The Growing Convergence of Finance and Tax
A tax performance management opinion paper.
November 13, 2008
Sponsored by Vertex Inc.
Times have changed for corporate tax and financial executives. Once considered more of a departmental reporting function, the tax impact of both actual and forecasted financial results is now a key point of integration between two historic neighbors — finance and tax. In fact, despite efforts to comply with Sarbanes-Oxley (SOX), accounting for income tax remains the leading cause of SOX 404 deficiencies, comprising 24 percent of overall deficiencies in 2008, according to a recent KPMG study.
Corporate tax and financial executives must now deal with increased board visibility and U.S Securities and Exchange Commission (SEC) scrutiny on the financial reporting of income taxes and related internal controls. At the same time, they are now faced with global accounting standard changes that could match and for some companies exceed the SOX-related workload. Couple this with chronic talent shortages and reduced timelines for corporate closes and the pressure on tax departments has never been greater.
Today’s reality is that tax reporting requires the same level of transparency and integrity as financial reporting. Considering that tax is typically one of the largest expenses on corporate income statements and that the effective tax rate is much more volatile than in the past, finance and tax must now live virtually in the same house. The result is a major transformation in not only how tax gets its job done, but when and by whom.
Because of these trends, the bar has been raised significantly on corporate tax operations — most notably in the area of global accounting for income taxes. As demands continue to grow, today’s array of departmental tax technology solutions simply won’t be able to provide the necessary control, transparency, efficiency and management capability needed to meet new demands.
These departmental point solutions for provision, compliance and data management, even when loosely connected with portal technology and custom integrations, end up creating disparate sources of data, require manual spreadsheet workarounds, limit scalability across a global enterprise and are prone to audit exposure.
In addition, these products are oriented toward supporting a single department rather than the whole enterprise, in which many companies must deal with increasingly global operations with multiple locations, Eros and jurisdictions to manage. For this reason, enterprise-level automation, process improvements and training innovations will be required to address the current and upcoming challenges facing corporate tax departments.
As the leader in global tax technology solutions, Vertex believes that these changes are inevitable and that a new class of enterprise-level tax systems is emerging that when combined with process and resourcing improvements create a new industry category called Tax Performance Management (TPM).
Solutions that enable TPM process all tax types on a single, integrated Web services platform that’s tightly integrated with Enterprise Resource Planning (ERP) and Corporate Performance Management (CPM) systems. TPM addresses the whole spectrum of managing direct and indirect corporate tax performance from financial reporting to compliance, planning and defense — all on a global basis.
The goal is simple: Reduce the operational complexity of managing all aspects of the global tax process and build tighter integration between financial and tax date so that tax professionals can focus on higher-value planning and risk management activities and CFOs can see effective tax rates and cash taxes in real-time. This is a state where, when the books close, tax closes with the accuracy required for financial reporting and tax compliance — and with complete transparency and significantly reduced audit risk.
By tightly integrating ERP financial applications with enterprise tax solutions, companies like Vertex have successfully transformed indirect taxes like sales, consumer use and Value Added Tax (VAT) from an overwhelming process and reporting effort to a seamless, automated and efficient process. The end result is a function that is under control from a tax governance and risk management perspective.
With regard to income taxes, Vertex believes a trend will emerge where global companies will begin to move from today’s departmental tools to more enterprise-level solutions and finally to TPM solutions. These advanced tax solutions based on an open architecture employ technologies that will provide a common tax management and planning platform that is tightly integrated with a corporation’s enterprise-wide financial operations.
To read more about TPM, how today’s multinational corporations will benefit from emerging enterprise-class tax solutions and receive guidance on planning ahead for technology investments to meet future tax challenges, review the full paper: The Growing Convergence and Tax — and What It Means for the Future of Tax Technology (PDF).
With more than 30 years of experience, Vertex Inc. is the leading provider of advanced tax technology solutions and process management services worldwide.
Vertex solutions help companies streamline and integrate tax provision and compliance processes and leverage information to discover new strategic tax savings across every major line of business tax, including income, sales, consumer use, value added, communications and payroll. To serve its customers, Vertex works in partnership with the world’s leading providers of ERP software and related services.
Founded in 1978, Vertex is a privately held company that employs more than 600 professionals at its headquarters in the U.S. (Berwyn, PA) and its offices in Europe (London), Atlanta, Chicago, Dallas, Phoenix, San Francisco and Washington, DC.