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David Deputy
David Deputy

Envisioning the Next Enterprise Tax Data Warehouse

How data warehouses transform data into information, which in turn transforms into insights that can optimize global tax and risk management.

September 29, 2011
by David Deputy

The foundation for the technology evolution in tax will be a commercial grade tax data warehouse that provides access to centralized, trusted data, down to the transaction level as needed to support every phase of the tax life cycle, for all tax obligations open to audit. Many tax professionals ask, “What exactly is a tax data warehouse?” Simply stated, it is a repository of data that allows a company to house, in one place, all relevant information needed to support its outstanding tax obligations. It includes tools to load, transform and extract the data and is the foundation for surrounding tax applications designed to calculate and report off the data as needed over the various phases of the tax life cycle.

It also allows the underlying data to be shared and leveraged across the tax planning, provision, compliance and audit defense processes avoiding redundant data touches that are prevalent in today’s tax processing and that introduce weaknesses in the internal controls surrounding the tax process. In a nutshell, it transforms data into information and with the surrounding tax applications, transforms information into insights needed to optimize global tax and risk management.

For a large multinational corporation, the data contained in their tax data warehouse might include year-end legal entity trial balances for every entity included in the consolidated financial statements for all tax years “open” to audit. For each of these tax obligations it would also contain each jurisdiction’s book to tax adjustments, both permanent and temporary as well as NOLs (net operating losses), credits and tax rates. It would contain each tax obligation’s deferred tax cumulative temporary differences both gross and net/tax effected and data to support FIN 48 (PDF) reserves and valuation allowances. It would have the data to support any FAS 123R and OCI (other comprehensive income) deferred taxes as well as the data needed to support outside basis difference deferred taxes or APB 23 assertions. It would also include each current provision’s “return to provision” adjustment data (which should ideally go away with increased provision accuracy).

To support the company’s interim provision calculation of their annualized effective income tax rate, it would also include P&L (profit and loss) and book-tax difference forecasts by legal entity, by jurisdiction, by year. And it would house the detail state apportionment factors, state specific modifications to federal taxable income and state tax rates. It would contain all of the intercompany transaction data and underlying revenue and costs to support the company’s global transfer pricing.

And lastly, it would contain copies of all filed returns or electronic filings. That sounds like a lot of data and it is. But it is actually less data than what every company is currently housing somewhere across the global organization, in different systems, different formats, multiple times, accessible by different people in different time zones and currencies. The reality is that the current state of tax data management makes it virtually impossible to have control of the company’s entire outstanding global tax obligations.

With this type of tax data warehouse and surrounding tax applications for provision, compliance, planning and defense, data and calculations can be leveraged across each phase of the tax life cycle for every tax obligation and return yielding heretofore unattainable efficiencies, controls and accuracy in tax reporting. It is the future of global tax operations and none too soon. When you solve data management problems around collection, validation and calculation and create a single source of tax truth, you immediately see the benefits across all major tax processes because they all use the same data. It’s the old “garbage in, garbage out” adage, but in reverse.

By addressing the foundational data issue all tax sub-processes — provision, compliance, audit management and planning — will be transformed into a cohesive, naturally flowing, efficient end-to-end process for every tax obligation and return that remains open to audit.

The end result: total control and optimization of global tax operations and reporting.

To explore more about the next best practices in corporate tax technology, download the white paper (PDF).

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David Deputy, director of tax data management for Vertex Inc., brings over 20 years’ experience in ERP, Tax Analytics and Business Intelligence software solutions.