Corporate Tax Management

Corporate Tax Management

Current trends and solutions

6 May 2014

Mark D. Schutzman

Partner – Tax Performance Advisory EY

[email protected] [email protected]

Agenda

I Historical perspective

Th b i i t f t d ’ t f ti 4

• The business environment for today’s tax function 4 II Current trends

• Finance transformation

• Financial reporting transparency / granularityp g p y g y • ERP implementation / upgrade

• Spreadsheet innovation • Content management

• Tax risk management framework

7 g

• Shared services • Transfer pricing III Technology & data

• An integrated tax technology vision 16

• An integrated tax technology vision

Historical perspective

Historical perspective

The business environment for today’s Tax function

Tax Function Trends

► Internal control deficiencies have stabilized

A decade of steadily increasing regulatory requirements

 Sox 404 – execution evidence

► Increasing pressure to prove controls execution ► Increasing need to forecast and model scenario’s

 Sox 404 execution evidence

 FIN 48 / IRS UTP disclosure

 e-filing

► Increasing tax audit burden (IRS, states, non US

jurisdictions)

► Data quality and access challenges

 FATCA

 Short term business traveler

 Dividend repatriation

► Ever decreasing financial close cycle time

► Low level use of financial reporting systems for tax

data

 Reportable transactions

 Transfer pricing audits

 Tangible property regs

► Well established protocol - audit committee

presentation(s)

► Pressure to manage cost

 Tangible property regs

 Affordable Care Act

 Shorter financial close cycles

Page 4

► Pressure to manage cost

 Pending country by country reporting

Historical perspective

The business environment for today’s Tax function

 Steadily increasing regulatory

requirements = Tax _{work to do}functions have more

= you need to get it right, no surprises

 Tax accounting risk tolerance remains low down

= you are spending more time on controversy, audit defense and tax policy

t d ith t ti

 Tax jurisdictions are increasingly aggressive in pursuit of revenue

 = pressure to do more with static

resources and preserve critical institutional knowledge

 Personnel: flat headcount coupled with looming retirements and inadequate succession plans

Convergence of these events has led many companies to focus on ways to improve the operational effectiveness of the tax function

Current trends

Current trends

Risks

Opportunities

►

Tax data sources will be

disrupted

►

Reduce time spent

collecting and reconciling

1. State apportionment 2. Indirect tax

3. Chart of accounts

data

►

Reinvest efficiencies in:

1 Addressing regulatory reporting 4. Legal entity trial balances

►

Can you afford to be left

behind organizational

1. Addressing regulatory reporting

requirements

2. Integrating an acquired company 3. Model impact of new product /

behind organizational

improvement?

►

Tax is easily forgotten

p p

service or geographic expansion

4. Audit currency 5. Tax policy

Current trends

Financial reporting transparency and granularity

If you are experiencing …

Operations oriented solutions …

►

Requests for varying

consolidations, financial

►

Devote more people to the

task (not sustainable)

roll-up’s

country specific disregarding legal entity, regulated entities)

M

d t il i

t f

►

Improve your reporting

agility by:

1. Ensure controllers capture the

►

More details in support of

tax computations

►

Surfacing from:

1. Ensure controllers capture the

requisite level of detail

2. Develop skills to self-service

reports from ERP, Essbase, SAP

►

Surfacing from:

1. Tax auditors

2. Independent auditors

3 Industry regulatory agencies

reports from ERP, Essbase, SAP BW, Cognos, TM1, Oracle

SmartView, Business Objects, QlikView and other BI apps

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3. Industry regulatory agencies

Current trends

ERP implementation and upgrade

Risks

Opportunities

►

Falling behind in areas

where you have made

►

At a minimum - don’t lose

ground

progress:

1. Preserving the legal entity

reporting capability

►

Influence the COA design and

business rules

I

t t

ti

t

2. State apportionment data capture 3. Indirect tax engine integration 4. Fixed asset module

►

Improve state apportionment

data collection processes

►

Tax depreciation efficiencies

5. Chart of Accounts changes 6. Thin ledger strategy leading to

disruption of data sources

►

a dep ec a o e c e c es

Leverage the ERP ecosystem

Current trends

Typical spreadsheet challenges

Innovation trends

► Single user at any point in time

creating process bottlenecks

► Database back-end with Excel front

end (e.g., Noetix, Vena, SmartView)

► Information / data not easily shared ► Control challenges: version, access

K d d

► Cloud versions that permit sharing,

simultaneous use

► Improved data management ► Key-person dependency

► Performance gaps (e.g., linked

spreadsheets, linked cells,

► Improved data management

capability (e.g., PowerPivot)

► Tax software as a data mart with

bi-hardcoded cells)

► Spreadsheets inappropriately used

as data management tools

directional data transfer to/from Excel

► MS SharePoint integration Page 10

g _{► MS SharePoint integration}

Current trends

Definition

Trends and tools

The structured organization,

access and distribution of

►

Document management system

adoption is in high gear

knowledge documents and

their associated workflow.

Typical components:

►

Integrating workflow with

document management is a

powerful combination

Typical components:

Collaboration theme:

A. Portal

►

SOX controls execution

evidence

B. Dashboard

C. Document management D. Process workflow

►

Data visualization

Current trends

Tax risk management framework

► Regulator inquiries into the audit of SOX tax controls. Example: How do you really know, Tax VP,

that you’ve captured all uncertain positions and have them appropriately valued?

The issue

► Increasingly, tax functions are developing so-called Tax Risk Frameworks. Content examples:

The response

► Embed “tax risk thinking” in all aspects of the tax life cycle

► Embed tax risk thinking in all aspects of the tax life cycle.

► Ensure protocols and communications elevate issues.

► Implement processes to understand global accounting implications of tax disputes.

► Establish governance to understand the implications of changing business models and transactions.

► Establish processes to obtain and retain the right talent to deal with controversy and risk management

► Establish processes to obtain and retain the right talent to deal with controversy and risk management.

► Identify documentation that will be viewed by multiple tax administrators.

► Consistently maintain timely inventory of business decisions and transactions that have controversy potential.

► Define and document procedures and processes for handling a tax audit.

► C d t f ll l b l t f t di t b d k it i

► Conduct a full global assessment of current disputes based on key criterion.

► Create and document processes to manage incoming inquiries from tax administrations.

► Assess the implications of actions on other jurisdictions, entities, and years.

► Determine if you have appropriate processes and resources in place for managing controversies.

Current trends

Current state

Impact on Tax function

►

A well established trend that’s

here to stay – with variations for

‘near-shore’ and ‘on-shore’

►

Relatively slow adoption with

several notable success stories

near shore and on shore

models

Labor arbitrage benefits eroding

►

Typical processes to migrate:

1. Sales/Use tax compliance 2 Premium tax returns

►

Labor arbitrage benefits eroding

in first wave locations, spawning

SSC presence in new countries

2. Premium tax returns 3. Fixed assets

4. Inactive Fed/State pro-forma returns

►

Turnover of SSC personnel

remains a challenge

►

Concern: lost opportunity to train

Current trends

 Intercompany accounting executed ► Expanding resources focused on

The challenges

Several trends

 Intercompany accounting executed

poorly

 Segmented P/L’s difficult or impossible to

obtain

► Expanding resources focused on

transfer pricing and the TP audits

► Multi-function collaboration necessary to  Global cost allocations are inefficiently

managed with complex spreadsheets

 Booking transfer pricing via quarter or

get it right (e.g., finance, controllers, tax, supply chain, legal)

► Emerging technology solutions that go

year-end journal entries creates risk for material surprises

 Spreadsheets don’t enable modeling the

impact of varying TP profit split or cost

► Emerging technology solutions that go

beyond TP compliance to TP management

impact of varying TP profit split or cost allocation methods

 Greater reporting transparency: 1) High level of global TP audits

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) g g

2) OECD BEPS initiative

Process Management Technology a web based portal

Tax technology and embedded processes

Process Management Technology - a web based portal

Payroll Accounting Tax Sensitized Upstream Systems Securities SEC Reporting: 10-K, 10-Q, Tax Footnote Web enabled tax packages Document Management Workflow Management Legal Entity Manager Reporting Equity Regulatory Reporting Data management / d t lit t l Securities Systems

Finance source systems

Tax Provision Technology

Tax applications

Legal Entity / Trial Bal Legal Entity / Trial Bal

Tax Data Mart

Automated data collection

Inventory

Audit Ready Tax Returns – Fed and

State Tax returns Equity Compensation R&D systems Return to Provision