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Tax Technology Roadmap: The Next Steps in Creating a Strategic Asset

A tax technology strategy will enable a company to align with the company’s business priorities, tax function strategy, and enterprise technology investments.

Todd Bixby, Partner; Tax Technology Practice Leader, PricewaterhouseCoopers and Michael W. Burak, US & Global Industrial Products Tax Leader, PricewaterhouseCoopers (Q1 2014)
When it comes to effectively adopting and enabling tax technology initiatives, where do industrial manufacturing companies and other leading organizations stand? What strategies are businesses employing to help their tax departments not only derive the greatest benefit from available technology, but also actually transform the tax function to drive more value for the organization?

To identify leading practices, baseline technology use, and general challenges in tax technology, PwC and the Manufacturers Alliance for Productivity and Innovation (MAPI) recently surveyed more than 280 companies with a nearly 36 percent response rate to learn:
  • How manufacturing and other companies assess their tax technology environment;
  • What approach tax executives are taking to decide which software to use within the tax department; and
  • How tax departments evaluate satisfaction with their chosen technology products.
Survey respondents said they largely view technology as a key to enhancing quality and increasing efficiencies. Nearly 85 percent said improved technology and integration would increase their tax effectiveness. Surprisingly, though, most respondents — 77 percent — said they do not have a tax technology strategy in place. More than 75 percent said they do not have a dedicated tax technology role within their organization. Additionally, a majority of respondents indicated it was a challenge to take advantage of current enterprise technology.

Why the apparent disconnect? Why are so many companies hesitant to fully embrace tax technology initiatives? Manufacturing companies and other organizations mostly agree on the value of instituting a tax technology strategy, which outlines a company’s plans for implementing and utilizing technology to enable tax operations. A tax technology strategy helps the tax department outline a multi-year roadmap that articulates the projects that need to be undertaken in a prioritized and integrated fashion, along with the value propositions to drive alignment across the company. This allows a tax department to align with the IT budget process and any enterprise programs that might be under way and more effectively leverage enterprise investments in technology. For example, if a financial transformation project or ERP (enterprise resource planning) implementation is being executed, the tax department can take advantage of the functionality to improve the tax operation with very little additional investment. It also enables the tax function to better evaluate its existing tax processes to identify areas for improvement and align the best solutions to support those processes.

Creating and executing a tax technology strategy requires focused resources, with support from key stakeholders, including those in tax, finance/accounting, and IT; a tax technology lead to coordinate data collection, reporting, and technology needs, and directly link with other organizations; and an internal sponsor of the initiative who will disseminate the strategy, win leadership support, and implement the resulting tax technology strategy.

Once a strategy and roadmap has been developed, it becomes a living document that needs to be managed, updated, and assessed regularly to become a rolling view into the tax function, not unlike an IT strategy is reassessed periodically to adjust for shifting priorities.

Companies largely understand the importance of creating strategies around tax technology and pursuing related initiatives. However, many have not made appropriate investments in these five areas that can play an integral role in transforming tax into a strategic business partner within the organization. Which technologies will most positively impact the tax function?
Twenty percent of survey respondents said they experienced either a significant deficiency or a material weakness related to tax within the past three years and said enhanced technology or data would have helped them avoid a significant deficiency. In addition to having a tax technology strategy and roadmap, there are five technologies (most likely to appear in that roadmap) that would most positively impact the tax department’s work, based on the survey findings and PwC’s experience in tax and technology. They are:
  1. Data integration and ERP: Until recently, most of the focus on tax technology has been on implementing tax point solutions such as compliance, provision, or indirect software. Unfortunately, this approach has continued to support an environment with disconnected or siloed solutions void of data or process integration. Additionally, complex spreadsheets are being used to do a tremendous amount of tax calculations and are the de facto standard for reporting. In the end, finance data and systems have not been tax sensitized for the needs of the tax department; thus, significant manual data gathering and reporting needs to be done to get the right level of data to support the tax function.

    These deficiencies drive tax departments to devote significant time and resources to the routine task of gathering data to perform tax-specific functions and having highly experienced tax professionals doing data preparation work, instead of true tax and tax planning work. With the resurgence of financial transformation projects, including new implementations and upgrades of ERP systems, there is an opportunity for tax departments to leverage these investments to make improvements in the tax function.

    While 85 percent of respondents said they leverage an ERP solution, they report that it is frequently not being leveraged to the fullest extent for tax. Most companies said improving “tax-sensitive” data would improve the efficiency and effectiveness of the tax provision and compliance software. Consequently, data integration and tax-sensitizing data are viewed as areas that can make the greatest positive impact on tax, and the trend is to focus on tax data sensitization and integration across tax/finance functions.

    While dedicated tax technology tools remain the primary vehicles for provision and compliance, more than 62 percent of respondents said they continue to use spreadsheets as their provision tool. Better data and solution integration would drive improvements in provision and compliance efficiency, according to 85 percent of respondents. This finding further supports PwC’s experience that automating the data feed into a provision or compliance tool from a common data platform significantly reduces the data load process and related variances and errors.
  2. Document management: How can a company more efficiently manage its files and minimize time spent managing data and documentation — a task that seems to take an inordinate amount of time within the tax function? One way companies are improving in this area is by establishing centralized document management solutions to store and manage critical tax documents, including work papers and deliverables.

    An overwhelming majority of respondents — more than 90 percent — reported their document management relies on shared drives and email. Most said implementing a document management system is a high priority in the tax roadmap, and more than half have a tax portal or plan to implement one that could be leveraged for document management.

    By taking such an approach, an organization can drive improved quality of information, by way of faster access and increased consistency. This strategy can result in improved quality of the data underlying tax work products, increased retention of institutional knowledge, easier leverage of nontraditional resource models (shared services, remote, etc.), and improved support of other tax functions, such as controversy. A reduction in collection and manipulation efforts can improve staff efficiency — freeing employees to perform higher-value, tax-specific tasks.
  3. Workflow: The automation of tax processes — flexible workflows, notifications, electronic signoffs, and status tracking — is a chief component of effective process management. By documenting tax processes, identifying those needed to participate in each task, and instituting a standard approach to triggering and managing the handoffs, a company can more effectively carry out tax activities. Among the benefits of workflow are improved internal controls, a clear definition of how to perform critical tax processes, management of dependencies on non-tax stakeholders (accounting and third-party tax providers), minimized recurring rework, and increased collaboration and sharing of tax documents across tax and finance.

    More than 25 percent of respondents said they have workflow tools, but only 9 percent use those tools. That leaves tax departments much room for improvement when it comes to enhancing process and workflow management and potentially decreasing process execution time. Integrating workflow and document management solutions can create even more efficiencies.
  4. Reporting and forecasting tools: Tax reporting and forecasting capabilities enable actionable dashboards and reports that help tax management identify critical trends and cycles that may trigger change in business process or identify new insights into tax strategy. This makes tax data a strategic information asset and allows tax to become a more integrated business partner within the organization. Despite this opportunity, only a small minority of survey respondents reported spending significant time on data analysis — likely due to greater focus on data gathering and segregated processes.

    Using reporting and forecasting tools in a common, integrated tax data environment, a company can improve analytics and KPI (key performance indicator) analysis. It is able to measure specific tax items for filing and comparison purposes as well as measure the cross-functional value of the tax function. Additionally, it can produce more advanced analytics, such as demonstrating the cost saved by using an optimized transfer pricing strategy rather than maintaining the status quo. An organization can also improve its forecasting accuracy and usefulness by improving access to information and spending less time collecting and manipulating that information. Additionally, focus on increasing visible value can lead to greater staff satisfaction, which can in turn improve staff retention.
  5. Data warehouse/data mart applications: Many companies still have disparate places where they store data and tax calculations. This can lead to inefficiencies within the tax function. Creating a solution to centralize all relevant tax data — a tax data warehouse or data mart, for example — is sometimes necessary to achieve the efficiencies noted earlier. Additionally, software, hardware, and other enterprise programs can often be leveraged to accommodate this need. Options such as these allow for more efficient data sharing, and faster access and increased consistency, which can improve the quality of the data underlying tax work products.
In Sum
Companies largely understand the importance of creating strategies around tax technology and pursuing related initiatives. However, many have not made appropriate investments in these five areas that can play an integral role in transforming tax into a strategic business partner within the organization. As such, tax leadership should engage with company leadership and commit to the next steps in the evolution of its tax function and lay out a three- to five-year tax technology roadmap that aligns the business priorities, the tax function strategy, and the enterprise technology investments.
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