Tax-Aligned IT Implementations. · Tax-Aligned Advantages ... •You can also avoid costly system...

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Tax-Aligned IT Implementations.Federation of Tax Administrators Technology ConferenceStephen Metoyer, Sr. Manager Deloitte

Copyright © 2004 Deloitte Development LLC. All rights reserved. 2

Agenda

•Definition of “Tax Aligned IT Initiatives”

•IDC Research

•The traditional IT approach

•Tax Aligned Approach

•What does this mean for tax authorities

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Definition

Tax Aligned IT Initiatives – IT / ERP project that addresses thecommon thread of tax that permeates every functional element ofsystem integration projects. Virtually every transaction within anorganization’s operating and financial systems has a tax impact oreffect. Without grassroots involvement in IT/ERP projects, tax isrelegated to very tactical role. Tax Aligned IT Initiatives seek tostrategically address tax technology requirements and to leverage thepower of the larger IT initiatives to drive compliance and organizationalvalue.


IDC Survey: Background

• In 2004, Deloitte Consulting LLP and Deloitte Tax LLPsponsored an IDC survey.

• The IDC survey was focused on the decision-making process ofIT acquisitions greater than $1M.

• 70 percent of the 201 respondents were either the decision-maker or part of the team that made the final decision.

• IDC asked these senior IT and Finance executives 26questions, ranging from the role IT plays in their company tothe factors that are considered for an IT project.

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IDC Survey: Population

Employees

28%56%

16%

5,000 to 9,999

10,000 to 24,999

25,000 or more

Revenues

23%

21%48%

8%

$500 million - 1 billion

$1 - $5 billion

$10 billion or more

$5 - 10 billion

• Your largest taxpayers

• Your largest employers


IDC Survey: Tax Is Ignored

Although business cases routinely contain input from several functions, taxprofessionals are included in fewer than 30 percent of respondents’ businesscases.

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)

28%

36%

36%

38%

54%

71%

76%

79%

0% 20% 40% 60% 80% 100%

Tax

Legal

Procurement

Risk Mgt.

Executive Mgt.

Finance

Business Units

IT

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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.”

8%

7%

8%

10%

13%

27%

27%

Other

Unaware that there may be animpact

Does not impact my IT budget

Not measured and/or does not impact my performance

Adds unnecessary degree of complexity to the process

Do not consider it to have a materialimpact

Assume tax issues are covered by legal, procurement,etc.

Reasons for Not Considering Tax Implications


A/R

GLA/PFin

Rept

Why IDC Received Those Responses

Each of these areas has atax solution associated withit. In many organizationseach of the related taxsolutions were developedindependently and with littleor no leveraging oftechnology betweensolutions.

Many of the required dataelements for tax solutionshave the same roots injurisdictional identification,transaction classificationdetails and financialamounts.

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Tax Integration – Tax Processes, Data Elements and Attributes by ERP Area

Core Financial Modules

ERP Capabilities TAX NeedsG/LA/PA/RPurchasingAsset ManagementProjectsBudgetsExpense TrackingTreasury

FEDERAL•Legal Entity P&L/BS•Book/Tax Depreciation•G/L on Dispositions•Intangibles/Amortization

•Other Schedule M-1’s/M-3’s•1120 Line Items•E&P Specific Items•AMT Specific Items•NOLs

•Transfer Pricing

STATE/LOCAL•Apportionment Factors•State Depreciation•Other State Items

Financial Derivatives

TRANSACTION TAXES

Master DataOrg Structures

Transaction Detail

•Sales Tax calculations•Use Tax processes

•Purchase Accounting

Tax Matrix•

PROPERTY TAXES

Cash Management

Requisition to Payment

ERP Capabilities TAX Needs

PurchasingPayablesInventoryExpensesAsset Management

Use TaxesInventory Valuation - LIFO/FIFODepreciationState Apportionment Factors

- Fixed Assets- Inventory

Uniform CapitalizationProperty Taxes

Order to Cash

ERP Capabilities TAX Needs

Order EntryOrder ManagementBillingA/RInventoryOrder Promising

State Apportionment Factors-Inventory-Sales

Bad DebtsSales Taxes/VATSection 199Foreign Source Income1.861-8 Apportionment FactorsForeign W/H TaxesWarranty Accruals

Tax Data: Information where is it?


Despite the Numbers … Notice the Shift

Tax Aligned IT Initiatives

SarbanesOxley

Value Based IT Implementations

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U.S. In

come Tax

U.S. In

come Tax

Property

Property

Custom & D

uties

Custom & D

uties

Excise Tax

Excise Tax

Non U.S

. Income

Non U.S

. Income

Employee B

enefit

Employee B

enefit

Credits

& In

centives

Credits

& In

centives

Corporate

Products and ServicesTechnologies and Services

Autom

ation and Information Services

Distribution

Bus

ines

s Pr

oces

ses

Treasury

Procurement

Inventory Management

Revenue / A/R

Bookclose / Financial Reporting

IT

Disclosures

Payroll

Payables

Financial Plan and Outlook

Commissionaire/Commission Agent

Internal Control Fundamentals

Non U.S

. Indire

ct

Non U.S

. Indire

ct

State Income Ta

x

State Income Ta

x

Sales & U

se

Sales & U

se

Unclaimed P

roperty

Unclaimed P

roperty

Telecom Ta

x

Telecom Ta

x

Tax Aligned IT Initiatives – Tax Across theBusiness

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Advantages of a Tax-Aligned Approach

• Business processes

• Compliance and ongoing operations

• Immediate tax benefits

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Tax-Aligned Advantages

Business Processes

• Many project are now measuring the value. IT projects aim toimprove business processes, such as finance and accounting, supplychain, manufacturing and sales, and distribution. Tax can providehuge organizational value.

• Without thorough tax involvement, taxpayers risk overlooking andcompliance requirements, which could undermine the project’sbusiness case.



Compliance and ongoing operations

• Significant and permanent cash savings can be achieved by reducingtax 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.

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Immediate tax benefits

• Short-term opportunities alone can substantially reduce the cost ofmany 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


Reduction of compliance costs fromgathering information &

preparing returns manually

Increased data integrity and reliability

Automate and standardize tax audit processes

Reduction of IS time spent maintainingtax calculations & rate tables

Improved record retentionfor audit defense

Reduction of staff time spentresearching tax rates and regulations

Why this Matters to Tax Administrators

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Why Tax Aligned IT Approach Matters to Ta Administrators

Enterprise / Tax PortalWeb-based Tax DashboardThin Client & Push TechnologyCustom Views & Query Cap

TaxCalculations

and ReportingSAPFinancials

HR Systems

Other SourceSystems

ForeignSubs

Other GLSystems

OtherFinancial Data

Sources

Tax DataWarehouse or

PlatformETSData

Interface

DocumentManagement

ManualCollection

Web

Fixed AssetTracking

ScannedDocuments

ElectronicDocuments

Archival&

RecordRetention

SourceSystem

Interfaces

Enterprise Tax System

Architecture

Planning and Modeling


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