Business intelligence, analytics, and unleashing the strategic potential of indirect tax.

• Author: Stine, Karen

Most organizations employ Business Intelligence (BI), the use of data and software to enable better decision making, throughout many of its functions in order to drive business success and make strategic decisions. Regrettably, one department that has historically not received the benefits of BI is indirect tax. The reality is BI offers indirect tax the opportunity to unlock its strategic potential within the organization, thereby increasing the organization's competitive advantage in the marketplace.

Indirect tax compliance has the reputation of being a necessary evil, something that needs to be done but essentially adds no value. This is a sentiment that does not need to prevail, because indirect tax can be transformed into a strategic partner within the organization by unleashing the value that is contained within tax data. With the use of BI tools, indirect tax can move beyond compliance with such value added activities as forecasting reserves, improving transparency, and reducing audit risk.

There are a variety of examples of how BI can unlock the strategic potential of tax within an organization. For example, a survey recently conducted by Tax 2.0, an interactive tax industry forum, entitled "Optimizing Tax Operation," revealed a high level of agreement among tax professionals that other business functions need to have a greater understanding of the tax implications of their business decisions. The survey also supported the notion that the tax department sees a need to be more involved with internal tax policy decisions stemming from tax legislation changes. Both of these goals can be achieved by providing quantitative indirect tax information to other parts of the organization through the use of BI.

Other examples can be found in sales and procurement transactions, which both contain valuable information that can be leveraged for strategic purposes. For instance, one company has used procurement transaction data to structure their entities in a way that minimizes the tax implications, whereas another has used procurement transaction data to analyze nexus and determine where a facility should be located to permit the lowest possible tax liability.

Indirect tax data can also be used for legislative purposes: A company can use the quantitative evidence embedded in the transactions to help shape legislation by understanding the effect of changes to exemptions or increases in tax rates.

BI is an umbrella term for tools that exist to enable the analysis of data at increasing levels of complexity based on the needs of the organization. This article reviews the BI tools that can be used in indirect tax and examines examples of how each may be used to advance the use of...