Leveraging Data to Drive Strategic Decision-Making in Tax
IMGCAP(1)]As access to larger amounts of information on corporate business operations and transparency into tax calculations increase, tax departments have the opportunity to function more strategically if they seize it.
In fact, for many tax departments today, this is becoming a requirement. Operating more strategically challenges teams to go beyond meeting compliance regulations by leveraging the swaths of data to gather in-depth insight into various tax scenarios to guide decision-making and better respond to an ever-changing regulatory environment. While having the potential to add more value to corporations by operating more strategically, many tax departments don’t have the technology to conduct sophisticated analysis or even integrate the right tax data into their existing systems.
The large amounts of data strain traditional manual methodologies and software programs used by tax teams that may not be robust enough to identify, format and process appropriate data sets for meaningful analysis. Many tax departments still utilize spreadsheets, paper statements, and email authorizations. None of this information is integrated into a master database.
Content management systems like Microsoft SharePoint can help streamline these processes but still lack some specific tax functionality. These systems help the tax department automate requests and calendars, digitally store documents, efficiently share information and ensure version control. But that’s not enough.
Specialized tax software is mission-critical in order to consolidate, organize, review and analyze data generated from all of the different sources within a corporation globally.
Raw data comes into the tax department from many places and disparate systems from all across an enterprise, and the data sets are often large. To be fully leveraged, the data needs to be consolidated and properly organized for fast, easy retrieval in a coherent manner. So, in addition to tax software, companies may also require a data manipulation or management tool to automate the transfer of data from various source systems into tax-specific applications. Combined, tax departments can finally get the most out of “big data” and start operating as a truly strategic asset to the organization.
Not Just Tax Automation, Tax Analytics
Data management software is specifically designed to retrieve, format and clean “big data” so that it is relevant to the unique needs of tax. For example, in order to address local, federal and international tax policies with more demanding disclosure requirements, tax departments need to provide greater transparency into data. Therefore, the tax team must clean and scrub it to align with current tax laws and compliance requirements. Also, it must be available in formats that can be fed into tax systems (which tend to be disjointed from financial systems). Data management software can support these types of activities and more.
Once cleaned and uniformly formatted, data should be aggregated and stored in a master database that links all critical and dynamic data points into one point of reference so it can be cross-referenced and queried to create subsets of data for analysis. Ultimately, the goal is to generate insights from the data that could lead to improved results from tax and that can help guide long-term decisions.
Out of the Box, and Into a Rut
As every company’s tax situation is different, one highly structured, out-of-the box software solution will likely not serve all tax data management needs. Often, it takes a hybrid or multiple, integrated technologies: a data management solution and an application specifically designed for process management. For example, some advanced data management solutions can be leveraged with existing business intelligence (BI) tools.
Using rules and logic, BI software supports benchmarking activities, strategic analysis and business performance management. Rather than just “slice and dice” information, these tools retrieve, analyze and report data, enabling tax teams to better manage and gain insights on operations. Using these modern tools, the tax department can conduct risk analysis, benchmarks of tax profiles, and “what if” scenarios across different tax disciplines to support decision making.
Becoming a Strategic Business Asset
Tax departments are necessary today in business, but are rarely provided with the resources and information to be more valuable—a true strategic asset with the ability to influence crucial financial decisions and business strategy. Technology is the answer.
Modern, integrated data management solutions can empower the tax department to better use their data, understand impacts of ever-changing business environments, and more effectively meet new compliance demands. With these rich insights, tax departments can also reduce costly errors while identifying important trends and anomalies, plus evaluate various scenarios for their impact on tax liabilities.
Consider the ever-changing landscape of bonus depreciation regulations in the U.S., for example. Detailed transparency into the calculation and the ability to adjust it with the necessary flexibility is critical. From the onset of considering whether to elect bonus depreciation all the way through to understanding the impact it would have if regulatory authorities choose not to extend bonus depreciation, running different scenarios of calculations to determine their impact allows the tax department to become more proactive.
In another scenario, corporations generating intercompany sales by doing business with their foreign affiliates might place a heavy data burden on tax departments that need to analyze and report on the transactions for compliance purposes.
As more corporations look to the tax department to play a greater role in strategic business decisions, tax departments must be equipped with the right technology that provides efficient access to “big data” and advanced tax management processes and analytic capabilities to properly measure, report and analyze tax activities. With the right tools and staff, tax departments can expand their scope of responsibility beyond traditional tax activities to include forecasting, business analytics, and scenario building that supports global business activities.
Ryan Lynch is director of Global Tax Management’s Tax Automation Services Group. He helps clients realize technology-related process improvements through implementation of tax provision and compliance software, workflow, document, and data management systems, and custom-built tax applications. He can be contacted at firstname.lastname@example.org.