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Tax-Aligned IT Implementations.Federation of Tax Administrators Technology ConferenceStephen Metoyer, Sr. Manager Deloitte
Copyright © 2004 Deloitte Development LLC. All rights reserved. 2
Agenda
•Definition of “Tax Aligned IT Initiatives”
•IDC Research
•The traditional IT approach
•Tax Aligned Approach
•What does this mean for tax authorities
2
Copyright © 2004 Deloitte Development LLC. All rights reserved. 3
Definition
Tax Aligned IT Initiatives – IT / ERP project that addresses thecommon thread of tax that permeates every functional element ofsystem integration projects. Virtually every transaction within anorganization’s operating and financial systems has a tax impact oreffect. Without grassroots involvement in IT/ERP projects, tax isrelegated to very tactical role. Tax Aligned IT Initiatives seek tostrategically address tax technology requirements and to leverage thepower of the larger IT initiatives to drive compliance and organizationalvalue.
Copyright © 2004 Deloitte Development LLC. All rights reserved. 4
IDC Survey: Background
• In 2004, Deloitte Consulting LLP and Deloitte Tax LLPsponsored an IDC survey.
• The IDC survey was focused on the decision-making process ofIT acquisitions greater than $1M.
• 70 percent of the 201 respondents were either the decision-maker or part of the team that made the final decision.
• IDC asked these senior IT and Finance executives 26questions, ranging from the role IT plays in their company tothe factors that are considered for an IT project.
3
Copyright © 2004 Deloitte Development LLC. All rights reserved. 5
IDC Survey: Population
Employees
28%56%
16%
5,000 to 9,999
10,000 to 24,999
25,000 or more
Revenues
23%
21%48%
8%
$500 million - 1 billion
$1 - $5 billion
$10 billion or more
$5 - 10 billion
• Your largest taxpayers
• Your largest employers
Copyright © 2004 Deloitte Development LLC. All rights reserved. 6
IDC Survey: Tax Is Ignored
Although business cases routinely contain input from several functions, taxprofessionals are included in fewer than 30 percent of respondents’ businesscases.
Q. During the business case development process for major IT acquisitions/investments,which of the following areas are typically involved in the process? (Select all that apply)
28%
36%
36%
38%
54%
71%
76%
79%
0% 20% 40% 60% 80% 100%
Tax
Legal
Procurement
Risk Mgt.
Executive Mgt.
Finance
Business Units
IT
4
Copyright © 2004 Deloitte Development LLC. All rights reserved. 7
IDC Survey: Why Tax Is Ignored
Many executives believe:
• “It’s not my job,” or “Someone else must be taking care of it.”• “I’m not measured by a project’s tax compliance.”
• “It’s too difficult to get Tax involved.”
8%
7%
8%
10%
13%
27%
27%
Other
Unaware that there may be animpact
Does not impact my IT budget
Not measured and/or does not impact my performance
Adds unnecessary degree of complexity to the process
Do not consider it to have a materialimpact
Assume tax issues are covered by legal, procurement,etc.
Reasons for Not Considering Tax Implications
Copyright © 2004 Deloitte Development LLC. All rights reserved. 8
A/R
GLA/PFin
Rept
Why IDC Received Those Responses
Each of these areas has atax solution associated withit. In many organizationseach of the related taxsolutions were developedindependently and with littleor no leveraging oftechnology betweensolutions.
Many of the required dataelements for tax solutionshave the same roots injurisdictional identification,transaction classificationdetails and financialamounts.
5
Copyright © 2004 Deloitte Development LLC. All rights reserved. 9
Tax Integration – Tax Processes, Data Elements and Attributes by ERP Area
Core Financial Modules
ERP Capabilities TAX NeedsG/LA/PA/RPurchasingAsset ManagementProjectsBudgetsExpense TrackingTreasury
FEDERAL•Legal Entity P&L/BS•Book/Tax Depreciation•G/L on Dispositions•Intangibles/Amortization
•Other Schedule M-1’s/M-3’s•1120 Line Items•E&P Specific Items•AMT Specific Items•NOLs
•Transfer Pricing
STATE/LOCAL•Apportionment Factors•State Depreciation•Other State Items
Financial Derivatives
TRANSACTION TAXES
Master DataOrg Structures
Transaction Detail
•Sales Tax calculations•Use Tax processes
•Purchase Accounting
Tax Matrix•
PROPERTY TAXES
Cash Management
Requisition to Payment
ERP Capabilities TAX Needs
PurchasingPayablesInventoryExpensesAsset Management
Use TaxesInventory Valuation - LIFO/FIFODepreciationState Apportionment Factors
- Fixed Assets- Inventory
Uniform CapitalizationProperty Taxes
Order to Cash
ERP Capabilities TAX Needs
Order EntryOrder ManagementBillingA/RInventoryOrder Promising
State Apportionment Factors-Inventory-Sales
Bad DebtsSales Taxes/VATSection 199Foreign Source Income1.861-8 Apportionment FactorsForeign W/H TaxesWarranty Accruals
Tax Data: Information where is it?
Copyright © 2004 Deloitte Development LLC. All rights reserved. 10
Despite the Numbers … Notice the Shift
Tax Aligned IT Initiatives
SarbanesOxley
Value Based IT Implementations
6
Copyright © 2004 Deloitte Development LLC. All rights reserved. 11
U.S. In
come Tax
U.S. In
come Tax
Property
Property
Custom & D
uties
Custom & D
uties
Excise Tax
Excise Tax
Non U.S
. Income
Non U.S
. Income
Employee B
enefit
Employee B
enefit
Credits
& In
centives
Credits
& In
centives
Corporate
Products and ServicesTechnologies and Services
Autom
ation and Information Services
Distribution
Bus
ines
s Pr
oces
ses
Treasury
Procurement
Inventory Management
Revenue / A/R
Bookclose / Financial Reporting
IT
Disclosures
Payroll
Payables
Financial Plan and Outlook
Commissionaire/Commission Agent
Internal Control Fundamentals
Non U.S
. Indire
ct
Non U.S
. Indire
ct
State Income Ta
x
State Income Ta
x
Sales & U
se
Sales & U
se
Unclaimed P
roperty
Unclaimed P
roperty
Telecom Ta
x
Telecom Ta
x
Tax Aligned IT Initiatives – Tax Across theBusiness
12
Copyright © 2004 Deloitte Development LLC. All rights reserved. 12
Advantages of a Tax-Aligned Approach
• Business processes
• Compliance and ongoing operations
• Immediate tax benefits
7
Copyright © 2004 Deloitte Development LLC. All rights reserved. 13
Tax-Aligned Advantages
Business Processes
• Many project are now measuring the value. IT projects aim toimprove business processes, such as finance and accounting, supplychain, manufacturing and sales, and distribution. Tax can providehuge organizational value.
• Without thorough tax involvement, taxpayers risk overlooking andcompliance requirements, which could undermine the project’sbusiness case.
Copyright © 2004 Deloitte Development LLC. All rights reserved. 14
Tax-Aligned Advantages
Compliance and ongoing operations
• Significant and permanent cash savings can be achieved by reducingtax compliance costs and audit cost.
• You can also avoid costly system changes to keep pace with mergers,acquisitions, dispositions, market dynamics, or new tax laws.
8
Copyright © 2004 Deloitte Development LLC. All rights reserved. 15
Tax-Aligned Advantages
Immediate tax benefits
• Short-term opportunities alone can substantially reduce the cost ofmany IT initiatives.
• These opportunities can include;– avoiding the overpayment of transaction taxes on IT-related purchases
– accessing all available governmental grants and incentives
– expensing certain implementation costs
– securing available tax credits or deductions on R&D activities
Copyright © 2004 Deloitte Development LLC. All rights reserved. 16
Reduction of compliance costs fromgathering information &
preparing returns manually
Increased data integrity and reliability
Automate and standardize tax audit processes
Reduction of IS time spent maintainingtax calculations & rate tables
Improved record retentionfor audit defense
Reduction of staff time spentresearching tax rates and regulations
Why this Matters to Tax Administrators
9
Copyright © 2004 Deloitte Development LLC. All rights reserved. 17
Why Tax Aligned IT Approach Matters to Ta Administrators
Enterprise / Tax PortalWeb-based Tax DashboardThin Client & Push TechnologyCustom Views & Query Cap
TaxCalculations
and ReportingSAPFinancials
HR Systems
Other SourceSystems
ForeignSubs
Other GLSystems
OtherFinancial Data
Sources
Tax DataWarehouse or
PlatformETSData
Interface
DocumentManagement
ManualCollection
Web
Fixed AssetTracking
ScannedDocuments
ElectronicDocuments
Archival&
RecordRetention
SourceSystem
Interfaces
Enterprise Tax System
Architecture
Planning and Modeling
Copyright © 2004 Deloitte Development LLC. All rights reserved. 18