It’s no longer if, or whether, cloud. It’s when and how. And, as most organizations move at least a portion of their application portfolios to cloud—especially their protection profiles systems—the tax function will be significantly, but likely positively, impacted. Indeed, there is great value for tax in cloud. That value is largely dependent on the individual organization, but it’s there. In fact, the shift to cloud is a life event for tax; it’s a chance to completely transform the tax function.
A life event for tax with many benefits
With most ERP systems as they’re implemented out of the box, the information tax needs to perform its various processes simply isn’t present—or present in the correct form. So, tax must manually gather and manipulate the information it needs for analysis and reporting, which is time-consuming and fraught with the potential for error. An enterprise resource planning (ERP) cloud implementation gives tax the opportunity to address this issue.
However, to increase the opportunity for value, it’s critical that tax gets a seat at the table early on in the ERP cloud-migration effort. That way, the tax function can ensure that the information captured by the ERP system is what tax needs, and that it is in the proper form, up-front. Done right, ERP cloud-migration can be a transformative, life event for tax that provides significant benefits both short- and long-term.
For example, when tax has the information it needs, and in the proper form, it can result in tremendous efficiency gains. The right data, directly from the source, can mean less manual manipulation, which can speed processing, reduce errors, and free up resources to engage in more value-added activities such as analysis and planning. With cloud, there’s also the ability to leverage automation where feasible, which can also reduce costs, speed up operations, and reduce complexity. Finally, tax can access the information it needs to enhance operational effectiveness in all relevant tax jurisdictions, which can reduce complexity and improve risk management.
Opportunities for long-term operational effectiveness and resiliency
All of this creates a new era for tax—one that will see organizations operate more effectively and become more resilient long-term. The Covid-19 pandemic has completely upended the way most companies operate. It has caused them to rethink how they access and control critical business systems, how they redistribute resources, and how they facilitate remote work. These changes have had a significant impact on the tax function as well. And with these changes, especially as new ways of working become entrenched, the shift to cloud may open up tremendous opportunities.
One opportunity is the chance to reexamine operational models to determine where efficiencies can be gained, especially in terms of the outlay, organization, and location of resources. This has significant tax implications—especially when considering how a remote workforce can affect tax liabilities for companies and their workers. And, as that workforce recalibrates, companies will likely be rethinking their real-estate portfolios, which can have a significant impact on tax liabilities as well.
There will likely be difficulties involved in rethinking and redistributing resources, but the process can build resiliency into the business operations. Because of Covid-19’s long-term implications for the economy and the workforce, organizations have a tremendous opportunity to enhance operating models for the long-term, and that has tax implications, too. Better data will typically provide better short- and long-term planning capabilities as well.
Controlling costs and funding the effort
There’s little question of cloud’s benefit for tax, but there are also significant costs associated with a cloud migration. Controlling costs and funding the transformation effectively will be one crucial key to a successful cloud migration.
There are several strategies companies can employ to ease their cost burden in cloud. The first is simply common-sense cost controls. Many cloud providers offer consumption-based costing, which can be particularly effective in controlling costs if cloud usage is carefully monitored and controlled.
There are also “self-funding” methods that organizations can use to help mitigate cloud costs, both short- and long-term. For example, partner-based incentives from cloud providers can help companies access technologies—via their cloud provider’s relationships with service providers—that they would otherwise have to purchase separately. There are also incentives where cloud providers will potentially delay costs—or spread them over more attractive time horizons—for a commitment to their services.
Various credits may also be available to companies that deploy cloud if analyzed early in the contracting process. Jurisdictional tax savings may also be realized, depending on how operations and resources are shifted and redeployed. Depending on the type of transformation, business or supply-chain changes may drive additional planning considerations for companies interested in exploring business drivers. The key to recognition of tax related benefits is early conversations about how the organization will transform, business options, and tax footprint. Each company’s situation will vary based upon many factors and benefits will be individualized to each organization’s particular operating environment.
Wrapping it up
Cloud has many benefits for the tax function, especially when the process is viewed through the lens of an ERP cloud migration. The mandate to implement cloud-based ERP can be a revolutionary, lifetime event for tax and help the tax function become more effective and efficient. However, it’s critical for tax to get an early seat at the table, and it’s essential to fund the transformation in a cost-effective way. As part of a successful cloud migration, the tax function will be able to enhance its operations, both short- and long-term, and, through the process, the tax function can help the entire organization gain the resiliency needed to cope with external challenges more effectively.
This column does not necessarily reflect the opinion of The Bureau of National Affairs, Inc. or its owners.
Akash Tayal is a principal and U.S. Cloud Strategy and Operating Model Leader at Deloitte Consulting LLP; and Jennifer Deutsch, is a partner and Global Tax Management Consulting Service Line Leader at Deloitte Tax LLP.
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