One of the new products that Infor announced at its recent Inforum user conference (which I covered here) is Local.ly, which is designed to facilitate localization of its applications (that is, adapting them for languages, units of measure, statutory requirements, customary processes and other specific features of the places where they will be used). Local.ly is scheduled to be released in the third quarter of this year. Infor points out that among other tasks the software can be used to facilitate tax provisioning outside a corporation’s home country, thereby reducing the costs associated with determining tax liabilities. I think it also can be useful in calculating income taxes everywhere, especially for larger customers of Infor that have even a moderately complex corporate structure. Here’s how. The entity structure of a company affects its tax management processes. Our benchmark research finds that among companies with 100 or more employees, 43 percent have relatively complicated corporate structures, which is to say they have some combination of many legal entities and complex ownership configuration. This general finding masks a substantial disparity based on size. Relatively few (27%) midsize companies (those with between 100 and 999 employees) have complex corporate structures, large companies (those with between 1,000 and 9,999 employees) are split between simple and complex structures (56% and 44%, respectively), and almost all very large corporations (those with 10,000 or more employees; 88%) are overwhelmingly complex in their structure.
Legal structure complexity has an impact on how companies calculate their taxes because few companies configure their ERP systems in a manner that makes them inherently “tax-aware.” Within ERP systems, account structures most often follow the organizational structure of the business. This may be largely in line with the legal entity structure of the corporation, but the difference between the two is often enough to require tax departments to spend time (often considerable amounts) rejiggering the statutory accounting data to provision their income taxes. Local.ly offers the potential for finance or tax departments to automate the translation process for all tax jurisdictions. It could enable them to save time as well as ensure accuracy and promote transparency in tax calculations. The latter two benefits would also reduce accounting audit hours and the cost of tax defense in the event of state or federal audits in the U.S.
Local.ly is not yet generally available and therefore I can’t be certain that what I am describing is feasible. Nonetheless, I recommend that when it becomes available CFOs and heads of tax departments that use Infor’s ERP systems investigate whether it will be able to simplify both their domestic and international tax provisioning.
Robert Kugel – SVP Research