An organization’s resolution to introduce oblique tax (IDT) automation into its tax processes is commonly fraught with indecision and uncertainty. Each firm’s tax know-how journey is completely different, and it’s not at all times clear when and the way tax automation ought to be included or what the advantages might be.

Throughout their Synergy 2022 presentation, Joe Malloy and Chandra Wing from BDO’s Oblique Automation crew mentioned questions they are saying corporations ought to ask themselves earlier than investing in IDT automation.

Thomson Reuters requested Malloy and Wing for additional steering on the subject. Their solutions present a useful roadmap for company leaders who’re occupied with automated tax options however want extra details about what elements to contemplate and challenges to anticipate.

1.  Thomson Reuters: How are sure developments in politics, tradition, know-how, or trade affecting companies? 

Wing: Exterior elements past an organization’s management are inclined to affect decision-making inside. Regional disputes, supply-chain disruptions, technological progress, labor shortages, and regulatory modifications are just a few of the problems which will immediate an organization to rethink its operations. Agility, flexibility, and effectivity are qualities that the majority corporations need, however ageing programs and antiquated processes are sometimes holding them again. Inflection factors like these – the place failing to reply presents a larger danger than appearing – are very best occasions to contemplate switching to an automatic IDT system.

2.  Thomson Reuters: If a enterprise has plans to implement any system modifications now or within the close to future, ought to oblique tax (IDT) automation be thought-about?

Malloy: Anytime an ERP system is being carried out or upgraded, there’s a window of alternative to debate tax automation as a part of the method. Deciding which processes to automate will take some deliberation, as a result of all corporations are completely different – however IDT is a logical place to start out. The sooner tax is concerned within the dialogue the higher, nevertheless, as a result of buy-in from the highest is essential. And even when the challenge will get accepted, cross-departmental discussions and assist – from accounts payable, procurement, finance, IT, and so on. – are essential, particularly if the brand new ERP goes to allow enterprise-wide data-sharing.

3.  Thomson Reuters: If a enterprise is doing tax willpower and fee administration manually, is it possible that the tax crew can sustain?

Wing: A standard automation tipping level for a lot of rising corporations that also deal with tax willpower manually is when the quantity and number of product gross sales start to outpace the tax division’s means to maintain up. That’s when morale begins to erode, errors creep in, service declines, and staff begin questioning out loud how sustainable the present system is. Introducing automation at this level can increase morale and provides the tax crew a brand new objective to work towards: life after automation – that’s, when machines are doing the grunt work and the tax professionals are extra concerned in compliance, evaluation, technique, and enterprise growth.

4.  Thomson Reuters: Are there dangers with non-tax professionals figuring out tax?

Wing: A hidden advantage of gross sales tax automation is that it prohibits nontax professionals from figuring out the tax, thus decreasing the danger of errors and violations. The software program retains all the foundations, insurance policies, charges, and codes updated. This removes the burden from these inside groups who might not be acquainted with particular compliance necessities and will inadvertently overlook crucial tax obligations, resulting in noncompliance.

5. Thomson Reuters: What could be completed if tax calculations will not be as quick and correct as a enterprise would really like them to be?

Malloy: One of many issues tax automation does finest is enhance the velocity and accuracy of repetitive tax calculations (VAT/GST, gross sales and use, excise). If you’re nonetheless doing tax calculations manually, one option to decide if IDT automation will assistance is to take a look at your crew’s error fee. If it’s 3% or greater, automation could assist. In a latest Forrester Consulting Analysis paper on the financial affect of IDT automation, corporations with a 3% guide error fee have been in a position to cut back errors to lower than 1%, thereby saving cash, enhancing money stream, delivering higher customer support, and avoiding the headache of getting to recalculate taxes to search out and repair errors.

6. Thomson Reuters: Are there dangers with having a number of billing or buy programs?

Wing: Corporations which have a number of enterprise programs for billing, buying, payroll, and accounting usually obtained there by stitching piecemeal legacy programs and departments collectively over time. Although it includes a major transformation in workflows, processes and in some circumstances, tradition, an enterprise-wide ERP system can streamline operations considerably by automating essentially the most repetitive processes, together with IDT compliance. If it’s a cloud-based ERP, such a system may present a centralized platform for data-sharing and communication between departments, which may also help place the corporate for future development and place tax throughout the general enterprise strategic planning.

7. Thomson Reuters:  What ought to companies pay attention to if their nexus footprints increase into new states?

Malloy: Corporations increasing into new states are usually at a pivotal level of their growth when development is stressing the viability of present programs and the complexity of managing gross sales in a number of states begins to multiply. Relying on how a lot development is predicted or deliberate, it normally is sensible to enhance the corporate’s technological capabilities because the enterprise evolves. A well-supported third-party IDT resolution may also help handle the tax burden of working in a number of states by mechanically calculating tax charges in response to the specs of every particular person state, metropolis, or jurisdiction. What number of states an organization desires to function in doesn’t matter, both, as a result of the software program can scale as the corporate grows.

8. Thomson Reuters:  Can oblique tax automation assist companies which have paid important quantities underneath audit not too long ago or on a recurring foundation, or are constantly submitting refund claims?

Wing: Once more, one of many benefits of automating IDT processes is extra correct and environment friendly tax operations general. Inefficient, error-prone tax processes can value an organization lots, particularly if audits regularly reveal discrepancies that require a tax crew’s time and a focus to deal with. Automating IDT not solely helps correct tax calculations on the entrance finish, nevertheless it additionally leads to cleaner audits and filings, which implies much less time spent correcting errors and chasing refunds.

9.  Thomson Reuters:  What conversations ought to happen if a enterprise is concerned in M&A exercise, now or sooner or later?

Malloy: One of many trickiest features of any merger or acquisition is integrating and consolidating disparate enterprise programs. Preserving legacy tax programs hardly ever is sensible in a merger however consolidating tax automation throughout the brand new enterprise typically does. Tax have to be included within the dialog from the start, nevertheless, as a result of design, configuration, and testing of a brand new system have to be completed in coordination with IT and different departments. However, the upheaval of an M&A tech transition is one other opportune time to debate the numerous advantages of automating IDT, in addition to the difficulties that can come up if oblique tax isn’t automated.

Automating oblique tax previous to the onset of the enterprise sale course of makes that course of go extra effectively as properly. The customer within the transaction desires to make sure any tax publicity associated to the enterprise has been managed, and implementing the IDT resolution is one option to clear up tax processes and mitigate that publicity. This implies the vendor who undertakes the automation challenge realizes extra fast worth from the sale as a result of much less funds are put aside into escrow to cowl potential exposures.

Browse our associated sources that can assist you consider the advantages that oblique tax know-how will present you and your group: