If you want to read more about my views on this topic, please check out a longer, more comprehensive research note on this topic at our Web site. ###
For the past couple of years, I’ve been asserting that most larger companies (those with 1,000 or more employees) need to adopt a new approach to using software to handle their taxes comprehensively, both the direct sort (income taxes) and the indirect variety (sales and use as well as value-added/goods and service taxes). It’s an emerging enterprise challenge driven by more competent and determined tax enforcement by governments worldwide. It will require corporations to make changes in how they employ software to manage their taxes Big Fat Finance, structure their tax-related data, and manage their tax processes. Increasingly, corporations will need to be able to have better control over tax data management, tax calculation, and associated tax processes buttoned down to be able to optimize their tax liabilities while minimizing their tax risk exposure.
There are a couple of important game changers at work that fundamentally alter the way larger companies need to manage their taxes. One is a more effective use of technology by governments to collect taxes; the other is increased cooperation between taxing authorities to share information. In the United States, the Internal Revenue Service (IRS) has long shared its tax return data with individual states, and now the number of international bilateral information sharing agreements is growing Big Fat Finance, which will have a profound impact on how companies manage transfer pricing. If you don’t think this is a seismic shift, think again. A generation ago, Swiss bank secrecy was inviolate. Today, tax authorities in the United States, United Kingdom, and (soon) Germany will be getting reports from Swiss banks about their respective citizens’ accounts.
Today, few companies are prepared to deal with a more challenging tax enforcement environment. Unless they deal with it strategically, they are likely to pay more taxes and incur greater fines than necessary. Corporations must step back and rethink how they manage taxes. They must address their information, technology, and process shortcomings to achieve the lowest possible tax expense and manage their tax-related risks more effectively.
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