As companies shift from the recession's defensive postures to pursuing increased market share and revenue, chief financial officers are focusing on transforming finance operations to support growth in an efficient and managed way. For finance this means transforming processes to enable sound risk management and compliance with global hyper-regulation as their companies continue to expand.
Central to transforming finance is standardizing both transactional and business advisory services across geographies and lines of business. This includes everything from planning, budgeting and forecasting to the monthly close and more. It also includes the tax process life cycle of planning, provision, compliance and defense. While tax transformation is an integral part of finance transformation, it is often saved for last and in some cases never addressed.
However, by embracing lax as part of finance transformation, strategic CFOs can increase cash flow and earnings per share, while improving the internal controls associated with the financial reporting of income taxes. A desirable by-product of this approach is much improved efficiency around the tax workflow of both finance and tax resources. To realize the significant returns from a strategic approach to tax, finance must play an essential role to ensure that tax is part of overall finance transformation.
Tax Transformation = Value Creation, Decreased Risk
When looking at process transformation on the finance side, CFOs will often ask questions that relate to two overarching themes: do the changes we're making create value and reduce risk? In the tax context the questions would be:
* Do you know the status of your company's global outstanding tax obligations?
* Are they being minimized?
* Are they controlled and monitored to ensure tax compliance as well as accurate financial reporting?
All too often when it comes to tax, CFOs either leave these questions unanswered or assume the answers are "yes." The reality is that the answers are not that simple and given the potential risks, CFOs would be well served to delve a little deeper.
What (hey will likely find is that tax transformation is needed, should be an ongoing process and--if approached as a collaborative effort between the two departments--will not only increase value (improved cash flow and EPS), but also yield benefits in the form of better tax governance and reduced risk.
Consider the tax and risk profile of a $5 billion multinational with 50 U.S. legal entities operating in all states and 300 non-U.S. legal entities operating in 30 countries.
With four years open to tax audits, this company could have 10,000 tax return obligations to control and account for in its financial statements. And that's just income tax liabilities.
Transaction tax obligations (sales, use, value-added tax, etc.) dwarf those numbers as there are thousands of jurisdictions and monthly filings. Between income and indirect taxes, total outstanding tax obligations could easily approach 50,000 open tax returns covering a four-year period.
Granted, not all are material. But even...