Tax's Waterloo

  • February 17, 2015

Early in my career I had the opportunity to live and work in Waterloo, Belgium. Napoleon famously met his end there when two adversaries, the Anglo-allied army and the Prussian army, coordinated attacks from both sides. Caught in the cross fire, he and his army were doomed. It's starting to feel like Waterloo for multinational tax departments; caught in the cross fire between corporate-wide cost saving initiatives and global requirements for increased transparency.

Tax takes hits from both sides, needing to conform to corporate wide cost saving initiatives, including movement to finance shared service centers often in conjunction with large ERP systems consolidations and also transitioning to the cloud. These are all focused on driving costs down for back office operations. And let's face it, tax processing (despite all its strategic potential and M&A value) is considered a back office operation.

Meanwhile, the Organisation for Economic Co-operation and Development (OECD) and national governments are rapidly firing off shots around their transparency agenda in the form of Base Erosion and Profit Shifting (BEPS). We are already seeing major governments starting to set reporting timelines as early as January 2016. Requirements include listing legal entities by country, with disclosure of key metrics, personnel and operational descriptions. It also includes detailed disclosures of intercompany transactions and other detailed data. Preparations are now warranted as BEPS mandates and bilateral tax sharing agreements between governments will shine light from both ends into multinational structure and operations.

As Einstein famously said, "We cannot solve our problems with the same level of thinking that created them." The tools and approaches most tax departments rely upon; disparate systems, in-country bespoke same-as-last-year processes, and desktop personal productivity spreadsheet tools won't prove defensible at this scale. Governance, control, global scalability and security are required. However, the ability to leverage it all through spreadsheets, existing returns applications and other familiar tools is what tax professionals are comfortable with and what is desired.

This is where big data comes in. Simply stated, it is the ability to cost effectively extract value from large sets of data. For tax that translates into the ability to achieve both cost savings and increased transparency at the same time. Vendors like Vertex are working hard to bring this low cost, high value technology to the industry through simple tax focused applications that leverage the existing tools tax pros know and love.

A famous quote from Napoleon reads, "The battlefield is a scene of constant chaos. The winner will be the one who controls that chaos." The same can be said for tax functions. Those that can control chaos by harnessing the scale capabilities of big data, while adding governance and control will be able to cost effectively prepare for the new world of reporting requirements and perhaps avoid their own personal Waterloo.

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.

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