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Tax and accounting

Tax automation is the order of the day

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India-based Wipro Ltd. is a global provider of information technology, consulting and business process services, serving clients in over 175 cities across six continents. Dividends recently sat down with Wipro’s global head of tax, K. Balasubramanian, to discuss the changes looming on the global tax stage.

Dividends: How is the tax landscape evolving globally, and what are the key challenges and opportunities that you or Wipro have identified?

K. Balasubramanian: In terms of tax landscape there is a lot of focus to ensure multinational corporations (MNCs) pay their fair share of taxes. Tax authorities are becoming more and more vigilant that the national tax bases of their countries not be eroded. If you look at some of the recent discourses across the G20 or the Organisation for Economic Co-operation and Development (OECD) countries, it is clear that tax authorities want to combat potential tax avoidance through programs such as Base Erosion and Profit Shifting (BEPS), General Anti-Avoidance Regulations (GAAR), etc.

Most MNCs may not have dubious tax avoidance programs, but all of them have to go through the reporting requirements mandated by the said programs and that is today’s norm. These reporting requirements entail a lot of focus on global transfer pricing studies and country-wide reports being submitted to the tax authorities. This increases the effort in terms of collating these reports, and there are uncertainties around how these reports would be interpreted by tax authorities.

Therefore, the effort in terms of defending these reports with an audit trail becomes even more important for MNCs like Wipro. Having said that, I also see it as an opportunity to clean up a historical mess in global tax policy and reporting. It provides me an occasion to step back and take a look at the reports more closely than ever before and fix them.

Dividends: What is your view on tax technology, and how do you envisage data and connected companies? How will they drive automation and tax?

Balasubramanian: Automation is the order of the day in any walk of life, regardless of function – whether it’s tax, accounting or any other compliance aspects of the finance functions. I don’t think any department can ignore automation. We have made good progress on automation on back-office functions of Accounts Receivable (AR), Accounts Payable (AP) and even in financial reporting.

I think various functions within most MNCs have adapted quickly on those parameters, but I would say that the tax function has lagged a bit because:

  1. It typically takes a lot of time to meet the compliance requirements,
  2. It must contend with the complexity and varied interpretation across countries/taxing jurisdictions, and
  3. The integration of legacy systems and tax positions can be challenging.

Also, some of these MNCs have had a lot of acquisitions in the past; some of these acquisitions may not have the same systems in place for the tax departments to automate in real time. Because of these issues and also due to the absence of skill and aptitude to adapt to technology, I would say the adoption rate of technology or automation of the various activities within the tax function has been largely slow.

Another reason is that generally tax authorities have not been well-equipped to handle certain digital data that’s available, and they traditionally have relied on paper documents and paper submissions. When you put all these factors together, a company’s tax function was perhaps not motivated enough to automate as quickly as required. However, I think this is changing now and the adoption of technology by government tax functions in many countries is going up rapidly, forcing taxpayers and companies to change their attitudes to tax automation. For instance, reforms like goods and services tax (GST) in India aimed at introducing one streamlined tax system nationwide provide a great opportunity. In some ways, this is a mandate to look at automation in tax compliance more favorably than ever before.

If you look at income tax in India, the appeals before the Commissioner can be filed online, and certain submissions can also be done online.

While we could afford not to automate in the past, I think that luxury is not going to be available any longer. Corporate tax functions will be forced into embracing automation by tax administrations. Companies will also be encouraged to automate because their CFOs do not spend as much time on tax issues, and if the reports are available to them on a real-time basis (compliance, status of default, etc.) in succinct dashboards, they will likely demand their tax functions to automate at the same pace as that of other functions.

Dividends: Tax departments are transforming because of demography, trade and investments, technology and operational demands. Do you see it as a strategic function, or do you think that it is still seen as a compliance function?

Balasubramanian: There are two roles of a tax function. One is hardcore statutory compliance. But there is this other role that the tax function has played both in the boardroom and in the strategic committees of the management. The tax function is key in terms of driving some of the business decisions/outcomes like customer contracts, geographic expansions, mergers & acquisitions and shareholder/corporate actions. Therefore, the compliance and strategic role of the tax function is like two sides of the same coin. On one side, it looks at optimization and minimizing tax costs to drive right business decisions and behavior. On the other side, it is entrusted with timely, efficient and responsible compliance. A tax director must do a fine balance as a custodian of their MNC’s corporate citizenship reputation.


About the interviewee

K Balasubramanian, head of tax, WiproK. Balasubramanian has over 15 years of hands-on experience in the tax and accounting industry with regard to corporate tax compliance across tax jurisdictions including India, the US, Europe and Asia Pacific. His remit includes addressing structuring requirements, cross-border mergers & acquisitions, business reorganizations, transfer pricing, employee taxation, EU value-added tax (VAT) and social security. Balasubramanian has held posts including cochairman of Direct Taxation Committee, Bangalore Chamber of Industry and Commerce (BCIC); Taxation Committee member, Confederation of Indian Industry (CII); and core team member of National Association of Software and Services Companies (NASSCOM) for taxation issues including goods and services tax (GST) and Emerging Global Tax developments.

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