Advice and Information for Finance Professionals

How to Reduce Risk from New Financial Reporting Imperatives

Guest Author

By Marc Seewald, Senior Director, Product Management, Oracle EPM Cloud

Corporate taxation, and in particular transfer pricing, continues to see a level of scrutiny that that was unheard of even five years ago. Last year’s $14.5 billion dollar fine on Apple by the EU shows that the scrutiny on tax strategy (and corporate tax reporting) can materially impact the business. Furthermore, the raid on Caterpillar’s corporate office related to a tax dispute should have sent shivers down the spine of even the most intrepid CFO.

For multinational enterprises, the stakes could not be higher. This is no longer just a consideration for the corporate tax function. The level of scrutiny has elevated corporate tax reporting to a board-level concern.

In response, tax reporting must become a fundamentally integrated part of the corporate financial reporting process. Yesterday’s disconnected approach to corporate tax reporting is no longer an acceptable risk to bear.

The last major push for transparency in financial reporting of corporate income tax was the 2007 enactment of the FIN48 requirement for disclosure of “Uncertain Tax Positions.” However, that pales in comparison to the OECD’s BEPS Action 13 for transfer pricing and country by country reporting (CbCR). Regulators and revenue agencies around the world are about to be flooded with greater transparency into corporate tax strategy. It doesn’t take much creativity to imagine the level of audit activity that could result in the coming years.

Multinational enterprises that have more closely integrated their tax and financial reporting will be in a far better position to weather the storm. The largest benefit of making these investments now (instead of later) will be a greater success rate in defensive tax strategy. Additional benefits will be a significant improvement in the efficiency of maintaining the transfer pricing processes and a reduced need for controversy management.

The CbCR requirement is fast approaching. Yet, most companies are just now considering the appropriate method of complying with the requirement. Instead of adopting stand-alone CbCR solution from tax compliance vendors, leading multinational enterprises are looking for tax reporting solutions that are more closely linked to financial reporting. These enterprises also understand that the CbCR template is just one of the steps necessary to address better transparency and control in transfer pricing. Additional business processes such as intercompany allocations, intercompany accounting and reconciliation, profitability monitoring and management, and the supply chain also need to be considered.

Fortunately, customers that have Oracle Enterprise Performance Management (EPM) solutions have a distinct advantage in addressing the new tax reporting requirements.

Oracle has spent the last five years developing offerings that bring tax and finance together and now offers the industry’s only comprehensive transfer pricing and tax reporting solution. Oracle’s cloud-based transfer pricing solution provides the transparency demanded by the new reporting requirements because of its direct connection to the source financial systems and data. Furthermore, tax automation will greatly reduce the effort required to maintain transfer pricing processes. Finally, because the transfer pricing and reporting solution is built in the Oracle Cloud, it can be deployed quickly and is easy to use.

Just like FIN48, CbCR is likely not the end of the challenges multinationals will face around tax transparency. Emerging requirements like the Standard Audit File for Tax (SAF-T) will continue to put pressure on the corporate tax function. Globalization will also continue to drive scrutiny and complexity in transfer pricing and tax reporting. Companies that focus on bringing tax and finance together will more successfully navigate the new reporting paradigms.

In short, it’s good practice to treat your “internal business reporting” with as much integrity as your “external business reporting.” Take this approach to financial and tax reporting, and you will significantly reduce your likelihood of being the next front page news in the financial news outlets.

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Comments ( 2 )
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