Accounting

Optimizing Corporate Tax Reporting and Management

With changes to global tax requirements and growing data challenges, financial executives need to understand that the “old way” of doing things is no longer adequate as they work to improve corporate tax reporting.

Varying regional and country tax regulations, compliance mandates and data collection complexities translates to big challenges for financial executives. FEI Daily spoke with Oracle’s Hari Sankar, group vice president of enterprise performance management , and Marc Seewald, senior director of product management, about the steps CFOs, tax professionals and controllers can take to manage their tax reporting more effectively.

FEI Daily: What are the biggest corporate taxation challenges for finance professionals today?

Hari Sankar: There are two major challenges finance professional face with respect to financial reporting of corporate taxation. The first is process integrity and efficiency. As enterprises and the economy as a whole become more global, the effort needed to accurately and efficiently calculate corporate tax liability becomes increasingly difficult.

Corporate income tax is typically a very material number, and is often not calculated within source financial systems. Instead of having corporate tax reporting integrated with the financial reporting process, many companies still rely on spreadsheets or stand-alone tax software to calculate corporate income tax. This results in bottlenecks during the financial close, and also results in a lack of transparency between financial reporting and tax reporting.

The second is reputational risk – corporate taxation is no longer an afterthought, but rather front-page news. The recent $14.5 billion fine levied by the EU on Apple and the recent scrutiny on tax inversions highlight that taxation must be a board-level consideration. Globalization is creating a competitive environment for tax revenue authorities around the world, such as the IRS in the U.S. and HMRC in the U.K. Every country is competing to make sure that corporations are paying their ‘fair share’.

Furthermore, the interaction of each country’s tax rules is not always clear. Financial reporting of corporate taxation must be very transparent, like a clear audit trail between financial numbers and tax numbers. Offline spreadsheets and stand-alone tax software are no longer adequate. Tax authorities are demanding greater transparency between financial results and corporate income tax. This is highlighted by recent increases in regulation such as the OECD’s action plan on “Base Erosion and Profit Shifting,” which has resulted in a new disclosure requirement known as ‘Country-by-country reporting’ (CbCR). Some countries are taking this step further by introducing requirements such as SAF-T (standard audit file).

If companies don’t want their name in the news for corporate taxation, they should have very clear and transparent financial reporting of corporate taxation. Being able to clearly defend tax positions with tax authorities is the first step to making sure that the company’s name is not splashed across the headlines of financial newspapers.

FEI Daily: What are the challenges specific to global executives?

Sankar: The primary challenge is to create a financial reporting process that maintains transparency between financial reporting, management reporting and tax reporting. Most executives understand the need to integrate financial reporting with management reporting. However, many executives may not fully appreciate the tax reporting component. This is somewhat forgivable, given the more recent global focus on taxation and the new regulatory requirements. Because of this, best practices around tax reporting are still emerging. But, moving forward, financial executives need to understand that the “old way” of doing things is no longer adequate, and there are reasonable steps that can be taken to improve corporate tax reporting.

FEI Daily: What are the regulations executives need to focus on in 2017?

Sankar: Country-by-country Reporting and SAF-T may be the drivers for change. However, corporate tax reporting should be considered holistically. This includes the quarterly and annual corporate tax provision, as well as all tax reporting coming from financial systems.

FEI Daily: How can organizations best prepare for new tax requirements?
Marc Seewald: Financial reporting should be augmented to address corporate tax at the source financial system level, instead of spreadsheets and stand-alone tax systems. While this is no small effort, the timing for this could be perfect. Many companies are undertaking finance transformations as they move enterprise financial systems from traditional on-premises deployments to cloud-based systems. Finance transformations are the perfect time to evaluate the requirements for corporate tax reporting. If done proactively, tax reporting can become seamless with the broader financial reporting process.

FEI Daily: Do most organizations have the tools to meet the new requirements?
Seewald: Most organizations still rely too heavily on spreadsheets to connect the tax and financial reporting.

It varies greatly based on the fact pattern at each company. However, significant benefits can be achieved with a relatively minor investment. Software can be adopted very affordably. However, perhaps the more important question is, “What will it cost if the company chooses to ‘do nothing’?”