Transcript: Tax Tracks – A PwC Tax Services Podcast Series -- Episode 6

Making Technology Investments for the Tax Function

Welcome to this PricewaterhouseCoopers podcast, another in a series on Canadian and international tax issues affecting businesses and individuals in Canada.

I’ll discuss how making technology investments for the tax function can add value to your business.

The tax function heavily relies on data to operate efficiently and to meet complex reporting requirements. However, most companies have made limited investments in technology for tax. And in the systems development lifecycle, tax is often brought in late, if at all.

Technology can be leveraged to support many components of the tax function, including its four key deliverables:

• Tax accounting
• Tax compliance
• Tax planning and
• Audit defense

An effective use of technology not only improves access to and quality of information, but it also enables tax to bring more value to the business by:

• Creating greater efficiency by reducing risk
• Lowering implementation costs
• Freeing up staff time for higher-value deliverables
• Lowering staff turnover and increasing retention of skill and knowledge
• Enhancing knowledge-sharing in the business
• Connecting tax personnel globally
• Simplifying responses to audits
• Strengthening internal controls and
• Improving forecasting capability

Ultimately, your tax function should make use of its own IT infrastructure. Also, to better leverage and integrate company-wide IT systems and technologies into tax, you should bring in resources who are fully devoted to implementing, training, and maintaining IT initiatives for tax.

But how is any of this possible with competing priorities, tight budgets, and few resources?

First, start communicating with relevant stakeholders about the potential benefits of a technology investment, especially within the broader finance and IT context. Get them to see the bigger picture by assessing the platform or suite of technologies that can serve the overall tax function. For a CFO, introducing technology in tax can provide a significant return on investment, so get this topic on the corporate agenda.

Second, develop a vision for a technology platform in tax. This will allow you to develop a strategy to implement change over many years.

Thirdly, with your vision in mind, take a modular approach to your investment by identifying and prioritizing the components. This way, you can build a business case for investment to meet your most urgent requirements and demonstrate the potential benefits of technology. These smaller wins can fuel the desire and appetite for continued investment.

With this in mind, I’ll share a few ideas to help you get started towards your goal with limited investment.

As a starting point, the tax function can begin using the technologies that already exist in the business, at a nominal cost. For instance, business report writing tools can be used to automate some of the data collection for tax. Also consider leveraging document management systems to store and organize electronic information and deliverables.

Spreadsheet remediation is another step to consider early in the process. Most tax functions in Canada rely on complex spreadsheets as a principal technology, particularly for tax accounting and reporting. Maintaining these spreadsheets is difficult and very time-consuming. Also, experience shows that spreadsheets can carry a high risk for error. Some include the automation of data collection into the spreadsheet from other source systems. These files can become unwieldy over time if the linkages are not managed. However, remediation can enhance internal controls, restrict access or edit writes, and reduce manual inputs.

Keep in mind that spreadsheets focus only on computation, which brings me to the next solution. Consider using software that includes the data compilation, manipulation, and computation elements you need to boost efficiency and provide better controls. Free up your time for data planning and analysis by investing in technologies that go beyond calculation. For example, a third- party tax accounting software solution may be better suited for your needs. A careful assessment is required to ensure that you obtain the technology that best fits your company.

Additionally, bridge the gap between your tax function and other accounting and financial information systems. By doing so, you’ll be able to access the reporting information you need more effectively. You’ll also be prepared to deliver on tax data requirements in a more cost-effective manner. Working closely with your IT and finance departments can make this happen.

Going forward, get involved in strategic technology implementations projects early, particularly those impacting accounting information that feeds the tax deliverables. Ensure that the tax perspective is considered from the outset. In order to reduce the need for timely reconciliations and data manipulation, work towards making the information more tax-sensitive. This will allow you to maximize the benefit of projects outside of the tax budget. For this to happen, you’ll need to clearly define your data and reporting requirements.

Finally, approach the CFO or controller about temporarily borrowing IT and finance specialists. The finance specialist can help to enhance the value of the data available for the tax function, while the IT specialist can better understand the technology requirements for tax.

To sum up:

• The tax function is under constant pressure to perform in an environment of ever-increasing complexity. Historically, companies have not made much-needed investments in technology to achieve efficiencies in tax. With that said, tax needs to have a seat at the table in building company-wide IT solutions from start to finish. The tax function should also leverage its own IT infrastructure, in addition to the systems and technologies of other departments, in order to achieve its strategic objectives.
• Finally, move the tax technology agenda forward by taking small, calculated steps towards the achievement of a larger vision. This requires careful consideration for the needs of the business, both now and in the future. Seek out the solutions that will help you focus less energy on routine, time-consuming activities that involve data collection, manipulation, and validation. Ensure that the tax, finance, and accounting functions plan and manage their technologies together. Most importantly, seek the expertise of financial and IT specialists to help you out.

PwC’s Tax Function Effectiveness team can help you design a plan and select, assess, and implement the most suitable technology solutions for your tax function. We can also assist you in preparing for the impact that a change in technology can have on the broader tax function.

For more information, please contact your PricewaterhouseCoopers advisor.

Thank you for listening.

The information in this podcast is provided with the understanding that the authors and publishers are not herein engaged in rendering legal, accounting, tax or other professional advice or services. The audience should discuss with professional advisors how the information may apply to their specific situation.

Copyright 2009 PricewaterhouseCoopers LLP. All rights reserved. PricewaterhouseCoopers refers to PricewaterhouseCoopers LLP, an Ontario limited liability partnership, or, as the context requires, the PricewaterhouseCoopers global network or other member firms of the network, each of which is a separate and independent legal entity. For full copyright details, please visit our website at pwc.com/ca.