Tax compliance isn't for the faint of heart these days. Proper execution can directly affect cash flow, the defensibility of tax return positions, risk management, and ultimately the public's perception of your company as a responsible taxpayer. In the face of these concerns, as well as ever-changing tax laws and regulations and shortages of tax talent, the important business of compliance has become increasingly complex and automated.
No wonder that a growing number of global companies each year choose to outsource their tax compliance activities, including U.S. corporate income tax. If you are considering outsourcing, it is critical to prepare for the changes needed to optimize your outsourced tax operating model, including the choice of software and advisors. Outsourced compliance, when done strategically, may offer both quantitative and qualitative benefits, enabling tax departments to focus on planning, risk management, and better reporting.
A well-designed request for proposal (RFP) is key to preparing to outsource. It can help you scope and prioritize many areas of importance unique to your company beyond the tax returns that must be filed and deadlines that must be met. When developing the RFP, you should avoid tunnel vision, i.e., focusing solely on the mechanics of traditional "lift and shift" outsourcing and neglecting other critical elements of your tax operating model. Instead, the RFP should rely on a holistic understanding of your current tax operating model--your data, technology, processes, people, and governance model--as well as a forward-looking vision of where your tax department will be in three to five years. This approach will help you better meet your compliance obligations while supporting your tax departments role as strategic advisor and contributor to the broader enterprise.
What checklist items can lead to a pitch-perfect RFP? Start with a clear vision of what you want your tax department to be and do, then determine how outsourcing can support that vision. Most companies evaluate various approaches to compliance during this planning process, including transformation of in-house return preparation, collaborative sourcing of return preparation, lift and shift outsourcing, and outsourcing that includes rebadging compliance personnel. It is important to consider all these strategic options, which center on the human element but are all technology-enabled. With the big picture in view, you can identify your most significant compliance challenges and incorporate those requirements into your RFP. Doing this pre-release can make for a clearer, more concise RFP whose scope aligns with your vision.
Data and Technology: You Say You Want a Revolution?
Technology should be crucial to delivering the next-level benefits you expect from an outsourcing service provider. The interplay between your in-house enterprise resource planning (ERP) and tax technologies and those of your service provider will be important, including tax compliance and provision applications. Considerations include:
One of the most time-consuming and important areas to address in the RFP is tax data management. Your company will be responsible for data quality in the outsourcing relationship. Your service provider will need access to source trial balance data and details of many accounts for all legal entities. This can be a significant challenge depending on the number of ERP instances, the structure and level of detail of the chart of accounts, the purity of legal entity accounting, and whether local statutory accounting ledgers are...