The Issue: manual tax processes
Lessors typically rely upon manual, and often time consuming, processes to compute tax return adjustments and reconcile tax basis in leased assets since many Lease management systems aren’t preconfigured to produce tax adjustments.
Common challenges include:
- Manual report and data queries for tax reporting needs,
- Difficulty tracking a large volume of transactions and changes in lease data,
- Tracking mid and end of term lease events,
- Tax legislative changes, and
- Reconciling lease data sets for completeness and accuracy required to compute tax adjustments.
PwC’s Lease Automation Service (LAS) for lessors leverages a standardized taxonomy to automate the identification and categorization of lease management system transactions to produce corresponding tax transactions resulting in reduced tax reporting risk, greater visibility into the lease data and more efficient resource management.
The issue: new tax reporting and reconciliation challenges
Adoption of the new lease accounting standard will create tax data and system challenges around reconciling the tax basis of a lease portfolio and managing the accuracy of associated financial statement and tax compliance reporting.
The new lease accounting standard will create new book-tax differences and change the source of data for existing differences. Some of these book-tax differences include:
- Identification of embedded leases
- Assessing lease classification
- Addressing mid-life lease events that will need to be tracked for both book and tax purposes.
While new lease management systems will be configured to produce the data and calculations needed for financial reporting purposes, most will not have preconfigured tax reporting capabilities.
PwC’s Lease Automation Service (LAS) for lessees is an attractive alternative to building a tax lease reporting solution internally. At the heart of LAS is a proprietary, web-based technology developed by our experienced tax professionals to help companies automate the extraction, validation, and performance of calculations over the leasing data needed for tax reporting.