The organization and operation of a US Tax department may vary greatly depending on organizational structure, industry, home country, and even the culture of each individual business.
The drivers of the choices in this area relate to key success factors of the Tax function as they pertain to functional areas throughout the tax lifecycle. The Tax department’s level of success largely depends on its ability to deploy critical tax enablers related to data, technology, people, organization, and process.
The following broad considerations are the basis on which Tax should establish benchmarks and objectives for the US Tax department:
A US Tax department may handle some or all of the following areas:
Technology and data analytics
Technology and data analytics solutions have the potential to enhance every aspect of the tax lifecycle, from planning to controversy and advocacy. Quick access to accurate data for scenario analysis using self-service analytics and visualization tools can provide insights to enable planning decisions.
Tax accounting and compliance technology solutions have evolved with capabilities to automate workflow, data collection, calculations, and tax return preparation and filing. In addition, Enterprise Resource Planning (ERP) systems can be configured to help businesses extract tax sensitized data to enable more efficient compliance and tax reporting processes in areas such as corporate income tax, indirect taxes, and transfer pricing.
Furthermore, advancements in sharing and storage of tax-related data have improved the ability to respond timely to tax authorities with accurate information. Technology also can improve the way Tax collaborates across functions and geographies through the management of data. There is unforeseen potential in the power of emerging Artificial Intelligence (AI) and Machine Learning (ML) capabilities to automate and streamline the way the Tax function operates.
Skill requirements for Tax professionals are expanding. The complex tax environment, coupled with emerging technologies that likely are already deployed in other functions, requires Tax professionals to be not only proficient in tax rules, but also skilled in technology applications and the management of internal projects to implement such technologies and related projects.
Possible approaches to executing tax activities range from completely ‘in-house’ to use of a third-party service provider for comprehensive delivery of services pertaining to the tax lifecycle. An organization may deploy one or more of these options depending on a variety of factors, including availability of technology and people with the required skill sets.
Regardless of the operating model deployed, the Tax function needs to have clearly defined processes, enabled by technology, to effectively meet tax requirements:
The cost of efficiency and effectiveness
US Tax departments are challenged to manage the complexity of changing tax laws while executing tax planning and operations efficiently and effectively. A material amount of resources is allocated to tax accounting and compliance due to complex rules, high volume of activities, and the risk associated with inaccurate or unsustainable tax filings and positions. Tax functions therefore need to prioritize funding for the technology, people/organization, and process solutions needed to address the magnitude of responsibilities in this area.
Managing financial and reputational risk
Due to the many levels of taxation — federal, state, and local — businesses in the United States often need to manage simultaneously numerous tax audits on differing issues at each level, placing burdens on a company’s budgets and resources. In addition, there may be financial statement impact due to the nature of tax positions taken and the number and magnitude of tax disputes that are ongoing at any given time. Easy access to accurate data, in the format needed to support tax positions, is essential to managing financial risk.
Finally, as is the case in a number of countries, the tax affairs of businesses operating in the United States are under increasing scrutiny by public institutions and the media. This focus requires increased attention to cross-functional stakeholder management, informed decision-making, and risk-management processes with additional considerations regarding the reputational risk to the business, beyond financial statement and balance-sheet drivers.