Big Tax Data Analytics – Tax Planning & Compliance

April 24, 2019

Rules and regulations keep changing. For example, labour laws or taxation are critical areas which are subject to changes depending on the political and governance situation. It is quite an effort to be abreast of the changes in compliances and rush to incorporate the changes or alterations. Understanding previous rules and their amendments pile on the additional workload on small business.

The tax has been a relatively late adopter of analytics. However, nowadays tax integrates technology enabled; group-wide tax processes, and feeds tax-sensitized data back into the business. Of those who are using analytics, the most popular area is the direct tax that is followed by transfer pricing and indirect tax. There has been urgency around transforming tax to elevate the capabilities of the functions to match other areas of the business that have already changed. The goal is to promote tax’s focus from backward-looking activities to being a partner in the business.

The tax authorities in various countries are becoming more and more alert in their usage of data. Where ever tax has used analytics, it has to use reporting and descriptive analytics to produce standard reports, tax-oriented, and visuals. Organizations, which are experts into analytics journey often, use query and drill down capabilities, but even these are for hindsight purposes with little insight into what drives a company’s tax situation. To make projections about a company’s future tax situation, there should be an understanding of what factors are correlated with what outcomes from a tax perspective.

It has been observed that predictive analytics can use past data and statistical model to make projections about a company’s future tax situation. It is the prescriptive analytics, which will recommend what changes to make in the tax “ecosystem” to be more productive and efficient. Analytics answers many difficult questions associated with the tax function.  However, there is a significant question, from compliance and reporting perspective. Are major book-to-tax adjustments by jurisdiction going in the appropriate direction, with regard to the business strategy? Is a push to reduce inventory levels reflected in the tax data?

Analytics may help the business to answer these questions. Analytics can help reveal monthly trends in book income, cash taxes and effective tax rates to help avoid surprises without waiting for income from elsewhere. In the case of indirect taxes, analytics may be used to trace every single transaction. This can help to determine the appropriate level of transactions to be classified as exempt from sales and use tax, or even to verify the timeliness of VAT credit applications. Using predictive and prescriptive tax analytics offers a better understanding of what variables drive tax in the key areas of business.

These drivers can be built into a model of the tax situation to predict and visualize the tax impact of different outcomes between different units of the business over time. Modeling and simulation helps to explore the implications of particular decisions such as equity or infra group financing, alternative options for the ownership of intellectual property or the decision for a branch office or incorporation of a legal entity.

From an audit perspective, it is possible to sample tax items or analyze the business transactions to understand the likelihood of errors and audit risk. There are many organizations that are seeing possibilities with the use of unstructured data.

In the coming days, cognitive technologies are likely to replace much of the technical works related to tax, that are currently performed by third-party specialists. To get started with the data analytics, the tax, finance and IT functions need to work in unison. This is so required to structure the data model using tax and other data from disparate sources. Tax data analytics is a blessing for corporate groups, which eventually helps them to deal with challenges and significant risk. They provide these corporate houses with firepower as and when they deal with the tax authorities. Tax data analytics in a way has made the business so simple and easy. They have heralded a new era in corporate business.

TalentPro has vast experience in payroll and tax compliance and ready to take over and manage all your compliance requirements.  Outsource your Statutory Compliances to an experienced associate like TalentPro can ensure that you fully complaint in your statutory compliances.

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