Tax-Aligned IT Implementations.

Transcription

1 Tax-Aligned IT Implementations. Federation of Tax Administrators Technology Conference Stephen Metoyer, Sr. Manager Deloitte Agenda Definition of Tax Aligned IT Initiatives IDC Research The traditional IT approach Tax Aligned Approach What does this mean for tax authorities Copyright 2004 Deloitte Development LLC. All rights reserved. 2 1

2 Definition Tax Aligned IT Initiatives IT / ERP project that addresses the common thread of tax that permeates every functional element of system integration projects. Virtually every transaction within an organization s operating and financial systems has a tax impact or effect. Without grassroots involvement in IT/ERP projects, tax is relegated to very tactical role. Tax Aligned IT Initiatives seek to strategically address tax technology requirements and to leverage the power of the larger IT initiatives to drive compliance and organizational value. Copyright 2004 Deloitte Development LLC. All rights reserved. 3 IDC Survey: Background In 2004, Deloitte Consulting LLP and Deloitte Tax LLP sponsored an IDC survey. The IDC survey was focused on the decision-making process of IT acquisitions greater than $1M. 70 percent of the 201 respondents were either the decisionmaker or part of the team that made the final decision. IDC asked these senior IT and Finance executives 26 questions, ranging from the role IT plays in their company to the factors that are considered for an IT project. Copyright 2004 Deloitte Development LLC. All rights reserved. 4 2

3 IDC Survey: Population Your largest taxpayers Your largest employers Employees Revenues 25,000 or more 16% 5,000 to 9,999 $10 billion or more $500 million - 1 billion 8% $1 - $5 billion 56% 28% 10,000 to 24,999 48% 21% 23% $5-10 billion Copyright 2004 Deloitte Development LLC. All rights reserved. 5 IDC Survey: Tax Is Ignored Although business cases routinely contain input from several functions, tax professionals are included in fewer than 30 percent of respondents business cases. Q. During the business case development process for major IT acquisitions/investments, which of the following areas are typically involved in the process? (Select all that apply) IT Business Units Finance 71% 76% 79% Executive Mgt. 54% Risk Mgt. Procurement Legal 38% 36% 36% Tax 28% 0% 20% 40% 60% 80% 100% Copyright 2004 Deloitte Development LLC. All rights reserved. 6 3

4 IDC Survey: Why Tax Is Ignored Many executives believe: It s not my job, or Someone else must be taking care of it. I m not measured by a project s tax compliance. It s too difficult to get Tax involved. Reasons for Not Considering Tax Implications Assume tax issues are covered by legal, procurement, etc. Do not consider it to have a material impact 27% 27% Adds unnecessary degree of complexity to the process 13% Not measured and/or does not impact my performance 10% Does not impact my IT budget 8% Unaware that there may be an impact Other 7% 8% Copyright 2004 Deloitte Development LLC. All rights reserved. 7 Why IDC Received Those Responses Each of these areas has a tax solution associated with it. In many organizations each of the related tax solutions were developed independently and with little or no leveraging of technology between solutions. Fin Rept GL A/R A/P Many of the required data elements for tax solutions have the same roots in jurisdictional identification, transaction classification details and financial amounts. Copyright 2004 Deloitte Development LLC. All rights reserved. 8 4

5 Tax Data: Information where is it? Tax Integration Tax Processes, Data Elements and Attributes by ERP Area ERP Capabilities G/L A/P A/R Purchasing Asset Management Projects Budgets Expense Tracking Treasury Cash Management Master Data Org Structures Transaction Detail Core Financial Modules TAX Needs TRANSACTION TAXES Sales Tax calculations Use Tax processes Tax Matrix FEDERAL Legal Entity P&L/BS Book/Tax Depreciation G/L on Dispositions Intangibles/Amortization Financial Derivatives Other Schedule M-1 s/m-3 s 1120 Line Items E&P Specific Items AMT Specific Items NOLs Purchase Accounting STATE/LOCAL Apportionment Factors State Depreciation Other State Items Transfer Pricing PROPERTY TAXES ERP Capabilities Requisition to Payment ERP Capabilities Purchasing Payables Inventory Expenses Asset Management Order to Cash Order Entry Order Management Billing A/R Inventory Order Promising TAX Needs State Apportionment Factors -Inventory -Sales Bad Debts Sales Taxes/VAT Section 199 Foreign Source Income Apportionment Factors Foreign W/H Taxes Warranty Accruals TAX Needs Use Taxes Inventory Valuation - LIFO/FIFO Depreciation State Apportionment Factors - Fixed Assets - Inventory Uniform Capitalization Property Taxes Copyright 2004 Deloitte Development LLC. All rights reserved. 9 Despite the Numbers Notice the Shift Tax Aligned IT Initiatives Sarbanes Oxley Value Based IT Implementations Copyright 2004 Deloitte Development LLC. All rights reserved. 10 5

6 Tax Aligned IT Initiatives Tax Across the Business Business Processes U.S. Income Tax State Income Tax Non U.S. Income Non U.S. Indirect Employee Benefit Sales & Use Property Treasury Payables Payroll Procurement Inventory Management Revenue / A/R Custom & Duties Bookclose / Financial Reporting IT Disclosures Financial Plan and Outlook Excise Tax Unclaimed Property Telecom Tax Automation and Information Services Technologies and Services Products and Services Distribution Credits & Incentives Corporate 12 Commissionaire/Commission Agent Internal Control Fundamentals Copyright 2004 Deloitte Development LLC. All rights reserved. 11 Advantages of a Tax-Aligned Approach Business processes Compliance and ongoing operations Immediate tax benefits Copyright 2004 Deloitte Development LLC. All rights reserved. 12 6

7 Tax-Aligned Advantages Business Processes Many project are now measuring the value. IT projects aim to improve business processes, such as finance and accounting, supply chain, manufacturing and sales, and distribution. Tax can provide huge organizational value. Without thorough tax involvement, taxpayers risk overlooking and compliance requirements, which could undermine the project s business case. Copyright 2004 Deloitte Development LLC. All rights reserved. 13 Tax-Aligned Advantages Compliance and ongoing operations Significant and permanent cash savings can be achieved by reducing tax compliance costs and audit cost. You can also avoid costly system changes to keep pace with mergers, acquisitions, dispositions, market dynamics, or new tax laws. Copyright 2004 Deloitte Development LLC. All rights reserved. 14 7

8 Tax-Aligned Advantages Immediate tax benefits Short-term opportunities alone can substantially reduce the cost of many IT initiatives. These opportunities can include; avoiding the overpayment of transaction taxes on IT-related purchases accessing all available governmental grants and incentives expensing certain implementation costs securing available tax credits or deductions on R&D activities Copyright 2004 Deloitte Development LLC. All rights reserved. 15 Why this Matters to Tax Administrators Improved record retention for audit defense Increased data integrity and reliability Reduction of compliance costs from gathering information & preparing returns manually Reduction of IS time spent maintaining tax calculations & rate tables Reduction of staff time spent researching tax rates and regulations Automate and standardize tax audit processes Copyright 2004 Deloitte Development LLC. All rights reserved. 16 8

9 Why Tax Aligned IT Approach Matters to Ta Administrators Enterprise Tax System Architecture Enterprise / Tax Portal Web-based Tax Dashboard Thin Client & Push Technology Custom Views & Query Cap Archival & Record Retention Fixed Asset Tracking SAP Financials HR Systems Source ETS System Data Interfaces Interface Tax Data Warehouse or Platform Tax Calculations and Reporting Other Source Systems Manual Collection Web Document Management Planning and Modeling Foreign Subs Other GL Systems Other Financial Data Sources Scanned Documents Electronic Documents Copyright 2004 Deloitte Development LLC. All rights reserved. 17 Copyright 2004 Deloitte Development LLC. All rights reserved. 18 9