The emergence of e-commerce in the late ‘90s placed old and new companies on the grid for a share of the booming growth of online sales. Two decades later, Latin America takes the runner-up spot among fastest-growing regions, presenting an online retail market of over $50 billion and a handful of visionary local start-ups now transformed into consolidated multinationals.
How did growth and transformation affect the tax processes of these native e-companies? Gabriela Gomez Mateos, Market Development head, Thomson Reuters ONESOURCE, Global Growth Organization, shares how two regional online retail companies dealt with rising cross-country tax complexity to solve present-day – as well as future – challenges.
Dividends: Help us briefly get to know the companies and what their predominant challenges were.
Gabriela Gomez Mateos: One of our customers is an online travel agency operating in 24 countries and considered the top regional agency by volume. Expedia is among its shareholders, and recent rumors had it in preliminary talks with investment banks for a US listing on Nasdaq in the second half of 2017.
Our other customer is an online marketplace founded in Latin America and currently present in 13 countries. It is considered the most popular site by number of visitors in the region. In 2001, a percentage of its shares was acquired by eBay and in 2007 the company had its Nasdaq initial public offering, where it continues trading.
A common pain point among companies experiencing fast, steady growth and geographic expansion – in many cases via M&A activity – is managing high volumes of information from multiple internal sources through excessively manual processes. It’s a recurring issue across the many functions of an organization, but when it comes to tax provision and estimating how much income tax the company owes, its implications go beyond ﬁnancial planning. Tax liability is an increasing focus of regulators around the world and noncompliance puts companies at risk of large, time-demanding ﬁling reconciliations. The volume of data resulting from differing tax policies across jurisdictions – countries, states, cities – combined with ever-changing tax rules and the speed required to determine the appropriate tax entry, make software the only effective approach for the tax provision process to ensure accurate and on-demand data in support of better business decision making.
Dividends: Despite their common origin and similar business growth track, what was unique about each case study?
Gomez Mateos: When the online travel agency addressed us, its tax department had been recently created and was looking to standardize processes across the several operational entities. The team knew that centralization was only achievable by discontinuing Excel® spreadsheets owned by local team members and by deploying a collaborative application to gain visibility of the impact of income tax across the corporation. The application would have to process accurate estimates to accomplish direct tax obligations quickly and conﬁdently with minimal adoption time by users across various countries. In parallel, the company was implementing a new Enterprise Resource Planning (ERP) software. This was both a challenge to our rollout plan which had to be split into two key phases – before and after ERP – as well as a key advantage in the ﬁnal deliverable. Our customer implemented ONESOURCE Tax Provision and standardized income tax calculation of 27 entities across 21 countries, automating adjustments and easily importing data from its ERP.
The online marketplace had a consolidated tax department of 14 people managing 50 entities and ﬁling 40 tax returns across all jurisdictions. Many tasks were performed manually with Excel spreadsheets, exposing the company to errors with manual data load, calculations and reviews. As a publicly traded company, they were under the pressure of performing quarterly calculations and complying with the Sarbanes-Oxley Act. The company was also in the process of growing via acquisition; new companies brought in complexity – and Excel spreadsheets – to their tax and accounting processes. The tax team worked long hours to get the job done and were at constant risk of inaccuracies, errors and noncompliance. They too realized the need to centralize information through automation to improve the income tax calculation process and beneﬁt from new functionalities.
A two-stage deployment was agreed upon. First, the focus was on replicating existing spreadsheet calculations into the ONESOURCE Tax Provision system. Then, Active Workpapers for ONESOURCE Tax Provision was deployed to convert their previously Excel-based provision process into a safer, automated format within the ONESOURCE Tax Provision system. During the ﬁrst phase, 70% of adjustments automation was achieved. This enabled them to import the accounting balances directly from the ERP system to avoid errors due to retyping and data manipulation in spreadsheets, as well as the ability to run reports using different currencies and to print reports showing the journal entry for the provision calculation. After the deployment of Active Workpapers, around 95% of adjustments were automated, which better optimized time and resources. It also added the ability to generate currency reports quickly and easily by unit or at the consolidated level and to generate Effective Tax Rate reports both for individual entities and at the consolidated level.
Integration with the company’s existing ERP allowed importing the general ledger and accounting balances directly into ONESOURCE Tax Provision, therefore minimizing errors and adding the ability to run and print reports in different currencies and standardizing processes. This efﬁciency gain has allowed the tax department to keep pace with company growth as well as with the increasingly complex accounting process.
Dividends: How do these case studies represent the tax office of tomorrow?
Gomez Mateos: As our marketing campaign says, “It starts with a taxologist.” Every company needs innovators to challenge the status quo, take advantage of technology and transform the way things are done. The new tax professionals understand that technology is at their service and are not afraid to take risks to beneﬁt the business.
The people heading the tax departments of our customers had the vision to transform to better support their business needs. They took ownership and led the projects from start to finish, gaining internal buy-in from the different stakeholders. Their enthusiasm to reduce risk, increase efficiency and improve processes allowed them to consider not only current but future business scenarios and be prepared for any course their companies may take. They are now able to close faster and file earlier, which frees up time to focus on transforming financial data into usable business intelligence. Additionally, they have a scalable solution with the ability to easily transition data from Tax Provision to any other ONESOURCE application they may choose to deploy to continue simplifying their tax life cycle.
Dividends: While improvements are expected in the future and tax authorities keep their commitment to simplify reporting requirements, how can multinational corporations (MNCs) avoid the overwhelming complexity that gets in the way of doing business in Brazil?
Gomez Mateos: As a further example, there is a US MNC that develops and markets nutrition supplements and personal care products that has been in Brazil for over two decades. It has a production plant in the country, and the market is among its top ﬁve in terms of number of independent consultants and ﬁnal consumers.
The US corporate headquarters had ONESOURCE Tax Provision implemented, but the Brazilian subsidiary was in need of a combined solution to address the municipal, federal and state tributary complexity. The company operates in almost every Brazilian state, so in addition to federal obligations it must comply with state and municipal regulations. The tax team was formed by less than 10 employees who manually managed the tax calendar, utilizing spreadsheets. Automating and standardizing processes were key to the success of the initiative. The local team identiﬁed that a joint implementation of ONESOURCE Mastersaf Tax Analyser® and ONESOURCE Workﬂow would help them proactively anticipate tax audits, minimizing inconsistencies, avoiding ﬁnes and penalties, and ensuring compliance. The solution was implemented to share the same database as the US team, granting visibility and control over the full tax provision process.
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