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Automating tax provision: The power of technology

Let’s start with this question: “How much do we owe?” It may be a simple question, but the answer is not. Corporate tax professionals devote an extensive amount of work to that one figure.

This work is compounded by constantly evolving tax regulations. From taking advantage of opportunities to avoiding potential missteps, embracing tax technology is the foundation for adapting swiftly to tax changes. Those who prepare now will realize immense benefits, while those who react slowly must deal with the consequences.

An exact science: That figure has to be right

Tax provisioning is a straightforward calculation of a company’s tax exposure on current income and its estimated tax exposure on future income. In other words, a tax provision is a corporation’s estimation of what income tax it owes. Like other corporate finance matters, tax provisioning needs to be exact. Inaccurate estimates lead to poor cash management, dissatisfied investors, and the potential for tax reviews and audits.

Moreover, monitoring the income tax liability of corporations is an increasing focus of regulators worldwide, and investors have long made investment decisions based on the effective tax rate of a company.

Although the actual math behind tax provisioning isn’t so complex, what is complex about provisioning is integrating and properly structuring data from both the finance and tax departments in a way that minimizes risk and makes provisioning easier and quicker. Accurate provisioning data, made available in real time and on multiple devices, allows tax professionals to address questions from management and contribute to sound decision making.

The challenge of data consolidation

A typical challenge regarding data structure is locating relevant data, structuring it consistently, and then using it to make decisions. For most modern companies, tax provisioning is a tremendous data challenge.

Because most business today is global, financial data can originate from anywhere. Teams located across countries — or, in many cases, the world — collaborate with each other. They analyze their data among various source systems that may or may not align with each other. Consolidating this data for provisioning is the first challenge.

Then, the system needs to apply rules that depend on multiple factors. Further, tax policy differs from country to country, and there are many variables to consider. Those variables are not static.

All of this adds complexity to the provisioning process. Based on flexibility, many companies use a convoluted series of spreadsheets to calculate tax provisions. But spreadsheets are unstructured and lack embedded controls. Manual updating slows the process and puts the ability to provide a timely tax entry to complete the financial close at risk.

Furthermore, the corporate structure tax departments put in place can require customized software development when the tax provisions are too complex to complete in spreadsheets.

Technology = volume + speed + accuracy

Manual data entry is a fact of life in tax, but those companies that are striving to automate it are enjoying the benefits of reducing both cost and risk while improving the speed at which information can be accessed.

That effectiveness is why successful companies use software to automate the tax provisioning process in real time before closing their books. Real-time provisioning eliminates concerns, gives management valuable information on which to base business decisions, and enables tax to add value throughout the organization. Spreadsheets built in Microsoft Excel simply cannot calculate the provision with the speed, accuracy, and flexibility management demands.

Close faster, file earlier

The value of accurate, real-time tax provisioning and the resulting data burden is only accelerating. When a company makes an acquisition, ventures into a new market, explores new commercial channels, or increases its global footprint, its tax provisioning changes.

If a company is growing, its tax provisioning needs are becoming inherently more complex. So, how to resolve this complexity? Is tax technology the answer? Here are some additional thoughts.

Assembling data from multiple sources

Managing the flow of tax information for modern organizations — especially multinationals — isn’t getting easier, and internal expectations are also on the rise, especially where global growth is desirable.

Tax professionals need to find, gather, validate, calculate, share, and demonstrate data. This is time- and labor-intensive work, which is why the average tax department spends 80% of its time collecting and entering data and only 20% actually using it. This doesn’t leave much room for strategic contribution.

Data optimization

Tax technology allows you to securely gather and collect data regardless of source, allowing you to seamlessly share the data with your income tax and tax provision workpapers. It eliminates the need for manual consolidation, making data available for global retrieval and reporting directly from Excel. It also helps identify duplications or incorrect codes, preventing time-consuming errors and increasing your compliance.

Trial balance automation

In today’s tax environment, it’s common for your department to work with trial balance data from multiple general ledgers, ERPs, or other extracts with different account-coding structures. Tax technology delivers harmonized and consolidated trial balance data and can keep it current even as book numbers continue to change. It also enables a common master chart of accounts to standardize trial balance data for the entire tax department while minimizing administration and maintenance redundancies. The right technology gives you more time to focus on strategic tasks.

Accurate and audit-resistant calculations

Tax automation enables organizations to produce a quick and accurate tax provision — and its audit- resistance is ironclad. By using the same data for return and provision, tax departments can cut days and even weeks off the annual financial close and tax compliance process while decreasing risk by ensuring consistent data across tax department processes.

With tax technology, you also have readily available data to compute accurate tax accruals and produce reports and workpapers that support the amounts you booked — all on a tight deadline. A tax calculation engine can assist with your tax provision assessment while also ensuring that changes in statutory rate, apportionment, and currency in the different jurisdictions you operate in are all being taken into account.

You can leverage your tax provision calculations for tax return purposes and complete and lodge your corporate tax return using ONESOURCE Corporate Tax.

Run scenarios with real-time impact

Tax technology also provides self-reconciling reports that ensure data changes are processed quickly and accurately. With the ability to have different datasets and run scenarios — while having results in real time — you know the exact impacts of the entries you’re making from the actual tax provision, right down to the effective tax rates and the journal entries — all within a few minutes.

Report across the company with speed and accuracy

Often, you must report tax results in multiple formats to satisfy the different ways that information is expected to be used. With tax technology, reports can accommodate the wide range of requests you receive around your provision for income taxes. Whether from an internal or external auditor or management, ONESOURCE Tax Provision allows you to deliver data to all your stakeholders in various formats with the click of a button.

The filtering, sorting, grouping, and drill-down capabilities of ONESOURCE Tax Provision produce real-time intelligence that reduces the risk of manual errors. This allows for smoother, faster processing of the financial close.

Responding to changes in tax legislation is an enormous undertaking. If you haven’t already, now may be the perfect time to invest in tax technology.

Thomson Reuters ONESOURCE Tax Provision

ONESOURCE Tax Provision software calculates corporate tax estimates in seconds and lets you quickly review data with filtering and drill-down capabilities. Plus, you can easily move data from tax provision to other direct tax solutions, so you only have to enter it once. Automation during the tax provision process results in more efficiency across the tax lifecycle — which means closing faster, filing earlier, and freeing up time to grow your business.

For more information, visit tax.thomsonreuters.com/en/onesource/tax-provision.

Automate your tax provision process

Choose tax provisioning software from Thomson Reuters to close faster, file earlier, and free up time to grow your business