26th Annual Health Sciences Tax Conference Driving greater tax function effectiveness and December 5, 2016
Disclaimer EY refers to the global organization, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young LLP is a client-serving member firm of Ernst & Young Global Limited operating in the US. This presentation is 2016 Ernst & Young LLP. All rights reserved. No part of this document may be reproduced, transmitted or otherwise distributed in any form or by any means, electronic or mechanical, including by photocopying, facsimile transmission, recording, rekeying, or using any information storage and retrieval system, without written permission from Ernst & Young LLP. Any reproduction, transmission or distribution of this form or any of the material herein is prohibited and is in violation of US and international law. Ernst & Young LLP expressly disclaims any liability in connection with use of this presentation or its contents by any third party. Views expressed in this presentation are those of the speakers and do not necessarily represent the views of Ernst & Young LLP. This presentation is provided solely for the purpose of enhancing knowledge on tax matters. It does not provide tax advice to any taxpayer because it does not take into account any specific taxpayer s facts and circumstances. These slides are for educational purposes only and are not intended, and should not be relied upon, as accounting advice. Page 2
Presenters Debi Heiskala Ernst & Young LLP San Diego, CA debi.heiskala@ey.com +1 858 535 7355 Travis Fox Ernst & Young LLP Dallas, TX travis.fox@ey.com +1 214 754 3495 Page 3
Agenda Introductions Goals and trends Common tax data challenges Value creation through tax data Tax evolution through digitalization Next steps Page 4
Tax data goals Maintain data integrity and accuracy Reduce data collection and reconciliation efforts Release tax value quickly Eliminate manual data manipulation Reuse data and scalability Leverage business intelligence and emerging reporting Increase enterprise value Common goals with different solutions Page 5
Role of data in effective tax operations Data are the lifeblood of decision-making and the raw material for accountability. The United Nations Secretary-General s Independent Expert Advisory Group on Data Analytics Tax functions are the heaviest users of enterprise data. Tax processes and enabling technology are built based on the quality of data received from the enterprise. Tax technical knowledge and creativity has outpaced tax functions ability to support the tax positions, largely due to supporting data. The quality and, therefore, the value delivered by tax operations is directly impacted by the data flowing into tax processes and enabling technology. Tax owns no data and has little influence over the systems and processes for needed data. Page 6
Megatrends and their impact on tax operations Megatrends Business transformation Tax operations Centralization and technology: for example, change in payment models bundled payments, capitation, Medicare Access and CHIP Reauthorization Act (MACRA) Changing requirements Agile operating model to adapt to changing landscape: for example, Section 501(r) Business alignment Strong tax data management capabilities to be responsive and a value driver: for example, mergers, acquisitions and affiliations Page 7
Tax life cycle and influences Tax life cycle External influences Regulatory Alignment and visibility with business Alignment with risk profile Sustainable value Integration of compliance process with ERP and bolt-on solutions Accurate and timely reporting Internal influences Strategy Economic Automation tools and technology Enterprise Industry Risk identification and management Easy access to audit-ready documentation Feedback to compliance process Consistency throughout the indirect function Visibility and status reporting within the tax function Governance Page 8
Principles of data-driven organizations Data are treated as an asset. Organizations that understand the value of the data treat it as a true asset. In these organizations, data are identified and inventoried, classified, assigned value, maintained for purpose and consumed to realize the identified value. Data are managed centrally. Data professionals support the enterprise by ensuring that the data is of high quality, current and relevant. Just as important, avoiding redundancy and even discrepancies in the data is only achieved through centralization of the data management function. Measurements are based on data. The old adage of you get what you measure is still true. Both from the top down and from the bottom up, when the culture measures success and makes decisions based on data, the organization will achieve the value of being more data-driven. Page 9
Summary tax data flow Data sourcing Tax operations Outputs ERP Community benefits Development HR/payroll Governance Insource/outsource support Tax systems Portal/workflow Workpapers Training Shared Service Center/Center of Excellence Forms 990/990-T State returns Foreign information filings Audit support documentation Sales tax Tax planning analysis Property tax Page 10
Tax department challenges Page 11
Tax department data challenges Lack of access, control and transparency to operations Difficulty locating and managing final versions of critical documents Inadequate information sharing across tax functions and geographic locations Excess time and effort spent on administration and manual tracking Redundant and email-intensive data collection methods Disparate data collection and other unstructured data Lack of visibility and oversight of deadlines, deliverable status and resource allocation Page 12
Tax department data challenges Isolated data difficult to find insights Tax consumes massive amounts of organization data. Separated by systems and format Input company data Federal State Sales Property Excise Where applicable: international, customs, value-added tax (VAT) Outputs Outputs Outputs Outputs Outputs Outputs Custom reporting is limited, and finding insights is timeintensive. Page 13
Value creation through tax data Page 14
Tax value in the new era of digitalization Tax is generally a high-performing team in spite of limitations around data and technology, but is often constrained in its potential to define or create value. Tax can often deliver the largest component of the value proposition in enterprise initiatives and transformations. The value is primarily derived from risk mitigation and tax planning (enhanced opportunities); while there are efficiencies to the integration, this is often the smallest component (i.e., increase accuracy; enhance structure planning; reduce unrelated business income, property and sales tax). External factors, such as tax audits, are becoming far more datacentric and can increase exposure if process and data are not efficient and clean. Effective tax technology can deliver sustainable value and efficiencies to carry tax departments into the new era of digital taxation. Page 15
Tax value through effective data management Audit and compliance Optimized data and technology Sustain value of current tax positions Documentation to support audits Financial reporting Accuracy of tax reporting Timeliness of tax close Enterprise value from tax Operational Tax-enabled enterprise environment Efficiency of solutions to manage data and process Effectiveness of resources spent on value-added work Strategic Protect tax exemption Manage reputational risk around tax filings Minimize unrelated business income tax, sales and property taxes Page 16
Tax evolution through digitalization Page 17
Tax department evolution through digitalization Basic Established Leading Capability Unified data management and predictive models Business intelligence/data analytics Content management and collaboration (CMC) Maturity Page 18
The big picture of intelligent automation Incremental value Past Present Future 1990s 2015 2015 20 Structured data interaction Improved workflow Mimics human actions Robotic Process Automation (RPA) Optimized process through automation Augments human intelligence Semi-cognitive Statistical modeling 2020+ Mimics human intelligence Cognitive intelligence (CI) Pattern-based machine learning Process automation enables organizations to automate existing high volume and/or complex, multi-step data handling actions and workflows to run autonomously without manpower. Established CMC and RPA models establish the foundation for business intelligence and machine learning over the evolution. Page 19
Potential tax ecosystem Global Tax Operations Portal (GTOP) Governance Control Collaboration Tax process accelerators Visualization/ dashboard Workflow management Document management Legal entity and org. chart Access and control Process automation Wave 3: Deploy UDM model, embed robotic automation and advanced modeling Tax data analytics (TDA) Analyze Inform Advise Wave 2: Refine operation model and deploy business process automation applications Data integration Unified data management (UDM) Acquire Conform Store Tax systems Process Compute Tax deliverables Delivery Financial systems Payroll and HR systems GoSystems GDAS ProSystems Portals Regulatory requirements 990/990-T Audits State 926 Commercial data systems Other manual data CBISA AI analyzer BPM Templates Wave 1: Services and technology using traditional internal and external tools 8865 5471 Other FBAR Page 20
Content management and collaboration Tax portals continue to be an integral part of an effective tax operations model. When deployed properly, portals allow tax to gain efficiencies by mechanizing processes and centralizing document management across various tax functions. With all of the controls, processes and procedures surrounding the entire tax life cycle, tax departments are ideal candidates for tax portals as a solution to: Advance overall organizational efficiency Increase information-sharing across tax functions Manage tax documents and processes within a secure and centralized application Organizational efficiency Centralization of tax documents and processes Information sharing Page 21
Global Tax Operations Portal (GTOP) What is it? Web-based portal composed of tax process applications developed on SharePoint to manage and streamline tax operations What does it do? Provides a single platform to share information and connect cross-functional tax operations and services Provides centralized document management Enhances process automation and workflow Utilizes dashboarding and business analytics What are the benefits? Rapid deployment Web-based access, transparency, automation Reduced manual processes Enhanced operational controls Common portal apps Foundation Compliance manager Audit manager Notice tracker Data collection Page 22
Tax portal process samples Data collection manage data collection requests centrally, create customized forms/templates, upload documents and track progress of requests Compliance management centrally manage filing deadlines, resource management, workpapers with version controls, automated workflow approvals with audit trail Audit management web-based management and tracking of audits across all tax functions Notice tracker centralize notices (state, transaction, etc.) with support attachments and links to filings utilizing multi-level workflow and reporting metrics to reduce the clearing cycle Dashboards and reporting dashboards and reporting give management a snapshot into the underlying data in your tax portal to let you easily see metrics around processes and data Page 23
Tax portal benefits Process Visibility Automate the flow of data and documents Reduce time-consuming and manual processes Operate within a single, flexible and practical application Data Documents Reporting Achieve real-time reporting to management Dashboarding and business analytics features Share information to users outside of Tax Access GTOP process apps Control Workflow Search Remove geographical boundaries Facilitate information sharing across the organization and external parties Centralized, secure repository Advanced search capabilities Audit trail Minimize risks Real-time resource management Secure access to sites and documents Track and manage due dates Managed and administered by Tax Page 24
Defining tax data reporting and analytics Data analytics often describes many different activities. Tax-influenced business decisions Monitor risks Respond to audits Discover business trends Analyze accounts Load tax process software Track tax positions Review transactions Prepare workpapers Tax big data management is scalable, supports the entire tax function and facilitates business decisions. Page 25
Data insights value across the tax life cycle Transactional analytics AP/AR transactional analysis Tax coding and posting error detection One-off or embedded solution Tax reporting Enhancements to existing tax return spreadsheets Control checks and tests Implementation of new reporting solution Risk analysis and monitoring Risk analysis and heat maps Transaction profile trend monitoring Targeted analytics Pricing and margin modeling for new indirect taxes Transactional keyword analysis Tax coding logic review Supply chain analysis Supply chain mapping using transactional line-level data Analysis of actual tax treatment against expected Transfer pricing analytics Analysis to ensure consistent execution of policies Cost plus pricing, resale price and gross margin method analysis Transactional analysis Page 26
Tax data analytics samples Page 27
Summary/next steps Transforming to the digital tax function: Evolution? Revolution? Consider how effective data management can support and automate your tax function Assess your data collection needs and sources Understand enterprise tools available Consider how effective data management can enable your tax function Develop road map process and technology automation to realize value over time Assign responsibility for owning data management and process automation Encourage innovation Page 28
Questions? Page 29
EY Assurance Tax Transactions Advisory About EY EY is a global leader in assurance, tax, transaction and advisory services. The insights and quality services we deliver help build trust and confidence in the capital markets and in economies the world over. We develop outstanding leaders who team to deliver on our promises to all of our stakeholders. In so doing, we play a critical role in building a better working world for our people, for our clients and for our communities. EY refers to the global organization, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. For more information about our organization, please visit ey.com. Ernst & Young LLP is a client-serving member firm of Ernst & Young Global Limited operating in the US. 2016 Ernst & Young LLP. All Rights Reserved. 1608-2011220 This material has been prepared for general informational purposes only and is not intended to be relied upon as accounting, tax or other professional advice. Please refer to your advisors for specific advice.