Does it seem that month after month, managing your group income tax and tax reporting duties becomes an insurmountable task? You are not alone. Corporates face a number of challenges in meeting their income tax obligations. They are required to report internally and externally, as well as make timeous payments within their different tax jurisdictions. The challenges they face arise because of the following dynamics:
Spreadsheets have the benefit of being flexible and familiar, but they have their own inherent risks ...
Tax accountants know the IAS 12 well. Or do they?
The standard relates to current and future tax consequences (deferred tax) and is both difficult to understand and apply. The IAS 12 disclosure requires a lot of detailed information to be reported on which is difficult to extract, especially when working with consolidated information.
Tax rate reconciliations and deferred tax movements are particular areas of difficulty.
There are several areas in the Group Tax Accounting process that create inefficiencies. We refer to these as disconnects, and they can occur between calculations and within organisations.
Here we highlight some of the disconnects.
Many corporates perform their provisional calculations as a separate process or event during the year and base their payments on their budget or forecast. This results in two inefficiencies:
As a result corporates often have inaccurate provisional estimates and tend to overpay their provisional taxes.
Tax returns, similar to provisional returns, are often completed as a separate process to the monthly accrual or financial statement tax reporting. This is inefficient because many tasks are re-performed, and obtaining older detailed information becomes more difficult with time. These challenges could be solved if the tax return information was gathered during the financial year, and if the tax return calculation was based on the financial tax return calculations with automatic prior year adjustments for current and deferred tax.
In practice we often see a disconnect between the accounting department and the tax department with the result that they don’t work together on the tax numbers. Worst case scenario is if the tax department only completes the tax returns and the accountants accrue for the current and deferred tax. This, in our view, is inefficient as the knowledge of the local tax legislation is key for current and deferred tax.
The teams can be separate but need to work together to ensure that the tax team is calculating or reviewing the tax numbers journalised by the accounting team.
In terms of IAS 12, corporates are required to follow a balance sheet approach for deferred tax. We often see corporates will follow a balance sheet approach but do not perform a deferred tax proof, which keeps the deferred tax calculation aligned with the current tax calculation.
This results in difficulties passing prior year deferred tax adjustments, proving deferred tax balances and providing accurate deferred tax disclosure.
A number of organisations will send out spreadsheet reporting packs to their operations, asking them to complete and resubmit. This contains a number of inefficiencies:
Users often struggle to extract the required detailed information needed to perform their calculations.
Their tax calculations should be connected to the required data sources to be able to automatically extract the correct information as required.
TaxPacc is an IFRS tax accounting software solution that automates the tax process to generate tax journals, and provide company and group tax disclosure. It drives the corporate tax life-cycle, allowing for easy conversion to a digital tax process.
Solve your Group Tax Accounting challenges with TaxPacc.