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Chris Walsh
Chris Walsh
The Power of Communities

Using social media in the tax world.

September 24, 2009
by Chris Walsh

There are many companies, including users of SAP, Oracle and other enterprise resource planning (ERP) systems that require detailed tax data to keep their master files up-to-date and so provide a sound foundation for tax compliance. In fact, everyone in the tax field needs data to do their jobs, whether it is basic tax rate data or more sophisticated and detailed jurisdictional information.

One of the leading issues faced by businesses requiring significant amounts of global tax data is the associated business expense, as few supplier organizations have the global reach to provide such diverse and specialized information. For this reason, it is desirable to monitor potential sources that may ease data gathering tasks at a lesser cost but with little or no reduction in quality. Existing online publications and subscription sites that are available today are fine for businesses with basic needs, but when deep detail and/or rapid updating are required, they just do not suffice. Until recently, the effort to find a better way has focused on shopping around for improved pricing from offline data providers. There is now optimism around impending changes and potential solutions to this issue largely based on the exponential growth of online communities. These social media networks are already showing some interesting possibilities as far as tax discussion is concerned and it is only a short leap from there to an online marketplace for, among other things, tax data.

Take a recent example: A few months ago, I needed to gather information on the extent to which value-added tax (VAT) cash accounting applied in five countries. The typical process for collecting this type of information is a request for data to one of our international suppliers, a global consulting firm. To satisfy my own curiosity, I posted the same request for information in a tax discussion forum. Within 48 hours, the posting had generated responses from in-country VAT specialists in six countries, each giving me the information I needed at zero total cost. The consulting supplier took considerably longer and at a rather higher cost to provide what amounted to the same information.

Does this mean that companies should start dropping their advisers and begin going it alone on the Internet from now on? The answer is no — at least not yet. When it comes to tax data, businesses must be extremely conscious of reliability, quality and above all, risk management in their sourcing policies.

Even though business-networking sites have active tax discussion forums, this does not yet make them appropriate resources on which to hang a business strategy. The reality is that these online tax communities found on social networking sites are, on the whole, set up and run by private individuals who devote personal time to the task but who otherwise earn their living outside the communities they operate. Because of this, discussion forums have a tendency to come and go and those that exist as independent sites on the Internet usually run into bandwidth cost issues before going out of business.

Although this does not sound so promising from the point of view of finding an online data source, we should remain confident that progress will continue to push the evolution and maturing of online data sources. There are really three issues that need to be addressed before such online communities can become credible and successful:

  1. The community must be sustainable outside the social networking site on which it was created. This means that it should be capable of standing alone and it should have a solid business model to ensure long-term sustainability. The most promising such model is known as information arbitrage, in which a community of professionals provides the input and data and interested third parties provide the funding through sponsorships or subscriptions.
  2. It needs to provide data that is more detailed, more reliable and cheaper than any alternative in the market. Community owners/developers could achieve this by providing incentives or even paying correspondents from around the world with connections to local experts.
  3. This is what would distinguish it from online database offerings — it must be interactive through chat and/or forum functions. Subscribers must be able to ask questions online and have them addressed quickly by local experts, finally bringing true online consulting to fruition. It may be necessary to charge a higher subscription to members who use this functionality frequently but excessive charging or overly complex billing arrangements will kill such an offering quickly.

None of these problems is insurmountable and it is to be expected that there will be a minimum of two competing sites operating along these lines within the next few years. One or both could be immensely successful as ERP vendors, ERP users, tax consultants, IT specialists, governments and even tax technology vendors rush to sign up. The likelihood is that at least one of the sites will be operated by a big four accounting firm, which already have significant tax databases and access to more data through their own global networks. They clearly have a head start here.

So what are the implications of these and other emerging technology changes? It is expected that:

  • Businesses will see greater access to cheap, reliable tax data; higher levels of tax automation becoming the norm; and a reduction in reliance on their traditional tax advisers for their basic tax needs.
  • In-house tax staff will be able to focus on more value-added work and move away from compliance tasks.
  • Risk management processes surrounding data will still rest with the business and will not be assumed by a third-party in the short- to medium-term.
  • Tax consulting firms will see a reduction in demand for simple data and basic tax advice and services but are likely to see an uptick in more complex consulting opportunities.
  • This will challenge the firms in respect of their existing skill sets and how to manage a move to more complex work while still developing and motivating their junior members of staff.

Conclusion

There is little doubt that significant technological change will soon hit the tax world for the first time in more than 20 years and we all need to assess our capabilities to harness the opportunities that are coming our way.

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Chris Walsh is chief international indirect tax officer at Vertex comments on the uses for business-networking sites with regards to tax. To read more articles by Chris Walsh and other Vertex Tax Experts, visit the Vertex Web site.

This article was previously published in the International Tax Review.