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What role does company culture play in R&D tax compliance?

As the GM at a company that creates software to help businesses achieve better R&D tax compliance, I have had the opportunity to observe R&D tax record keeping, compliance, and governance practices within many businesses. Regardless of company size, or industry sector, some common qualities that enable R&D tax compliance in high performing businesses. Over the next couple of months, I wanted to share some of my learnings, beginning with the role of culture in R&D tax compliance and governance.

What is company culture?

There is certainly a lot of misinformation about what company culture is, and its broader role in business. It is my opinion company culture is not prescriptive; you cannot just slap a mission statement and some values on the wall and hope for the best. As Aristotle said, “we are what we repeatedly do”, and this is certainly true of company culture. To understand its role in R&D tax compliance, let’s define company culture as the consistent behaviours, beliefs and norms adopted by a group of people in a workplace context.

How does company culture affect R&D tax compliance?

There is a strong correlation between company culture and R&D tax compliance. Although not always strictly the case, obstructive cultural norms prevent effective planning and impact compliance activities, often resulting in total compliance failure.

On the other hand, cohesive company culture can enable effective R&D tax compliance. High performing businesses with consistent norms around work quality, accountability and workload management achieve better R&D tax compliance.

Cohesive company culture provides the agility for a business to quickly design R&D tax compliance strategies, recognise their importance, and implement them quickly.

What are the cultural enablers of good R&D tax compliance?

Leadership buy-in.

For a team of any size to embrace R&D tax compliance, it must start at the top. Highly effective leaders are engaged in R&D tax planning and R&D compliance strategy and “walk the talk” at every level of the business. They emphasise the material benefit to the organisation and regularly signal the risks of compliance failure.

Org structure and job design.

To ensure adequate resourcing, R&D tax compliance should be factored into org structure and job design. To avoid bottlenecks, and ensure separation of duties, technical staff alone should not be solely responsible for R&D tax compliance, however, all too often they are.

Planning and project management.

Would you let a project with a 6-figure impact your bottom line proceed without planning or project management? High performing businesses stop to develop R&D tax strategy, then invest in the management capability to effectively monitor and deliver.

Effort recognition

With technical staff often wearing the brunt of R&D tax evidence capture and substantiation, there is often a disconnect between the doer and the ultimate benefit to the company. High performing companies identify top-performing technical staff and recognise their impact.

A corporate perspective

Boardroom culture is equally a key driver in R&D tax compliance and governance in larger organisations. Often, the lack of tacit expertise relating to the financial or technical aspects of R&D tax means the severe consequences of non-compliance are not effectively identified or documented within a corporate risk register or implemented within a quality framework.

Given the diverse nature of R&D tax activities within consolidated groups, and the large number of FTEs necessitating a decentralised approach to record-keeping, there are no “out-of-the-box solutions” for corporate tax governance. Boards must invest in the capabilities, systems, and advice to build effective R&D tax governance strategies.

Where to begin

According to legend, in the early 20th century when DuPont was literally blowing up dynamite factories as a result of efforts to scale production, the company put in place a policy where factory managers and their families were encouraged to live on-site, and if for any reason they left, production would halt. DuPont learnt that avoiding catastrophes was more important than scaling production, and the shift in company culture spread across their organisation.

Although this is an extreme example, the impact of poor R&D tax compliance can be crippling. When Directors and Leaders make R&D tax compliance a company-wide priority and give their technical managers the resources to design and implement effective compliance strategies, R&D tax compliance becomes a formality.

Let’s chat if you’d like to learn more about how Synnch can help you design and implement an R&D tax compliance strategy with our software.


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