains, but as more business operations are taxed more heavily, other types of professional services firms will need to take tax into account when making recommendations and/or implementing them. Expect, therefore, to see a diverse range of firms, from strategy houses to systems integrators, to beef up their in-house tax capabilities.

Secondly, governments may use tax rises to create incentives for organisations to respond to environmental and other ESG issues. For professional services firms looking to target the emerging market for support around ESG issues—which, on current reckoning, is almost every firm—understanding the wave of new tax rules is likely to become an important aspect of the advice and support they can offer. While this type of tax work might have almost automatically gone to the Big Four and other audit firms and tax specialists in the past, the strong link with social purpose may create an opening for other firms to enter the tax market.

Finally, and most importantly is the changing nature of tax services themselves. Our 2021 research found that 51% of clients said that the pandemic had highlighted how much they needed to invest in technology within their tax function, with a similar proportion saying they wanted to see greater automation of tax administration. Over a third said that leveraging new technology was one of the top-three priorities of their organisation’s tax function, and 60% expect more in-house tax work to be automated in the future. Moreover, almost three quarters of clients were looking to use firms that could use technology to offer an end-to-end service.

Although 89% of tax clients still expect to make heavy use of the Big Four, the growing importance of technology in the tax function and the breadth of tax services technology is changing how in-house tax managers see these firms: “From a tax point of view, we don’t really see Deloitte as a Big Four firm,” observed one tax director we interviewed, “but as a technology services provider.”

That in itself is a telling comment: If Big Four firms are viewed as technology firms, it suggests clients, recognising that much tax work can be distilled into rules, will be more open-minded about who they use in the future. Today’s tax services market may be tomorrow’s US$40bn software market.