Taxes are a significant expense for most companies and potentially a significant compliance issue. However, one of the problems with managing corporate taxes is that only a relative handful of people in a company actually deal with them. Since this part of the business is so specialized, companies routinely fail to use information technology to manage their taxes more effectively. People in the tax department don’t know what’s possible and people in the IT department don’t know what the tax people need.

One piece of information technology we assert companies must have is a central tax data repository of record. Its purpose is to capture the data from the books of original record, retaining all of the item details so that, for example, the legal entity information is preserved. The tax books ought to be kept separate from the rest of the accounting and reporting systems because of the need to maintain small but extremely important differences in detail (again, for example, legal entity versus management organization perspective) Moreover, almost all ERP systems are not set up to facilitate tax calculations - a tax data repository can be.

The need to preserve tax records for a given period and the equally important necessity of eliminating these records when the retention period expires is another reason for a separate data warehouse. And, good data governance can be best preserved by limiting access to a small group of tax professionals and maintaining a separate audit trail for tax-related items.

Our research shows that tax departments are heavy users of spreadsheets for data collection, analysis and reporting. Yet, spreadsheets are notoriously error-prone and difficult to audit effectively. Moreover, they are poorly equipped to handle more than a few dimensions, which means that it is time consuming and difficult to perform what-if analyses to assess the potential tax impact of business reorganizations, timing options and so forth. Today, there are applications and tools that enable corporations to eat their cake and have it, too: they have a spreadsheet interface but the data is stored and manipulated in a multidimensional database.

Managing taxes can and should be a lot less time-consuming and tedious. Tax professionals should focus their time and effort on using their insight and knowledge to minimize or optimize their company’s tax expense. One important way they can do this is by having the right IT tools – a central tax data repository as well as analysis and reporting tools.

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Regards,

Robert D. Kugel CFA - SVP Research