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The Next Generation of Global Tax Management

The Chicago Tax Club – 55th Annual Fall SeminarNovember 19, 2008

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The Complexity of the Global Tax Environment

Globalization & velocity of business

Increasingly complex transactions and organizational structures

Heightened demand for accuracy

Increased enforcement by taxing jurisdictions and regulatory bodies

Drive toward currency

Current and forecasted shortages of qualified personnel

Copyright 2008 – True Partners Consulting, LLC ©

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Total Tax Function Risk Defined

TTFR = (FR + OR + TTR) IR

TTFR = Total Tax Function Risk

FR = Finance Risk

OR = Operational Risk = Process Risk + Knowledge Risk + Technology Risk

TTR = Tax Technical Risk

IR = Integration RiskCopyright 2008 – True Partners Consulting, LLC ©

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Total Tax Function Risk Defined (cont’d)

Finance Risk: The quality and accuracy of data from accounting in accordance with existing financial reporting standards

Process Risk: The failure points in existing processes

Knowledge Risk: The risk of the loss of business intelligence and human error

Technology Risk: Improper or poor utilization of technology

Tax Technical Risk: The risk of misinterpreting or incorrectly applying tax statutes, regulations, case law, and financial reporting standards

Integration Risk: The failure to properly link and manage the flow of information


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One Company’

s Story


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Company Profile

Publicly traded manufacturer based in the United States

Annual revenues in excess of $3 billion with sales in 50 states and Canada

Locations in 20 states and Canada

Legal entity structure comprises 50 entities

Oracle Financial based on management reporting

Tax Function Resources– Four full time professionals– One contractor– One intern


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Tax Function Current State

Significant Reliance on Excel

– All tax processes: Income tax reporting and compliance, sales and use tax, and property tax are spreadsheet based

– Spreadsheets are stored on network drive

– Password protected files utilized

Document Retention

– Binders and hard copy files

Workflow tool

– Email

Status Reporting

– Email and meetings


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Tax Function Current State (cont’d)

Tax Reporting– In excess of 200 spreadsheets to develop

provision– Not scalable for acquisitions– No linkage to financial reporting systems– Manual process prone to error

Tax Planning and Analytics– Spreadsheet based and relatively

inflexible for modeling– Inability to view the business in the same

manner as the rest of operations– Not much time for analysis


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Tax Function Current State (cont’d)

Tax Compliance Functions– Income Tax Compliance

• In Source Express• Only trial balance imported, all other

data manually entered• Significant tax calculations performed

in hundreds of spreadsheets– Sales and Use Tax

• Manual processes - spreadsheets for completing sales tax returns

• Taxability of purchases made by AP clerk, no automated tax decisions

• Exemption certificates kept in a file cabinet by customer service, no review by tax

• Tax rates updated manually, no defined process

– Property Tax• Spreadsheet based and manual


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Tax Function Change Agent

Significant consulting fees in prior year end close to prepare and review tax reporting as a result of errors in spreadsheets

Planned acquisition that would result in doubling in size of the organization

Existing process would not scale to handle additional complexity associated with recent acquisitions

Movement by external auditors toward eliminating reliance on spreadsheets for analytics and calculations


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Tax Function Identified Risks

Data flow risks

– General ledger and trial balance not maintained at the legal entity level

– Legal entity data from accounting reports are poorly understood and lacked transparency back to the general ledger and trial balance

– Top-side entries that are not pushed down to the legal entities

– Poor controls related to reconciliations and Oracle queries

– Over 600 spreadsheets in use manipulating data

– Redundant data and processes with the same data cut and pasted from other spreadsheets


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Tax Function Identified Risks (cont’d)

Data flow risks

− Each tax function process ran own reports from Oracle resulting in data inconsistencies

– Examples:• Apportionment for provision not the

same as for compliance or FIN 48• Sales by state from sales tax reporting

different than apportionment• Wages by state from employment tax

reporting different than apportionment– Data moved from spreadsheet to

spreadsheet via cut and paste resulting in multiple versions of the truth

– Updated data not necessarily carried through all spreadsheets

– Both data and calculations stored on spreadsheet resulting in the inability to lock down data during reviewCopyright 2008 – True Partners Consulting, LLC ©

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Workflow Risks– No Work flow management in place– Coordination dependent on meetings

and emails between the tax professionals

– Lack of transparency of work progress resulted in deadline driven work flow

– Management could not easily tell what capacity existed for special projects

– Tasks transferred via email resulting in multiple versions of the same document and version control issues


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Process Risks – Process documentation nonexistent or

dated– Critical institutional knowledge known

only to key personnel, not documented– Controls established for only SOX

relevant sub-processes– No milestones or signoffs other than on

end product– No process for periodic review of

calculations and data sources (SALY)– No retention of accounting data at the

time of compliance– Paper binder based document retention

made location difficult, control impossible


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FR - Finance risk is high due to large amount of data manipulation in Excel. In addition, a high reliance on reports from source systems that were poorly understood by tax and rarely tested.

OR – Operational Risk extremely high.

– Reliance on a single tax professional and tax consultants presents an exposure to personnel shortage and turnover problems.

– Lack of visibility of entire process, coupled with difficulty coordinating activities

– Ineffective use of technology resulting highly manual processes prone with error

TTR – High tax technical risk to do lack of planning and analysis. So much spent getting it done, no time to get it right.

IR – High, tax processes ( Provision, State Compliance, Federal Compliance, Audit etc) treated as disconnected “waterfall” activitiesCopyright 2008 – True Partners Consulting, LLC ©

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The Next Generation Solution

Process and technology changes occur in tandem and iteratively

Processes and technology changes include all stakeholders; vendors, outside consultants and client

All vendors and stakeholders work in a coordinated and cooperative effort:– Single vision– Single set of requirements– Single project plan– Single success measure– Single methodology

Developed through multiple iterations rather than a single monolithic project


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Tax Function Re-engineering (cont’d)

Implemented a tax portal (cont’d)

– Assignment of tasks to tax professionals• Visibility on progress on tasks• Visibility on capacity of tax department

– Integrated into a single view• Calendar• Tasks• Tools • Documentation

– Provide a single collaboration site for internal stakeholders and outside consultants

– Captured institutional knowledge on processes in work flow

– Reduced training time for new personnel

Single tax calendar– Milestone and tasks associated with all

deliverablesCopyright 2008 – True Partners Consulting, LLC ©

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Tax Function Re-engineering (cont’d)

Implemented OLAP Analytics and Reports

– Separated data from calculations– Calculations are secure and auditable– Reports are standard and provide drill down– Eliminated need to cut and paste data– Provided rapid analytics– Provided integration with compliance tools (In

Source)– Eliminate spreadsheet risk by limiting ability to

alter formulas– Reporting and analytics available across all tax

lifecycles– Complete transparency to source accounting and

tax data – Reduced ramp up time for new personnel by

eliminating the need to understand spreadsheets– Reduced training time by using an intuitive MS

Office interfaceCopyright 2008 – True Partners Consulting, LLC ©

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True Partners Consulting – Project Lead Tax Risk Management & Tax Advisory

Defined Next Generation Solution– Mapped existing state of the tax function

processes

– Identified areas of operational risk, financial risk, tax technical risk, and integration risk

– Determined and validated requirements with key stakeholders with a focus on risk management, increased efficiency, and value to the organization

– Developed the desired state based on best practices and latest technology in order to achieve a fully integrated tax function


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Tax Risk – Process Definition

Mapped existing tax processes:

– Tax Reporting• FAS 109, FIN 48, FAS 5

– Income Tax Compliance• International, federal, and state &

local– Indirect Taxes

• Sales & use, VAT/GST• Exemption certificate management

– Property Taxes– Unclaimed Property– Significant Sub-Processes

• Fixed assets; section 199; apportionment; intercompany transactions; transfer pricing; credits and incentives; earnings & profits; stock basis calculations; purchase accounting


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Tax Risk – Process Definition (cont’d)

Process mapping used to identify:– All source data– Outputs of each step of the process– Process weaknesses– Automation points– Financial and tax technical risk

Interviewed all key stakeholders to develop desired state:– Tax function – Accounting and finance– Internal audit– IT function– Management & operations– External consultants Copyright 2008 – True Partners Consulting, LLC ©

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Tax Risk – Process Design

Developed risk profile incorporating:– Identified risk– Management’s risk tolerance– Cost benefit analysis– Prioritization of objectives

Re-engineered tax function based on:– Process mapping– Requirements established in stakeholder interview processes– Best practices– Risk profile


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Tax Risk – Tax Function Re-engineered

Execute re-engineering plan– Develop formal plan– Validate with key stakeholders– Identify technology enablers– Work with tax to communicate vision

Provide project management– Planning– Change & scope control– Project tracking and communication– Change management


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Tax Risk – Tax Function Re-engineered (cont’d)

Validation of data & system

results – Data cleansing to ensure quality of data– Provide testing methodology – Expected results testing & reconciliation– Tax technical analysis– Signoff on tax technical results

Manage user acceptance of new process– Change management communication plan– Deployment– Training– Follow-up validation of user acceptanceCopyright 2008 – True Partners Consulting, LLC ©

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Intelysys Project Role – Technology Automation

Built Data Source– Designed & Built Accounting Data Store– Built Import Tool for loading Accounting

Metadata– Built Import Tool for loading Trial Balance, GL, Fixed Asset, Property Tax data from several

excel sheets into Accounting Data Warehouse– Built Tax Data Store– Provided exports for FAS 109 and Fin 48

Systems

Built Web Enabled Tax Portal– Built eFileRoom (embedded electronic data storage)– Built eWorkflow (embedded Project

Management)– Built Tax Issue Tracker– Built Tax Calendar and Integrated with Vertex

Tax Calendar– Integrated Power OLAP within eTaxPortalCopyright 2008 – True Partners Consulting, LLC ©

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Tools for Tax Risk Management and Process Automation

eTaxPortal - Single Point of Entry for all Tax Department related tools. Key Components of eTaxPortal:

– eTaxFileRoom: Tax Document System to Store eTaxWorkflow: Tax Task Management

– eTaxTER - Manage Budget vs. Actual, Time and Expense Reporting

– eTaskManager: Tax Project Tasks, Scheduling and Resource Management

– eLegalEntity: Legal Entity Manager– eTaxCalendar: Filing Dates Tracker by Entity– eTaxWorkPapers: Work Papers

Management Tool

Copyright 2008 – Intelysys ©

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eTaxPortal - Tax Portal for Today's Tax Department

Embedded Tax Document Repository– Tax data categorization and taxonomy

implementation– Search across projects, documents, tasks,

attachments, messages– Application, Project, Document Access control and

Field Level Security– Access Logs for SOX Compliance

Embedded Tax Project Management– Assignment of tasks to tax professionals – Visibility on progress on tasks and capacity of tax

department

Personalized (Dashboards) for customization

Tax Calendar for tracking filing deadlines & milestones

Centralized communication & messaging

Publish Tax department specific content

Links to internal, external web pages and Tax Tools


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eTaxPortal - Open Architecture for Integration

Integration with Accounting and Tax Data Sources

Integration with Accounting Data Import utility

OLAP Integration for tax reporting and analysis

– Provision, compliance, various tax types – Reports accessible via the eTaxPortal

Outlook Integration

Work Paper Integration

Flexibility to integrate with existing tax technology utilized resulting in a fully integrated system


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Red Moon Solutions – Project Role Implementation & Reporting

OLAP and BI Tools– Eliminate integration risk– Reduce data flow risk by

creating a single source of data– Mitigate operation risk by

providing flexible planning and analysis

– Manage financial risk by providing the view of the data from tax to accounting

– Control tax technical risk by separating the calculations from data

SAP Expertise

Experience with tax, OLAP and BI toolCopyright 2008 – Red Moon Solutions ©

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What is Business Intelligence & OLAP?Business Intelligence (BI)

Programs and technologies for gathering, storing, analyzing and providing access to data to help enterprise users make better business decisions

- Web definition

On-Line Analytical Processing (OLAP)

Provides ability to retrieve and analyze multi-dimensional, summarized views of business data to reveal business trends and statistics not directly visible in data directly retrieved from a relational database.

- Web definition

Copyright 2008 – Red Moon Solutions ©

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Multi-dimensionality

entity

ass

et c

lass

location

entity

ass

et c

lass

actual/forecast

location

period

account

entity

Copyright 2008 – Red Moon Solutions ©

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By looking at tax risk in a holistic manner incorporating all components driving risk for a tax function, the next level of tax risk management can be achieved

It is the proper alignment of people, process, technology within the tax function effectively integrated with all business processes that will allow an organization to achieve the next generation of global tax management


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Today’s Presenters

Andrea Gronenthal

Managing Director – True Partners Consulting LLC

Chicago, IL

[email protected]

Telephone – 312-835-1184

Joseph Ochoa

Senior Manager – True Partners Consulting LLC

Chicago, IL

[email protected]

Telephone – 813-447-9421


Khaja Syed

President – Intelysys, Inc.

Ashburn, VA

[email protected]

Telephone – 703-939-0084

Kelley Lear

Managing Director – Red Moon Solutions, Inc.

Sarasota, FL

[email protected]

Telephone – 941-379-7108

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Tax Advice Notice

We are required by regulation to inform you that any tax advice contained in this communication (or in any attachment) is not intended or written to be used, and cannot be used by any taxpayer, for the purpose of: (i) avoiding U.S. federal, state, or local tax penalties or (ii) promoting, marketing, or recommending to another party any transaction or matter addressed in this communication (or any attachment).

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