The high cost of skimping on tax technology investment in manufacturing

September 20, 2016

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By Chris Kontaridis, Partner, PwC

The results of our recent survey with MAPI (Manufacturers Alliance for Productivity and Innovation) on the use of tax technology were, frankly, disappointing—and a little surprising. While the use of technology has exploded in many manufacturing areas, there has been little change in tax usage from our last survey in 2013. Seventy-four percent of the companies in the survey (down from 77% in 2013) do not have a tax technology strategy in place or any plans to develop one. As a result, we see a growing gap between the capabilities of the broader finance function and tax.

Without technology tools, the tax function has to rely on time-worn manual processes. What does this mean for the work of tax?

  • Reduces the quality and accuracy of financial reporting and results in more restatements
  • Hinders the tax function from serving the needs of today’s business, which is facing a greater number of tax controversies and disputes as well as the pressure for greater transparency in reporting
  • Increases the risk of penalties and interest for inaccurately filed tax returns
  • Makes it harder to respond quickly or easily defend the company’s positions when it’s audited

These are current-day problems impacting businesses. But I would argue the even bigger issue is that tax without the right tools cannot serve its various stakeholders, internal and external, going forward. Technology is needed to allow tax to change its focus from short-term operations to a long-term strategic vision. It would free up resources for value-added activities such as information analytics, advanced business consulting, and broader tax planning. It would allow for real-time access and analysis of data that could support major strategic decisions such as merger and acquisition activity. These capabilities can directly contribute to the bottom line.

So why isn’t the tax function more aggressively moving forward with technology acquisitions? One problem, which makes it hard to take the first step, is not being able to envision how technology can change things. The tax function has to look ahead and evaluate what capabilities it needs over the next 5 to 8 years and then evaluate what technology tools can help it get there.

This is just the beginning of the transformation process. Once tax designs its roadmap, it needs to evaluate whether it’s on track to achieve its goals. It also needs to examine whether its tools and processes are serving the business as conditions change. A good rule of thumb is to annually assess progress and needs.

Technology transformation is no longer a “good to have,” it’s a “need to have.” Going through the process will enable the tax function to gain the functionality it needs to be a strategic business asset. Without it, tax will remain principally a compliance center. And the broader finance function and the organization as a whole will fail to reap the benefits of a true tax partner.

 

©2016 PwC. All rights reserved. PwC refers to the US member firm or one of its subsidiaries or affiliates, and may sometimes refer to the PwC network. Each member firm is a separate legal entity. Please see www.pwc.com/structure for further details.  This content is for general information purposes only, and should not be used as a substitute for consultation with professional advisors.

 

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