City Focus: New York
Frank Sinatra wanted to be a part of it, and, more recently, Alicia Keys called it the ‘concrete jungle where dreams are made’ - it’s the city so nice they named it twice: New York, New York.
Founded by Dutch settlers in 1624 under the name ‘New Amsterdam’, the city received its more well-known moniker in 1664 when it was gifted to the Duke of York as an 18th birthday present. Now known as New York, the city had the honour of being the first US capital when the constitution was ratified in 1789. However, it was soon replaced with Philadelphia, Pennsylvania and then finally Washington D.C. in 1800. Now home to over 8mn citizens (one in 38 Americans call it their home), New York is comprised of five boroughs: Manhattan, the Bronx, Queens, Brooklyn and Staten Island. Demonstrating the sheer scale of New York, either Brooklyn or Queens alone would count as the fourth-largest city in the US if they were designated separate cities.
With over 600 languages spoken, New York City is one of the most linguistically diverse places in the world. Ellis Island and Liberty Island are symbols of the city’s history of ethnic diversity and partnership with other nations - the latter featuring the iconic Statue of Liberty. A present from France to celebrate the USA’s centennial, the statue was officially dedicated in 1886 and was constructed from 350 separate pieces.
The Greater New York City region has a GDP of US$1.21trn, making it the second-largest metropolitan economy in the world after Tokyo, Japan. In 2012, it was recorded that New York City accounted for roughly 8% of the USA’s GDP, although the city itself only uses about 1% of the country’s total landmass. Home to more than 380,000 millionaires and 78 billionaires, New York City’s Federal Reserve Bank possesses the world’s largest quantity of stored gold. Contained in a vault hidden 80ft beneath the earth is 7,000 tonnes of gold bullion, approximately 5% of all the gold that has ever been mined.
Home to the New York Stock Exchange and NASDAQ - the largest stock exchanges currently operating today - the city is a proverbial mecca for business, with each borough contributing to key economic areas.
The financial heart of New York City, Manhattan is a global leader in terms of the banking and communications sectors. Providing an estimated 5% of private-sector jobs and 8.5% of the city’s tax revenue, the borough which houses Wall Street is rightly regarded as an economic powerhouse. Containing iconic office-buildings such as the Empire State Building, which accommodates the corporate offices of Air China, LinkedIn, JCDecaux and more, Manhattan also facilitates New York’s role as an established media power from the advertising industry based on Madison Avenue. Real estate contributes significantly to the city’s economy; it has recently been estimated that the total market value of all New York properties is $1.8trn. Manhattan has properties frequently valued as the most expensive in the world, such as the Times Warner Center and the Waldorf Astoria.
Although it suffered a gradual decline following the Great Depression in 1929, the Bronx has been experiencing an economic revival since the 1980s. Most notably, the area contains some of the city’s largest shopping centres, such as The Hub, Southern Boulevard and Bay Plaza. The Bronx Terminal Market, located in Concourse, just south of Yankee Stadium, is an almost 1mn sqft retail space. Costing $500mn to construct, the market was opened in 2009 and currently houses well-known brands like Target, Home Depot and Staples.
The borough of Queens has the second-largest (after Manhattan) and most vibrantly diverse economy in New York. Although the area’s main sectors are trade, transportation and utilities, Queens also has significant input from the healthcare, manufacturing, construction and media industries. A key contributor to the borough is the presence of the two major airports: JFK International Airport and LaGuardia Airport. Ranked as some of the busiest in the world, JFK IA alone handled over 61mn passengers in 2018, placing it in the top 25 busiest overall. Long Island City, a residential and commercial district located in western Queens, is also one of New York’s most up-and-coming locations.
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Traditionally the manufacturing epicentre of New York City, Brooklyn started to diversify its economy towards the end of the 20th Century. Now with thriving construction and services sectors, Brooklyn is also reported to have the second-largest growth rate amongst tech startups in the country, behind only San Francisco, California. Featuring alluring office space and lower rent costs than other boroughs like Manhattan, tech companies have found compelling operational reasons to base their businesses in Brooklyn. Notable companies in the sector include Vice Media, Makerbot and Kickstarter.
The least populated (approximately 476,000 people) but one of the larger boroughs of New York City, Staten Island was originally known as the Borough of Richmond until it was changed in 1975. The economy of the area is primarily composed of the healthcare, retail and construction sectors and has a GDP of $14.5bn. More recently, Staten Island has experienced growth in real estate, finance and warehousing - the latter being a result of Amazon’s new $100mn fulfilment centre in Matrix Global Logistics Park in 2018.
Six issues at the top of tax and finance leaders’ agenda
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.