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Summary
Despite repeated declarations of “increased transparency,” taxes remain an arcane subject in companies the world over, truly understood only by specialists who have a deep understanding of the complexities and the sometimes vast differences between what makes sense and what the tax code says you ought to do. How then is a merely mortal business executive to understand how to cope with tax data and its processing? Our advice: Taxes are, indeed, a parallel world and should be treated as such by your information technology systems. After all, corporate ERP and management reporting systems are configured to run the business, not pay the taxes. Too often highly paid tax specialists spend way too much time working around this fact, which winds up costing companies too much. Ventana Research asserts that companies need to adopt a tax information management approach, which includes creating a tax repository of record, in order to be able to manage and store their data in a way that promotes internal efficiency, reduces the risk of fines and penalties and enhances compliance.

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Taxes are a significant expense for most companies and potentially a significant compliance issue. Despite this, though, only a relative handful of people in a company actually deal with corporate taxes. Since this part of the business is so specialized, companies routinely fail to use information technology to manage their taxes 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 companies must have is a central tax data repository of record, sometimes called a tax data mart or tax data warehouse. 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. Moreover, almost no ERP systems are set up to facilitate tax calculations, while a tax data repository can be.

Another argument for a separate data warehouse is the need to preserve tax records for a given period and the equally important need to eliminate these records when the retention period expires. And good data governance argues for limiting access to this data 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, applications and tools are available 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.

Assessment
Managing taxes can and should be a lot less time-consuming and tedious than it is. Tax professionals should focus their time and effort on using their insight and knowledge to minimize or optimize their company’s tax expense, not on data manipulation tactics. One important way they can do this is by adopting tax information management and ensuring that they have the right IT tools: a central tax data repository, sometimes called a data mart or data warehouse, as well as analysis and reporting tools. Establishing a data foundation for tax information management can make it possible to provide the needed system of record as well as a method to integrate other applications to be able to support financial performance management processes more easily.