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In a taxing tax world, strategy ascends

A data- and technology-driven approach elevates global tax planning and reporting

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In a taxing tax world, strategy ascends It’s a taxing tax world out there. With EU initiatives and the U.S. Tax Cuts and Jobs Act (TCJA) of 2017, the landscape is rife with complexities that have transformed how companies view their tax function. Long gone are the days when a manual spreadsheet would suffice. Today’s tax terrain calls for a firm grip on technology and data. Companies may not need to take on a whole new team of tax professionals, yet they must find the right balance to be comfortable with their resources, efficiencies and controls.

“Clients don’t need short-term fixes,” said David Sites, Grant Thornton managing partner, International Tax Services. “They need a strategy and tax advice that are going to let them handle what’s new in global tax planning and reporting.”

Tax developments happening on a global stage and in the United States are like a series of swells, each dislodging tax departments from their traditional strategies for compliance planning and reporting, Sites said. “It leaves them looking for answers to how they are going to deal with data, and then another swell hits.”

Make use of data The shifts and dramatic changes in the past few years have led companies to realize they can’t constantly reinvent their tax function but must make sense of large volumes of complex data and use that data for multiple purposes.

A very first step is understanding the changes happening across the globe and keeping abreast of developments on a recurring, timely basis. This is essential because a series of developments have materially increased the volume of disclosure and transparency now required.

Exacerbating the more onerous assessment of tax provisions is the amount of ambiguity, not only with TCJA guidance, but also with decrees driven by the Organisation for Economic Co-operation and Development’s Base Erosion and Profit Shifting (OECD’s BEPS) initiative. A few examples include:

  • The EU’s Anti-Tax Avoidance Directives, anti-hybrid rules that target hybrid mismatches between EU member states.
  • The UK’s upcoming tax on the revenue of digital companies — with no guidance on some of the provisions — and the tax implications of Brexit.
  • The EU’s institution of DAC 6, which requires both companies and their intermediaries to intensely address tax reporting. This includes transactions that are tax-motivated and also those that are not driven by tax-planning motives but may have a potential tax impact. The idea is to disclose potentially aggressive tax-planning arrangements, while the term “aggressive tax planning” is not defined. This rule does not go into effect until July 2020 across EU member states, yet could require reporting of certain transactions prior to that date.

“Tax directors and CFOs tell me they’ve got to have a way to keep their arms around all that is applicable and be able to look at possible outcomes and clearly assess what laws and rules mean for financial statements and the organization,” said Sites. “Because everything is so interconnected, doing that becomes a real challenge. Modeling and the ability to plan become really important on a real-time basis.”

  • Grant Thornton Insight: Modeling and the ability to plan have become important on a real-time basis to tax executives, who must make sense of large volumes of complex data and use that data for multiple purposes.

‘Rightsourcing’ the tax function begins with asking the right questions In the same way you may need guidance on regulations and tax technology issues, you may need to get help in making good use of your data.

• Do you have the right people with the right expertise?
• Do you have the capabilities to manage your data in order to model outcomes?
• Do you have the right processes and ongoing support to accomplish what is appropriate and timely for your company?

Yesterday’s tax process The tax function historically has operated internally with spreadsheets and a fairly defined process around taxes, compliance and provisioning, whether internal or outsourced. Dramatic tax changes have upended traditional methods.

Today’s future-focused tax process The past decade has seen a push for companies to automate the tax process. Companies have looked at their tax function and asked questions: Do I really need to have all these people? Or, do I really need to have more people? Do I need to partner with an outside tax professional, and would that result in a full outsourcing arrangement, co-sourcing or an in-sourcing approach? What’s the right mix for my company?

Tax reform, BEPS and other tax initiatives have created a sea change in what has to be done in terms of tax disclosures and compliance. “And that has presented the perfect opportunity for organizations to step back, take a broad look at their tax functions and design a new system that works in the new world of tax, so that they can get their compliance, planning and provisions done,” said David Sites, Grant Thornton managing partner, International Tax Services.

Added Vallerie Dallago, Grant Thornton managing director, Tax Services: “Rightsourcing is about doing what makes sense in order for you to navigate in a healthy, flexible way in the new tax world.”
Countries want more transparency Countries increasingly demand greater transparency, which puts more requirements on multinational companies based abroad or based in the United States but doing business abroad. A tax function that is aligned with everything a company needs is increasingly necessary to survive.

Said Vallerie Dallago, Grant Thornton managing director, Tax Services, “Sometimes a company doesn’t have transparency into what’s happening in each individual country where it has a presence because its tax function is decentralized across the globe. Many are looking to consolidate their tax work for statutory financial reporting and to have transparency in just one place so that they can look at data and analyze specifically what they need.” Companies from the very large to the midsized want a scalable system that they can tap into as needed, she said.

Said Sites: “We’ve seen a growing drumbeat where tax authorities are collecting more and more information so that they can profile companies and decide where they want to allocate their examination resources. They want to maximize the return on their efforts.”

This scrutiny had led companies to look at the “bigger picture” not only in terms of managing the messaging that goes out in disclosures but also in ensuring other organizational messaging is consistent, he said. “Companies should be sure information is appropriately disclosed when it’s required to be, not disclosed when it’s not required to be — and, most important of all, make sure the story the organization tells is consistent from one obligation to another.”

  • Grant Thornton Insight: Companies have to make modifications to get their tax strategy realigned to a global economy. They don’t need short-term fixes.

Change keeps coming Said Dallago, “Managing the compliance function is certainly something tax departments of the future are going to have to focus on.”

Sites agreed. “We’re going to see an avalanche of disclosure of tax reporting and financial information reporting to tax authorities,” he said. Understanding what’s come online, and when, is a challenge for companies. For example, the way Luxembourg sees a BEPS provision might be slightly different from the way Australia sees it. Yet unraveling the nuances is critical.

  • Grant Thornton Insight: With the velocity of global tax changes, there is never going to be enough guidance, and ambiguity and uncertainty are going to be the order of the day for a number of years to come.

The bottom line is that companies need the ability to manage, quantify and plan to mitigate the uncertainties, and carefully measure what those uncertainties mean for their business.

“They need to be able to make sense of very challenging change,” Sites said, “so that they can develop positions that not only allow them to mitigate the tax burden but also feel comfortable that they have met their burdens.”

Contacts:

David SitesDavid Sites
Managing Partner, International Tax Services
Grant Thornton
T +1 404 475 0126

Vallerie DallagoVallerie Dallago
Managing Director, Tax Services
Grant Thornton
T +1 602 474 4902