Perspectives

Tax data analytics

A new era for tax planning and compliance

Like other business functions, tax departments face increasing demand to operate more efficiently. At the same time, expectations are growing for tax to provide strategic viewpoints and additional value to the broader organization. Tax data analytics can help address these expanding requirements and open new avenues for tax executives and their teams to engage with the broader business.

Elevating the tax role with data analytics

Change the mindset from "what I need to do" to "what I need to know"

Traditionally, tax data-gathering has focused on hindsight, dealing with data from transactions that have already occurred for business planning and compliance purposes. While hindsight remains important, tax organizations are looking to use data more for gaining insight, and even foresight into what lies ahead. Analytics can help move tax toward insight and foresight, changing its mindset from “what do I need to do?” to “what do I need to know?”

Insight can be attained by drilling deeper into data using more sophisticated queries to understand how aspects of the business may affect tax outcomes. Using past data to understand what actions are correlated with which outcomes can provide insights into drivers of tax impacts. For example, are cash taxes paid to a jurisdiction appropriate relative to projected taxable income and statutory tax rates? Or, how is employee international travel affecting the company’s permanent establishment exposure?

Foresight is also attainable in the absence of future data. Past data can be used to create a statistical model to project into the future. Functions including marketing and supply chain operations use such an approach, and tax can follow suit. For example, how can monthly trends in book income, cash taxes, and effective tax rates help reduce the potential for surprises?

Tax and the role of analytics

The tax function gathers data from various sources and systems across the enterprise, uses it to solve problems and find answers, and then delivers information in the form of return filings, reports, and presentations.

Data analytics is fundamentally changing tax’s role by providing the ability to explore and explain data in new ways.

Tax analytics can help answer questions that couldn’t be cracked previously. For example, analytics can help illuminate the impact on tax rates of external and internal changes in the business environment. Or, analytics can be used to scour contracts for language that could lead to different-than-expected tax consequences. 

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