Divider
Divider

Bob Norton
Bob Norton

Tax Technology

It’s time to rethink everything.

June 23, 2011
by Bob Norton, CPA

Driven by today’s global economy in which fiscal deficits demand austerity and tax increases, a “new normal for tax” has emerged — one for which few tax organizations are fully prepared. As sovereign deficits skyrocket, governments worldwide are increasing tax revenue by enacting an enormous number of new tax changes and enforcement methods that have resulted in unprecedented challenges for tax departments.

To be equal to the task of navigating this evolving, hyper-regulatory landscape, and your tax department will need game-changing technologies that increase operational efficiency, internal controls and effectiveness across planning, provision, compliance and audit management activities. These technologies will not only improve tax-process efficiency, but will enable true tax performance management, equipping organizations with the analytics and modeling tools needed to make more strategic tax decisions and better manage their effective tax rate and cash taxes in real time, even as tax legislation and rules change.

But what can and should this game-changing tax technology look like? And how will it help you increase operational efficiency and enable faster, more effective global tax management?

The Need for Enterprise-Class Solutions

From a tax technology perspective a trend toward enterprise-class solutions that originated with enterprise resource planning (ERP) solutions first deployed in the 1990s is driving the next best practices.

Many companies at that time turned Y2K initiatives into opportunities to replace their patchwork of stand-alone business applications with a new software architecture that enables the seamless flow of information between all internal business functions, as well as centralized management of external communications with customers, partners and suppliers.

Built around a central database and common computing platform, ERP systems consolidate all business operations within a single, integrated enterprise-wide environment. The result is a simplified IT landscape, a consistent user-interface (UI), native integration that enables easy information access, support for end-to-end processes, increased efficiency, centralized management and control, real-time custom reporting and more.

For whatever reason, the tax department did not participate in this sea of change in finance IT infrastructure and it’s now time for tax operations to follow the same route as finance with respect to automation, technology, improved processes and overall transformation.

Corporate Performance Management (CPM) Solutions: A Model for Success

Over the past decade, many finance organizations have implemented enterprise-class CPM and business intelligence (BI) solutions that are tightly integrated with ERP systems. Developed and deployed in response to Sarbanes-Oxley legislation, these IT investments enable finance departments to:

  • Centralize and validate global data;
  • Streamline, integrate and automate core processes, such as planning, consolidation, budgeting, forecasting, profitability and cost management and spend management;
  • Implement financial controls;
  • Quickly create detailed audit trails, analysis and reports; and
  • Gain complete visibility across the enterprise for better budgeting, planning, forecasting and decision making — activities required to not only comply with Sarbanes-Oxley, but also drive better business performance.

The benefits of these CPM solutions have been transformative for finance departments.

For example, today, finance departments:

  • Have automated previously manual global data collection activities to support consolidations;
  • Have access to real-time, global data providing the insight needed for better decision making;
  • Employ streamlined, end-to-end processes and controls to increase efficiency and minimize business risk in the areas of planning, budgeting, forecasting and reporting;
  • Have real-time visibility into and control over finances across the global enterprise; and
  • Utilize executive dashboards with real-time Key Performance Indicators and related reporting.

As new regulations evolve, those companies with comprehensive CPM solutions will be better able to adapt and respond to the increased reporting requirements and scrutiny by government regulators.

In many ways, these technologies have made finance departments more responsive and agile, which is a must to not only compete, but also critical to survival today.

Envisioning Enterprise-Class tax Performance Management (TPM)

Compare this to the world of tax and the disparity with finance is quite obvious.

For most tax professionals, the sheer volume of disparate data, disconnected source systems and numerous spreadsheets present countless, systematic inefficiencies that permeate how most tax departments perform their everyday work. These inefficiencies leave little time for more strategic activities, lead to data errors and increase financial reporting risk of material weaknesses. Given the effects of hyper-regulation on tax workloads, you can expect these to decrease the quality of tax outputs if you don’t find ways to significantly increase the efficiency and controls of your tax department.

Now, take a moment to imagine what tax departments would look like today if tax had been included in the operational revolution that has taken place in the finance department over the last 15 years:

  • Instead of time-consuming, manual tax data collection and departmental tax solutions that silo data and fragment processes, all relevant data in the ERPs, CPM, asset management and all other source systems, including the tax department’s required level of detail would be leveraged to the tax life cycle processes of tax planning, provision, compliance and defense. This is because all financial data needed by tax today, tends to be siloed in various areas of the tax and finance departments and is gathered manually. This would be centralized and subject to the tax life-cycle processes of tax planning, provision, compliance and defense.
  • You would be able to complete your tax returns as soon as you’ve finished your global tax provisions because the provisions are now accurate enough to avoid “return to provision” adjustments.
  • The software would leverage the same rules and data for the provision process, as well as tax planning, return and audit management processes, by legal entity, tax return and year.
  • You would have optimized tax processes across the tax life cycle, a consolidated view of tax data and robust analytical tools. For example, you would have software that streamlines and automates end-to-end scenarios covering effective tax rate planning by legal entity.
  • All of this would be possible because your tax technology would be integrated — leveraging an architectural and data foundation to enable the sharing of common components and a single point of maintenance across all direct/income and indirect/transaction tax applications over the entire tax return life cycle.

Sound like pie in the sky? It’s not. Currently, over 700 companies use an enterprise tax solution to manage global indirect tax, transforming it from an overwhelming calculation and reporting effort to an automated, real-time calculation process that’s seamlessly linked to corporate ERP systems.

The first global enterprise income tax applications will follow a similar pattern. The goal is simple: Build tighter integration between financial and tax data to reduce the effort and operational complexity of managing all aspects of tax functions so that tax professionals can focus on
higher-value planning activities.

Conclusion

Tax performance management (TPM) solutions will continue to evolve over the next several years, so adopting them will involve strategic planning and road-mapping. One thing is certain: different solution providers will take different technical approaches to enabling TPM, so in order to realize the full potential of TPM, you will need to make informed technology decisions.

 Rate this article 5 (excellent) to 1 (poor). Send your responses here.

Bob Norton, CPA, is Vertex’s chief income tax officer and a leading contributor to the company’s global product strategy and vision. In this role he brings more than 25 years of corporate tax, accounting and technology experience from both public accounting and global industry. He sits on the Editorial Advisory Board of Financial Executive magazine and is a member of FEI, the tax Council, AICPA, PICPA and the Association for Computers and taxation.