Common Challenges for International Corporate Tax Teams

Between provisioning, compliance, reporting, transfer pricing guidelines, transparency demands, and risk mitigation, international corporate tax teams bear a lot of responsibility within the office of the CFO.

Even successful corporate tax teams suffer from limitations created by ineffective tax software. A general lack of executive knowledge creates additional liabilities amid changes to both evolving tax guidelines and local tax authority scrutiny. Too many financial teams are content with sticking to the status quo with corporate tax management, unaware that their current practices could become an unexpected source of trouble as scrutiny of these methods increases.

As new tax practices and guidelines evolve, new challenges are arising for corporate tax teams—and old, overlooked procedural issues may cause problems if left unaddressed. Here’s a look at some of the most common challenges those tax teams may face, and how corporations can proactively respond through improved technology and oversight.

A Lack of Tax Transparency Across Multinational Organizations

It goes without saying that the very nature of international corporate tax is complex. But it’s much more difficult when the tax professionals within an organization lack insight into their own internal tax situations.

This is the tax management equivalent of flying blind: Tax processes are executed, and scrutiny is avoided, leading both tax teams and executive leaders to assume that all is well with their corporate tax operations. But ignorance is bliss only until tax authorities take an interest in your company—and if you don’t have visibility into your tax processes, your company could be in for a rude awakening.

Incomplete or lagging tax data can create headaches and slowdowns for corporate tax teams. This incomplete data affects tax forecasting and other aspects of financial planning, and it limits the tax department’s ability to offer insights that inform strategic decision-making at the executive level. Most importantly, this limited view of internal tax data keeps key stakeholders from monitoring a company’s tax processes.

The best solution to this problem is to implement corporate tax software that can automate the collection of relevant tax data, storing it in a centralized place to help tax professionals keep up with ongoing demands.

Managing Intangible Assets Across International Jurisdictions

Many multinational businesses are familiar with the profit-shifting practices used to move assets and profits to lower-tax jurisdictions where they can reduce their overall tax burden. But recent Organization for Economic Cooperation and Development (OECD) guideline changes are making an effort to discourage and prevent this transfer pricing activity from taking place.

Transfer pricing practices must balance the fiduciary needs of the corporation with the expectations of local tax authorities. Corporate tax teams don’t want to engage in tax practices that lead to audits and penalties, but they’re also responsible for employing a defensible strategy for minimizing their company’s tax burden. Transparency into tax and transfer pricing practices is an important first step toward managing change across these processes.

Profit-shifting practices will still be sought and used to reduce the tax burden for an international corporation, but these processes must be subjected to greater internal scrutiny and stacked up against the expectations of local tax authorities. Ultimately, the management of assets and profits across international jurisdictions requires a strategic approach, along with thorough documentation of the rationale behind these decisions.

Identifying Relevant Comps During Economic Recessions

When certain financial markets suffer a recession—or even when recessions go global—the traditional methods of finding comparables for transfer pricing may not apply. When this happens, corporations need to create new methods for calculating accurate pricing.

The recent global disruption caused by the COVID-19 pandemic highlights the limits of arm’s-length transfer pricing calculations amid rapidly changing economic conditions. Your company’s default transfer pricing methods may need to be adjusted, or scrapped entirely for methods that use a more appropriate rationale given these challenges.

In some cases, comparables can be found through the identification of similar transactions that were affected by these economic changes. In other cases, though, the speed of the economic changes may be so fast that alternative pricing measures, such as the transactional net margin model (TNMM), may be required as a substitute for arm’s-length calculations.

Using Tax Data to Mitigate Risk

A growing percentage of CFOs view tax as an important but underutilized financial activity as it relates to risk mitigation. But those leaders are eager to adopt technology that improves their tax reporting and supports better oversight of financial activities across their organizations.

A better approach to tax data management doesn’t only satisfy global tax authorities. It also creates a new resource for generating insights into your company’s financial practices, with the ultimate goal of using tax data-driven insights to implement procedural changes that mitigate risk for your organization.

Your ability to leverage this tax data will be determined by the capabilities—and limitations—of your corporate tax software. Data consolidation and management, documentation tools, forecasting and reporting tools, and other platform-based tax solutions all play a role in generating value from your tax data.

By consolidating and analyzing tax data in real time, for example, organizations can identify risks and other vulnerabilities faster and recommend corrective action. This is a more efficient approach to tax data management than the manual batch calculation approach, which creates delays and results in lagging data insights that aren’t as valuable to the office of the CFO.

With the right corporate tax software, your tax department can achieve a lower error rate, which ultimately leads to fewer penalties and fees, and better productivity.

Orchestrating a Highly Complex Process

International corporate tax is full of challenges, but the difficulty of this work does not excuse organizations from making sure their tax activities are executed properly.

By properly managing these activities through a modern tax solution, organizations can harness the benefits of improved global tax oversight. This not only reduces the risk of error in these organizations but also allows the tax department to become a better resource for overall strategic decision-making.

Unsure of whether to purchase a license for existing corporate tax software or build your own? Find out how to approach this decision through our white paper, Corporate Tax Software: To Build or Not to Build?