So what does this all mean? Bottom line, it's an increased awareness of the impact that transaction taxes have on the overall supply chain, sourcing decisions, customer satisfaction, cash flow, quote-to-cash and procure-to-pay processes that can create business value beyond tax savings. Is there another function that touches every single transaction in and out of the company and in such a big way?
Many Tax Departments Lack Sufficient Technology Support
Generally, the transaction tax professional has had a limited set of tools available to him or her. For the lucky supply chain folks, the main enterprise resource planning (ERP) suppliers provide immense capabilities in pricing, warehousing management and logistics management; but even then many purchase additional supply chain software solutions. In contrast, the ERP systems only provide basic transaction tax functionality to calculate tax on sales and purchase transactions, and some reporting options focused around basic compliance functionality.
So the tax department needs to look beyond their company's ERP system if they want to see transaction tax across the entire enterprise, create what-if scenario planning, perform non-standard analysis and have a one-stop shop for transaction tax data. This is where implementing a transaction tax technology solution becomes critical in the shift of the transaction tax department from afterthought to a more creative value-add strategic advisory and planning organization. All this is required to recognize transaction tax for what it really is: an integral part of the supply chain.
Selecting a Transaction Tax System
Thankfully, new technology is available to help the tax team with this new strategic role. When selecting a transaction tax application there are many things to consider: Is the solution a desktop U.S. sales and use tax application, requiring custom engineering for supply chain or ERP system integration? Was the solution created for sales and use, with VAT and other transaction tax functionality as an afterthought? Look for a solution built from the ground up to cover all transaction taxes. This provides a consistent tax approach, as well as a global view across all countries and across all types of transaction tax. Other functionality for which you should look includes:
- One centralized system that calculates all the transaction taxes worldwide, independent of ERP or supply chain platform. It's no longer necessary to maintain different logic in different ERP systems and manually consolidate tax information. With a comprehensive transaction tax solution, all data is in one place in one consistent form. Global visibility to the transaction tax picture across the enterprise is immediately available, making it much faster to do tax compliance checks, determine cash flow impacts and provide audit trails that help meet Sarbanes-Oxley requirements.
- An application that interfaces directly with financial, supply chain and ERP systems, in real-time, and replaces the ERP system's own transaction tax calculation routines with a more comprehensive and complete calculation functionality for sales and purchase invoices.
- Centralized tax setups, regardless of ERP platform and in an intuitive way, allowing the tax department to take complete control of setups rather than relying on IT.
- Integrated tax research, with automatic updates for rates, rules, and product and service taxability, freeing the tax department from maintenance tasks.
- The ability to do what-if scenario planning, to see how specific transactions would be taxed for better tax planning and cash management.
- Flexible reporting tools for analysis. If you want to identify drops shipments or transactions with specific incoterms before you meet with your supply chain colleagues then your new transaction tax system should help you do that.
In conclusion, there is an evolution in transaction tax management underway as we begin to understand the impact transaction taxes can have in the broader supply chain management space and the other business process areas that transaction taxes touch. Clearly such an evolution requires that transaction tax professionals have the desire to take the concept of transaction tax management and define new territories. It also requires having the right tools and data at your fingertips, for which the tax department needs to consider a centralized, comprehensive and specialized transaction tax solution. If all these factors are in place, the role of the transaction tax specialist can become very strategic indeed, and the seat at the supply chain table will be well deserved. (Article first published by Financial Executive Magazine)