Tax technology: forging forward - but how fast and in which direction? Data rules the tax technology roost, elevating professionals who embrace its potential, but the "new normal" is not without its pitfalls.

• Author: Levin-Epstein, Michael
• Position: Cover story

In the world of real estate, it's all about location, location, and location. In the tax world, it is becoming all about data, data, and data. And whatever facet of tax technology you're talking about--whether it's hardware, software, Big Data, the cloud, data storage, or cybersecurity--the data are the key drivers.

Especially in the last decade, the relationship between tax and data has helped to produce technological advancements that have created a tidal wave of changes for the corporate tax executive.

One of the biggest changes in the tax technology space has been the rate of change, according to Stephen McGerty, head of OneSource indirect tax technology at Thomson Reuters. Increased regulatory requirements and technology advancements are both evolving more rapidly than ever before, he says. For tax professionals, this means adapting to two constantly shifting landscapes, both of which they need to stay plugged into, McGerty asserts.

Tax technology has evolved and elevated the job for tax professionals who embrace and harness it. The analytics and insights provided by tax technology can give tax professionals a seat at the corporate table and help prove their strategic value, McGerty says.

New technology unlocks the value of data. "It used to be that we did a return, put it away, and only revisited it to defend an audit. Now, technology allows us to use that data and extract more value--for scenario planning, for example, or for identifying trends we didn't see before," he explains.

But there are complications. Tax applications to date have been purpose-built, says Jennifer Kurtz, principal architect at Vertex Inc. They are designed to meet particular needs within the tax life cycle, and each application is different. "They are independent applications, making it difficult to move the data between these systems and through the entire tax life cycle," she says. Today, the movement of tax information is accomplished through a series of complex integrations at the data level. "Extracting data for tax applications from financial systems has also been a challenge, since the information needed may not be reflective of the needs of tax and more so of the management structures," Kurtz added.

So if data is the fuel in the tax technology revolution, what's the new technology engine? The emergence of software specifically built and designed for tax departments, jurisdictions, and authorities has revolutionized the corporate tax space. Specifically, the development of a vast array of software applications, combined with the evolution of data management, integration, and access, has shaped the expectations and real-world experiences of tax technology users, not only in the United States but all around the globe.

Indeed, notes David Deputy, director of tax data management at Vertex, jurisdictions outside the United States are playing major roles in tax technology. What Brazil and China have done--creating systems for all transaction details rather than asking for summary data filed in returns--is the future in tax technology. "The jury is still out on whether the governments will provide the calculation, as well as the storage, of post-calculated data results. The cloud makes either option doable at a reasonable cost today. The cloud also enables the government to become a 'tax as a service' provider directly and demand all your detailed data all the time," he explains.

Software offerings in the cloud allow for integration between systems, making true automation possible, notes McGerty. "Cloud offerings, as opposed to on-premises offerings, allow us to deliver updates, changes, and improvements to all of our customers in real time," he says.

Brad Hearn, head of Tax Product Management Longview Solutions, agrees that the emergence of the cloud sits at the center of the technological revolution. The cloud "promotes a vision of a landscape that serves as an ecosystem of best-inbreed solutions, tightly connected and sharing data seamlessly between one another," he says. That underlying infrastructure is what drives much of the conversation around Big Data and analytics, recognizing that, with so much information at our disposal, new tools are needed to understand and interpret it, explains Hearn.

Deputy echoes Hearn's take on the cloud and Big Data: The combination of the cloud and Big Data is far and away the most important development in tax technology. "Computing is now a utility like power, and tax is now beginning to understand how to create the appliances (i.e., apps) to harness this power. We are at the very beginning of this major shift. Right now we are defining the base layer, the engine to power tax performance. Once that is complete, the applications will start proliferating much as they did on the iPhone, and productivity will increase dramatically as a result," he says.

Kurtz also emphasizes the impact of Big Data and the cloud. Both the cloud and Big Data will propel the current generation of tax solutions into enterprise-level software. The cloud will continue to evolve and become more widely adopted by more and more corporations that want to leverage tax applications that will use fewer resources and reduce maintenance costs and efforts, she says.

"The number of data encryption and multifactor authentications are also advancing cloud-based technology. A benefit is that tax departments do not have to be reliant on in-house IT departments, where tax may not be seen as 'mission critical,'" Kurtz explains. Additionally, she says, since many business applications are moving to the cloud, integration technologies to move data between systems managed by clients and systems residing in the cloud are getting a lot of focus and becoming more robust, faster, and more secure as a result.

If this is the beginning of a revolution in tax technology, are these tectonic shifts good for all tax practitioners? Are dangers present or lurking for taxpayers in the dizzying pace of technological change? It is a subject explored in many of its dimensions by TEI tax executives and professional advisers at multiple forums, including, most recently, in Washington, D.C., at TEI's 65th Midyear Conference and in Munich, Germany, as part of a Corporate Tax Executives workshop. This article draws on and expands upon those conversations to explore key perspectives on the new technology--both its benefits and risks.

Impact on TEI Practitioners

Hearn says there's no looking back when it comes to tax technology: As we see how tax technology trends are affecting the expectations of buyers, the mindset of tax professionals is continuing to evolve, embracing a focus on data. "We believe having a data management platform specifically designed to be owned and operated by the tax department will prove to be immensely powerful and deliver tremendous benefit to the tax function," he says.

So, how does it affect the daily activities of TEI's tax practitioners? According to Deputy, technology removes the need to ask IT for access to data by moving the tax professional to a more self-service data access and analysis mode. "Technology also enables users to continue to utilize Excel for the presentation of data but separates data storage and calculation, moving them into a secure, auditable central system. The net result is that users keep tools they know and are comfortable with, which in the end means they can work much more efficiently with a higher quality of outcome," he explains.

Technologies that leverage Big Data, analytics, and application programming interfaces (APIs) allow for this now, and tax technology providers are creating solutions this way, adds Kurtz. In some cases, this will change the way tax looks at information, moving from working with data from the past and at a summary level, to working with that same data in more detail and leveraging analytics to make strategic choices about the future. It also means finding ways to change the upstream processes that impact tax and to automate the organization of data for tax purposes.

While we expect that comprehensive data management will demand increasing focus from the corporate tax professional, technology is currently impacting everyday jobs in a more specific fashion, says Longview's Hearn. Today, most tax departments have installed compliance applications or outsourced this function to service providers who take advantage of the same (or similar) technologies. With many tax authorities now requiring electronic submission of data, this has...