Indirect Tax Excellence: Achieving High Performance through Standardized, Enterprise-wide Processes

In response to the call for greater rigor and standardization, many organizations are making the move to adopt global operating models, with more tightly integrated global supply chain and finance processes.

In the process, they face an array of tax legislation, particularly in relation to “indirect taxes” levied on goods and services (for example, sales tax or value-added tax).

To governments feeling the revenue squeeze of the global economic downturn, these indirect taxes have emerged as an increasingly attractive source of public-sector funds.

The current global fiscal environment has left many organizations looking for opportunities to unlock value. Some have already gone down the familiar roads of Enterprise Resource Planning (ERP) specific instance process and data standardization. What remains largely unexploited is the opportunity to improve profits and free cash flow through better management of indirect tax across multiple applications.

Implementing standardized indirect tax services across the enterprise tax organization can bring new accuracy at the individual transaction level, which in turn can create value at the corporate level. Standardized indirect tax services can expand their opportunity to achieve this value by reducing risks, increasing profits, and freeing cash flow, as well as by providing ancillary benefits related to improved customer service, greater efficiency in the supply chain, enhanced management transparency, and IT rationalization.

In response to numerous pressures driven largely by globalization, many organizations are moving to adopt globally integrated supply chains and shared finance organizations. That said, not achieving tax compliance in conjunction with these large scale business transformations may expose the organization to significant risks and damage the overall return on investment. Navigating the complex tax and legal requirements of different countries and/or regions represents a considerable challenge. To achieve success, global organizations should look at tightly integrating their indirect tax processes into supply chain and finance operations.

Implementing standard global processes for determining, calculating, recording, and remitting tax on transactions can equip these organizations with the complementary tax structure to further successfully adopt the new supply chain and finance models to compete on a global scale. At the same time, these efforts can yield bottom-line benefits in the form of avoidance of fines and improved cash flow, and more satisfied customers. Indirect tax mastery helps companies rise to meet the challenges of a complex, changing tax environment. The business drivers are compelling and there has never been a better time to start.

By standardizing indirect tax processes, organizations can improve their success in identifying the correct tax rate, collecting the right documents and certificates, and applying non-deducted rates in the organization’s tax systems—all of which can improve their remittance of tax to the government. Ultimately, by properly integrating tax processes for determining and computing the indirect tax, organizations can expand their opportunities to improve cash flow by:

• Avoiding payment of excess money to tax authorities at the time the tax is generated (which in essence means giving the government an interest free loan and losing an opportunity to generate interest income for the company).

• Avoiding the sometimes unsuccessful process of reclaiming the overpaid tax.

• Avoiding loss of access to the cash for up to several years while it is tied up in dispute with the tax authorities.

• Avoiding interest and penalty costs associated with non-compliance, which can be equal to the principal.