Leveraging systems and software to manage tax functionality.
More and more, technology is used in managing taxes. Automation may involve embedding tax functionality into organizational processes and controls, and many tax software tools can be used as part of a technology platform. Risky areas that are easily automated should be considered first. Efficiency is key. Be sure to ask if the potential savings and benefits outweigh the investment in a technology-based solution. Experience shows that automation is often but not always a solid investment.
When it comes to income tax, technology tends to focus on automating the tax provision. Organizational preference and ease of compatibility with the underlying system are key considerations. Software ‘bolt-on’ tools like TaxWare, CorpTax, and OneSource can increase accuracy, reduce risk, and decrease the time and effort required by the finance department. Ensuring that an organization has well-documented processes prior to implementing such tools is highly recommended. This approach will help to keep the automation as focused and controlled as possible.
As for indirect tax (sales tax, excise tax, customs duties), tools/engines like Sabrix, Vertex, and EBTax can be bolted-on to the system to assist with tax calculations on sales and the recoverability of costs. These tools often have very good reporting capabilities. Indirect taxes often touch all parts of an organization and its business processes. The outputs include many types of tax returns (GST, PST, and excise) as well as invoices, purchase orders, and exemption certificates. Data that has an impact on the indirect tax position needs to be captured and managed at virtually every point in the purchasing and sales cycles.
An ideal time to start analyzing the risk/automation equation is during an Enterprise Resource Planning (ERP) implementation. This is the exercise an organization goes through as it embarks on a full-scale installation or upgrade of its main technology platform (e.g., SAP, Oracle).Companies that have implemented or are considering implementing an ERP system all too often overlook the key tax requirements and benefits these systems can provide. They also may underestimate the impact these implementations can have on the tax department.
As organizations redesign and implement their system platforms, they often consolidate legacy systems and initiate process improvements that may impede access to tax-sensitive information. During an ERP, business operational processes are identified and exposed. Decisions can be made concerning whether a tax engine should be installed or whether the tax functionality should be set up in the existing ERP environment.
Tax professionals should be involved throughout the implementation. Their input is required during the design and testing phases to ensure that the required design specifications – such as tax logic –are accurately built into the system. A well-controlled and automated tax environment requires analyzing business transactions to determine solutions. Leveraging technology to create a more efficient tax environment can be an optimum way to manage your risk profile.