Responding to Changing Tax Regimes Amid COVID-19 Fallout

Jamie Eagan - VP Product Management Tax & Transfer Pricing

Jamie Eagan is VP, Product Management of Longview products at insightsoftware. Jamie holds a B.Sc. in Accounting and a minor in Economics from State University of New York at Fredonia.

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The COVID-19 pandemic has underscored the need for tax teams to be more proactive in their activities, as well as more strategic in their analysis and the guidance they provide to their organizations.

Governments around the world are actively shifting and updating tax-related policies and regulations to address various ongoing challenges stemming from the pandemic. Because each country has its own variations in jurisdiction and taxation capabilities, their diverse priorities lead to vastly different and constantly changing legislation.

In turn, this results in a continuous stream of serious implications that must be considered and assimilated by corporate tax teams. For businesses with multinational operations or distributed entities, these ongoing changes require tax teams to be nimble, flexible, and ready at any time to analyze and model potential effects of shifting policies, making sure the calculations and reasoning behind their decisions are solid and defensible.

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Managing variances between results and forecasts

Changing environments also mean organizations may face large variances between their actual effective tax rate and their prior forecasts, which can necessitate frequent or large operational adjustments to stay on target. Ultimately, organizations want to ensure they pay the right tax while also ensuring that their forecasting ability is dependable. Especially where they are accumulating losses, they want to ensure that those losses are correctly categorized to allow for tax liability offsetting, and potentially carrying back losses over previous years (depending on the rules of the jurisdiction).

This requires not only the flexibility correctly calculate and analyze the data, but also the ability to provide all the necessary audit trail documentation for tax authorities. When operating under uncertain conditions, tax teams need to spend less time collating and aggregating data. This enables them to have more time to focus on reviewing and understanding the results, considering the implications, and feeding those insights into future tax planning and forecasting.

The pandemic means that many enterprises are facing volatile revenues across multiple subsidiaries in some or all of the jurisdictions under which they operate. Changing tax requirements drive further complexity into an already challenging and fast-paced scenario for tax teams, particularly as they affect both principal companies and their entities across borders.

With all this change, tax teams’ already heavy workload has increased exponentially, and trying to address all these changes through spreadsheets takes too much time. Disconnected data sources, slow processes, and lack of flexibility add to the delay. Plus, manual spreadsheets may contain thousands of rows of data that need constant validation checks for accuracy. This type of a system lacks efficient controls and subjects the reporting to risk of error.

Tax teams are in a constant shuffle to update reporting and provisioning to respond to changing regulations, and this can critically affect timelines for close processes. Without automation of tax processes and reporting, tax teams are ill-equipped to take control of their own strategic agenda to address these current and pressing trends from a tax perspective.

A solid foundation

Tax teams can therefore benefit from a solution that establishes a standard framework for preparing and reporting tax numbers across the whole group. This framework can applied across different jurisdictions to address all critical tax needs, allowing comparisons to be made across reporting cycles by pulling data from any ERP or consolidation application.

High data volumes, complex processing requirements, and diverse user bases should all be accounted for. Tax departments with unique needs—or those that require a high degree of

ownership over their tax reporting process—should not compromise and settle for a solution that doesn’t allow them to configure the system entirely to their liking.

These points are especially important, since constantly shifting government policies and volatile markets we continue to work through require teams to be able to fully monitor and model for their specific processes and needs. A strong technological foundation makes it easier to react to these changes.

The gold standard for tax teams to look for in this type of technology is the capability for real-time data access, as well as dynamic and intelligent data consolidation that can take place automatically across international and distributed entities, with the ability to easily update the rules and regulations that drive the consolidations. With this approach, tax teams can view the most up-to-date data calculations without waiting for processes to complete, giving them more time to analyze the results and suggest next steps.

By using a system that can be easily updated with new tax rates and that can produce reports based on both US GAAP and IFRS, enterprises can quickly address new policies and rapidly shifting business environments.

Tax team ownership

When tax teams autonomously own and maintain their organization’s reporting and provisioning, they are more productive and better positioned to increase their time spent on more strategic, value-added activities.

Eliminating dependencies on either outside consultants for reporting, or the IT department for scripting, makes both analysis and reporting easier to create, manage, and distribute. This also simplifies the process of delivering valuable insights to management.

Ultimately, this is the principal way that tax teams can successfully navigate the tumultuous waters stirred up by recent tax reforms and the fallout from COVID-19. Implementing a solid framework that centralizes data, automates calculations, and empowers tax teams to independently report on actuals while forecasting for different scenarios, is the only route executives can take to make the best-informed decisions that relate to managing a successful enterprise in the twenty-first century.

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