Technology

Tax Technology Outlook for 2016


by FEI Daily Staff

For many forward-thinking companies, 2015 was the year they began to recognize the value that mining data and insight from their tax functions can provide beyond a traditional focus on compliance activities.

Looking ahead, we see many opportunities for tax departments to add even more value across the entire enterprise. In fact, 2016 may be the year more companies begin breaking down corporate silos and unlocking the full power of their tax operations — in part by investing strategically in technology solutions that help put their tax departments on par with their finance operations, and by integrating tax into their enterprise information management systems.

Adopting an enterprise-wide mindset toward tax technology is becoming increasingly important in a constantly shifting regulatory landscape, and as the amount of data that needs to be analyzed grows year after year. In response, finance executives and tax directors are looking to their tax software and enterprise technology vendors for help, and the vendors are responding.

In this evolving environment, how can you help assure that you are enhancing value for your organization? We suggest the following resolutions for 2016:

Resolution #1: Demand greater integration of data systems and applications to promote efficiency and capitalize on the information locked in big data.

Many tax departments still grapple with spreadsheets, paper statements and other unstructured data as they go through the compliance process. But regulatory demands and executives’ hunger for information that can help them run their businesses more effectively are driving the adoption of technology solutions to automate the data collection and review process.

As tax jurisdictions require enhanced transparency and look for increased tax revenue, compliance with domestic and global regulations involves processing large amounts of data that may be stretching the limits of traditional spreadsheet-based systems. The upcoming country-by-country reporting requirements under the Organization for Economic Co-operation and Development (OECD)’s Base Erosion and Profit Shifting (BEPS) Action Item 13 guidelines is just one example of the type of enhanced reporting that could become the norm over the next few years.

But we believe that the even more exciting prospect for tax departments — the key to unlocking real value — lies in tackling the automation challenge, because it opens up the opportunity for financial executives to proactively use the information within tax compliance filings and reporting requirements to help improve operations across the entire enterprise. For example, an automated system can tap into tax-return data to identify not only tax audit risks, but also opportunities to enhance tax planning.

To do this, data input needs to be automated and pulled from disparate systems throughout the company. The transition to increased automation will move away from standalone solutions and require close attention to data governance to help ensure the integrity of the information that populates systems. Integrating your tax department information into your company’s existing business intelligence (BI) solution can be a major step forward in this area. BI tools can provide the needed functionality to manage and report on all the tax function’s operations, ranging from transfer pricing to automating provision/compliance calculations. Here are just two examples:

• Operationalizing transfer pricing policies can bring significant value to your company in terms of compliance reporting and enhanced value. But accomplishing this goal requires gathering data from multiple sources, which is often calculated at the transactional level. An automated system can help assure more accurate reporting and better management. Tangible and intangible transfer pricing scenarios that can be addressed with a BI solution include cost-plus, re-sale minus, operating margin, and service costs. An effective solution enables the separate legal entity financials to be extended for calculation analysis monitoring and reporting, which benefits your supply chain management operations as well as the tax department.

• In the same way, tax compliance and reporting rely on information from multiple systems that may not be able to generate data that is “tax sensitized” for the tax department, thus requiring manual reconciliations and manipulations. Governance frameworks that include roles and responsibilities, controls, accountability and validation are needed to foster accuracy and timeliness. Automated input can significantly reduce, if not eliminate entirely, manual processes. The result will be improved reporting for your tax department and your overall financial operations. BI tools can significantly reduce the time spent calculating provision results by automating book-to-tax basis differences. It can create a clear audit trail and variance reports that can enhance efficient review between compliance and provision. Your provision/compliance teams could then spend more time analyzing variances from period-to-period and less time running and populating reports.

As these and other examples illustrate, the use of BI tools can strengthen controls, help mitigate risk, reduce time spent on reconciliations, and potentially eliminate the need for collecting information manually — enabling tax departments to focus on analysis and effective tax management.

Most important, BI tools offer automation functions that enable businesses to extract, transform, and read and write data back to a central database. As a result, companies can reduce compliance costs, facilitate transparency, improve financial reporting accuracy and timeliness, and mitigate risks.

If you can see the benefits of this type of integrated reporting system for your organization, resolve to explore how your organization can automate tax processes. Moreover, give thought to which tax processes could most benefit from such an approach and partner with your information technology function to develop a solution that will meet your needs.

Resolution #2: Spend time exploring how analytics/visualization can support your teams and how it can be integrated into your tax department.

As you likely know from enterprise solutions you already have in place, much of the time spent in data analysis goes into preparing the data from different sources before it can be analyzed. Traditional tax solutions alone typically can’t manage and process the data to provide meaningful analysis, no matter the size of the company.

During 2016, take a look at your current data architecture and analysis models and make sure tax data is included. If it isn’t currently part of your models, learn how you can add it. This area is evolving quickly, and many companies and service providers are developing various approaches to capture the potential value of enhanced data and analytics.

Begin the dialogue with your peers and advisors. That step can likely help your entire organization operate more effectively and efficiently. The benefits of improved efficiency within your tax operations can be significant. Models using advanced algorithms and machine-learning techniques are not only able to help detect anomalies, but can also predict where they may arise in the future. For instance, this type of enhanced, automated modeling can help segment and drill-down on profit and loss on operational transfer pricing transactions based on product, service and function. The results can then be used for month-to-month and historic benchmarking.

With access to the right data, the tax department can help identify tax-savings opportunities more easily and, even more importantly, identify and mitigate risks more quickly. For example, an analytics and visualization model could quickly analyze research & development expenses to determine if the appropriate credit is being used. On the flip side, the data can also help identify whether the amount being claimed is inconsistent with previous amounts.

Remember that a picture is worth a thousand words. Data visualization tools such as heat maps, 3-D bubble plots and cluster charts can capture information more easily and help you find outliers more quickly. These tools can give financial executives the ability to slice and dice large amounts of data and ultimately isolate relevant subsets to drive business decision-making.

Let’s consider a real-world example. Undertaking a manual review of your company’s accounting methods and credits projects to determine whether expenditures are currently deductible or capitalized can require plowing through high volumes of transactional data — and the time and resources allocated may not generate any actionable information. Using automated data mining instead can quickly yield the information your teams need to help maximize the value to your organization.

“Dashboards” have become a must-have for almost every business professional today for a quick, yet thorough view on overall operational management. Explore how your providers can help link your tax department into dashboards as well. Tools exist that can give users the power to create dashboards of tax return deadlines, list levels of review and determine where in the review process the return resides.

If your company, like most organizations today, is focused on taking a risk-based approach to your overall financial management, utilizing data visualizations can help reveal where tax work is in the lifecycle process or manage the work pipeline. Its impact on planning can also be significant. With a few clicks of a mouse, it is possible to segment the data by geographic location to “vary” apportionment percentages and or tax rate to see the overall impact on the company’s effective tax rate.

Resolution #3: Consider using the cloud for tax data and management We’ve seen that companies of all sizes are becoming increasingly comfortable with the ability of cloud-based solutions to safeguard an enterprise’s financial information. Furthermore, the cloud is making storage and computing power easier to access and more cost-effective for handling large amounts of data and running complex models than expensive, on-premise alternatives. All this speaks to putting an exploration of the cloud’s role in your tax department on your 2016 to-do list.

This is especially true given many companies’ focus on reducing IT infrastructure cost of ownership, including development, deployment and maintenance. IT departments may be stretched and lack capacity to support and maintain tax applications that require regular updates to comply with global regulations. With cloud-based services from third-party tax providers, companies with limited IT capacity can obtain IT products and services in the tax department without the need to be responsible for updating software/support. Most of these service offerings are automatically updated by vendors, provide data storage in a safe and secure environment, and can be accessed at any location around the globe.

As companies continue to drive a greater focus on cybersecurity and cost-effectiveness, we expect vendors will develop programs and solutions that meet these needs, and that we will start to see a rise in versatility.

Resolution #4: Embrace a mobile strategy for tax that incorporates stringent security Mobile technologies have reshaped our expectations for speed, use and content-driven interfaces both outside and inside business. We encourage you to embrace the adoption of mobile applications to increase employee engagement and satisfaction -- while remembering to maintain a multi-channel approach to desktops for more traditional tax professionals. The time has passed to view mobile as a competitive edge; now the conversation needs to center around what needs to be done to keep up.

The quick response time from mobile apps is embraced by millennials, who often may trust mobile more than desktop experiences. This “need for speed” is driving higher expectations from senior executives to quickly retrieve business insights with anywhere/anytime access to tax data. For example, it’s never too early to start thinking about how to give your tax professionals the ability to access workflow approvals or deadline notifications from their personal and professional mobile devices, be they tablets, phones, or even wearables.

As your company continues to incorporate mobile across your operations, work with your providers of tax and enterprise solutions to consider what needs to be done to safeguard and protect data. Security can be an issue for all companies, but more so for those without a robust mobile strategy. As more data is accessed through mobile devices, new vectors for data breaches and hackers open up. Your tax and finance departments need to have a strategy to protect the data their professionals work with each day. Keeping mobile and mobile security top of mind when you discuss new software solutions is critical.

Resolution #5: Be prepared for the continued evolution of the tax application market Enterprise technology vendors are beginning to venture into the tax software market. While some of the hottest trends could be seen as tax professionals leveraging new enterprise technology capability, don’t dismiss the value of software primarily aimed at the tax function that can be integrated into the larger organization.

Tax application vendors aren’t standing still. They are finding ways to be more enterprise focused. It is likely these vendors will continue to go further “upstream” and provide an increased focus on data gathering and management. One possibility is an enterprise data warehouse approach to data management that could then be integrated into the enterprise’s larger data efforts. In addition, they may go “downstream” and move toward an open architecture to facilitate enhanced reporting and data and analytics enterprise-wide.

Ultimately, finance and tax department executives will be able to consider each vendor’s architectural approach to the underlying technology and how well solutions integrate enterprise-wide.

Tax Technology as Part of the Enterprise-Wide Mindset We think there’s a key to succeeding with your tax technology resolutions: communication. As a financial leader in your company, you’re in a unique position to foster conversations across your organization between your tax and IT departments, between your tax and finance departments, and with your tax software vendors.

Ensure that these key company stakeholders are familiar with your tax function and how it operates. Review what data is being collected and what other streams of financial information might be worth tapping into to benefit the entire organization. Once your tax department is armed with analytics and visualization tools, raise the bar and challenge it when it comes to monthly or quarterly reporting. You’ll help engage your teams and improve your oversight at the same time.

Think about how far cloud and mobile applications have come and what they can do for your organization in terms of collaboration and employee engagement. Ensuring a stringent security framework is incorporated into your overall strategy is key to safeguarding financial and other confidential information, and to keeping operations as seamless as possible.

Evaluate current tax and enterprise technology vendors and don’t be afraid to ask how their tools can be integrated into the larger organization. To help get the most from your investment, ensure the tax technology tools being used are scalable and evaluate how they integrate into the enterprises’ larger data strategy.

Resolutions aren’t meant to be achieved overnight. But we believe that these five areas are worthy of your time and attention throughout 2016 because they are where you’ll likely see the most activity and where your organization may gain the most benefit and value.

Brad Brown (bradbrown@kpmg.com) is the chief information officer for the Tax practice of KPMG LLP; he is based in Los Angeles. Scott Weisbecker (sfweisbecker@kpmg.com) is a partner and the national service line leader for the Tax Transformation and Technology practice of KPMG LLP; he is based in New York City.

This article represents the views of the authors only, and does not necessarily represent the views or professional advice of KPMG LLP. The information contained herein is of a general nature and based on authorities that are subject to change. Applicability of the information to specific situations should be determined through consultation with your tax advisor. KPMG LLP, the audit, tax and advisory firm (www.kpmg.com/us), is the U.S. member firm of KPMG International Cooperative (“KPMG International”).  KPMG International’s member firms have 162,000 professionals, including more than 9,000 partners, in 155 countries.

Read more: http://www.financialexecutives.org/KenticoCMS/Financial-Executive-Magazine/2015_04/Tex-Technology-Outlook-for-2016.aspx#ixzz3tFlZOsbN