Imagine a single technology platform in which a global company’s entire tax processing is performed according to a set of standardised processes … delivering unprecedented levels of transparency, governance and control.
This may sound like a pipe dream, right? That’s exactly why it’s remarkable that a small, but growing collection of well-known global enterprises not only think that this type of automation-enabled standardisation is possible, but are moving in this direction.
There is little doubt that government initiatives like the OECD’s Baseline Erosion and Profit Sharing Action Plan (BEPS) will continue to greatly complicate existing tax data management challenges. And that these initiatives will only increase the risk created by the widespread disconnect between financial reporting systems and income tax reporting processes.
The good news is technology is rapidly catching up to this challenge. For example, some global companies are currently leveraging a shared services model to transform how they manage income tax.
Now, I'm well aware that using the terms “shared services” and “transformation” in the same sentence will cause eyebrows to rise. We’ve long heard about this promise – and we also know that despite these claims of transformation, cost-savings remains the primary driver for most companies’ who move to any function, tax or otherwise, into a shared services centre.
But I’m not so sure any more; I think transformation really is in the air.
I know of a global company that moved two-thirds of its entity-level provision to a shared services centre located in a low cost Asian city. These entities are deemed relatively low risk or non-material.
The remaining entities (well over 100 of them) are considered material from a risk-management perspective, and that’s why those are handled at corporate headquarters.
All of this work is conducted on a common technology platform.
Now, we’re only talking income tax in this real-world example. But we're seeing more companies adopt a similar approach whereby material and non-material (or high-risk and low-risk, if you prefer) entities are handled in different geographic locations, but on the same tax-processing system populated with standardised processes operating against country specific filing requirements.
In some cases, the corporate tax function does not even process the material returns; instead, corporate tax provides oversight (e.g., governance) of all returns.
So I am seeing innovators in our industry already heading down this path and can foresee a future where standardised global tax processing is not only possible, but could become the norm.
Please remember that the Tax Matters provides information for educational purposes, not specific tax or legal advice. Always consult a qualified tax or legal advisor before taking any action based on this information.