May 19, 2020

The Bad, the Good, and Other Effects of Declining Oil Prices for Canada

oil prices
Civeo Corp.
OPEC
Alberta oil
Mana Tulberg
3 min
The Bad, the Good, and Other Effects of Declining Oil Prices for Canada

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The continuous drop in oil prices has left Canadians with mixed emotions. While consumers are paying less for their fuel and energy costs, the effect of the plunge in oil price is beginning to be felt in the oil producing provinces. From the small business owners’ drop of confidence in Alberta to the reduction of Civeo Corp.’s Canadian workforce by 30%, the future of the economy and the standard of living in some provinces of the country are ultimately in jeopardy, while others may see more of a benefit.

The Negative Effects of Drop in Oil Prices for Canada:

According to the Business Barometer report released by Canadian Federation of Independent Business, eight provinces saw drops in business confidence, including drops in Canada’s largest petroleum producing provinces, Saskatchewan, Newfoundland and Labrador. In addition, Civeo’s workforce reduction and location closures have reinforced business owners’ apprehension in these parts of the country.

Civeo, a Houston based oilfield service provider, who provides long-term and temporary housing for its Canadian workers, has announced reduction in capital expenditures over the course of 2015. It is evident that lower prices will result in the shut down of unprofitable oilfields. Fewer oilsands construction or expansion projects reduce the demand for labour and accommodations.

Eventually, the interest of investors will subside and capital expenditure begins to move away from oil and gas producing regions of the country. According to the Canadian Energy Research Institute (CERI), almost every community in Canada has been touched by oilsands development through the stimulating impact it has on job creation and economic growth.

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The Benefits of Drop in Oil Prices for Canada:

With the world’s oil production exceeding consumption by nearly two million barrels a day, it’s quite possible that we might not see the days of $100 oil for some time to come. For average Canadians, lower gas prices means more money available in the family budget for other purposes. Therefore, tumbling oil prices could essentially guide us towards a large economic shift.

With low oil prices, cost of running for larger energy consuming industries such as transportation will come down.  Companies trucking goods and produce will benefit from lower costs of operation, resulting in reduction in prices, which will eventually trigger a boost in consumers’ confidence and spending power.

How Much Longer?

As long as OPEC and other non-OPEC oil producing countries continue supplying oil at their current rate, it is apparent that the era of lower oil prices are here to stay for some time to come. While Canada’s exploration and petroleum producing firms might be able to withstand lower oil prices, OPEC members that need oil revenue for survival are not as fortunate.

Although Canada’s growth in export of oil has increased in recent years, Canadian Imperial Bank of Commerce (CIBC) reports that oil production accounts for only 9 per cent of gross domestic products (GDP). The same report by CIBC indicates that lower gas prices will put $10 billion extra in the hands of Canadian consumers.

The uncertainty around the magnitude and duration of reduced oil prices is prompting Canadian policy-makers and the corporate world to revisit their annual budgets and respond to this unanticipated economic reality.

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Jun 8, 2021

Six issues at the top of tax and finance leaders’ agenda

Tax
Compliance
financeleaders
Deloitte
Kate Birch
4 min
As businesses accelerate their transformation journeys, tax leaders are under increasing pressure to add strategic value. Deloitte reveals six tax trends

New Deloitte research reveals that tax leaders are under increasing pressure to add strategic value as companies accelerate business model transformation, from undergoing digital transformations to rethinking their supply chains or investing in green initiatives.

According to Phil Mills, Deloitte Global Tax & Legal Leader, to “truly deliver value to the business, the tax function needs to rethink its resourcing model and transform its technology infrastructure to create capacity and control costs”.

And the good news, according to Mills, is that tax and business leaders have more options at their disposal to achieve this.

Reflecting the insights of global tax and finance executives at global companies, Deloitte’s Tax Operations in Focus study reveals the six issues at the top of tax and finance leaders’ agenda.

Trend 1: Businesses seek more strategic counsel from tax

Companies are being pushed to develop new digital products and distribution channels and accelerate sustainable transformation and this is taking them into uncharted tax territory. Tax leaders say their teams must have the resources and skills to give deeper advisory support on digital business models (65%), supply chain restructuring (49%) and sustainability (48%) over the next two years. This means redrawing the boundaries of what tax professionals focus on, and accelerating adoption of advanced technologies and lower-cost resourcing models to meet compliance requirements and free up time.

According to Joanne Walker, Group Tax Director, BT Group PLC, "There’s still a heavy compliance load today, but the vision for the future would be that much of that falls away, and tax people become subject matter experts who help program the machine, ensure quality control, and redirect their time to advisory activity.”

Trend 2: Tipping point for resourcing models

Business partnering demands in the tax department are on the rise, but 93% of tax leaders say their department’s budget is remaining flat or falling. To ensure that the tax function can redefine itself as a strategic function at the pace that is required, leaders are choosing to move increasing amounts of compliance and reporting to a combination of shared service centers, finance departments, and outsourcing providers that have invested in best-in-class technology.

Trend 3: Digital tax administration is moving faster than expected

in addition to the rising focus of the corporate tax department partnering with their business counterparts, transformative changes to the way companies share tax information with revenue authorities is also creating an imperative to modernize operations at a faster pace. Nine in 10 (92%) respondents say that shifting revenue authority demands on digital tax administration will have a moderate or high impact on tax operations and resources over the next five years—and several heads of tax said the trend is moving faster than expected.

"It’s really stepped up in the last couple of years," says Anna Elphick, VP Tax, Unilever. "Tax authorities don't just want a faster turnaround for compliance but access into a company’s systems. It's not unreasonable to think that in a much shorter time than we expect, compliance will be about companies reviewing a return that's been drafted by the tax authorities."

Trend 4: Data simplification and lower-cost resourcing are top priorities

Tax leaders said that simplifying data management (53%) and moving to lower-cost resourcing models (51%) must be prioritized if tax is to become more proactive at delivering strategic insights to the business. Many tax teams are ensuring that they have a seat at the table as ERP systems are overhauled, which is paying dividends: 56% of those that have introduced NextGen ERP systems are now highly effective at supporting the business with scenario-modeling insights. Only 35% of those with moderate to low use of NextGen ERP systems said the same.

At Stryker, “we automated the source P&L process for transfer pricing which took a huge burden off of the divisions," says David Furgason, Vice President Tax. "Then we created a transfer price database to deposit and retrieve data so we have limited impact on the divisions. We are moving to a single ERP platform which will help us make take the next step with robotics.”

Trend 5: Skillsets are shifting

Embedding a new data infrastructure and redesigning processes are critical for the future tax vision. Tax leaders are aligned — data skills (45%) and technology process experience (43%) are ‘must have’ skills in a tax department of the future, but more traditional tax specialist knowledge also remains key (40%). The trick to success will be in tax leaders facilitating the way these professionals, with their different backgrounds, can work together collectively to unlock lasting value.

Take Infineon Technologies, which formed a VAT technology and governance group "that has the right knowledge about how to change the system to ensure it generates the right reports", according to Matthias Schubert, Global Head of Tax. "Involving them early was key as we took a greenfield approach, so we could think about what the optimal processes would look like and how more intelligent systems could make an impact 

Trend 6: 2020 brought productivity improvements

Improved productivity (50%) and accelerating shifts to remote working (48%) were cited as the biggest operational benefits to emerge from COVID-19-driven disruption. But, as 78% of leaders now plan to embed either hybrid or fully remote models in the tax function long term, 34% say maintaining productivity benefits is a top concern. And, as leaders think about building their talent pipeline and strengthening advisory skill sets, 47% say they must prioritize new approaches to talent recognition and career development over the next two years, while 36% say new processes for involving tax in business strategy decisions must be established.

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