The document discusses tax risk and process re-engineering. It defines total tax function risk as the combination of finance, operational, tax technical, and integration risks. It provides examples of each type of risk and root causes that can increase tax risk. The document also discusses approaches to effectively manage tax risk through data management, workflow automation, analytics, and tax technology solutions like tax portals and cloud computing.

1. Tax Risk: Process Re-engineering & Technology Integration Services

2. Tax Risk & Process Re-engineering What is tax risk?

3. Total Tax Function Risk Defined TTFR = (FR + OR + TTR) IR TTFR= Total Tax Function Risk FR = Finance Risk OR (Operational Risk) = Process Risk + Knowledge Risk + Technology Risk TTR = Tax Technical Risk IR = Integration Risk

4. Total Tax Function Risk Defined (cont’d) Finance Risk: The quality and accuracy of data from accounting in accordance with existing financial reporting standards Process Risk: The failure points in existing processes Knowledge Risk: The risk of the loss of business intelligence and human error Technology Risk: Improper or poor utilization of technology Tax Technical Risk: The risk of misinterpreting or incorrectly applying tax statutes, regulations, case law, and financial reporting standards Integration Risk: The failure to properly link and manage the flow of information

5. Total Tax Function Risk Defined (cont’d) The elements of tax risk must be evaluated in the context of the following: Strategic Plan & Risk Profile Operational Management Resources and technological assets used and available to tax function Scope of Tax Processes & Key Activities Tax sub-processes (e.g. Tax accounting; income tax; sales & use; etc.) Key Activities (e.g. compliance; audit management; planning; etc.) Integration Internal and external integration – Workflow & communication Data Management Sources, outputs and archiving

6. Matrix View of Total Tax Function Risk

7. Examples of Finance Risk Inaccurate Income Statement due to incorrect legal entity reporting Poorly implemented transfer pricing study resulting in the misapplication of income and expenses Overly summarized financial data not provided in the level of detail for tax (non-tax sensitized ERP systems) Inadequate intercompany accounting Incorrect application of GAAP or IFRS Poorly integrated acquisition resulting in inaccurate or unavailable financial data Finance Risk: The quality and accuracy of data from accounting in accordance with existing financial reporting standards

8. Examples of Process Risk Process documentation nonexistent or dated Critical institutional knowledge known only to key personnel, not documented Controls established only for SOX relevant sub-processes No milestones or signoffs other than on end product No process for periodic review of calculations and data sources (SALY) No retention of accounting data at the time of compliance Paper binder based document retention Process Risk: The failure points in existing processes

9. Examples of Knowledge Risk Resource constrained or turnover problems Existing resources lack necessary skill-set to effectively execute tax function responsibilities Inability to find skilled resources “Hit by a Bus Syndrome” - weak processes result in reliance on the critical institutional knowledge that resides within a resource’s brain Tax function not fully integrated with finance CFO and senior leadership do not recognize or appreciate the critical role tax plays in the day-to-day operations, strategic direction and risk management for the overall organization Knowledge Risk: The risk of the loss of business intelligence and human error

10. Examples of Technology Risk Excessive use of spreadsheets for manipulating data Redundant data and processes with the same data cut and pasted from other spreadsheets or pulled from different sources resulting multiple versions of the truth Version control issues Little to no optimization of enterprise technologies or tax specific technologies Using email for secure communication and workflow Utilizing technology for the wrong purpose Technology Risk: Improper or poor utilization of technology

11. Examples of Tax Technical Risk Non-filing nexus Incorrect application of sales factor sourcing Inadvertent accounting method changes without 3115 Incorrect depreciation methods Not filing in countries where company has permanent establishment Miscalculation of foreign tax credits Not complying with Section 482 Not adequately tracking tax basis or E&P Misapplication of tax attributes Improper application or out of date of UNICAP rules Tax Technical Risk: The risk of misinterpreting or incorrectly applying tax statutes, regulations, case law, and financial reporting standards

12. Examples of Integration Risk No work flow management in place Coordination dependent on meetings and emails between the tax professionals Lack of transparency of work progress resulted in deadline driven work flow Management could not easily tell what capacity existed for special projects Tasks transferred via email resulting in multiple versions of the same document and version control issues Little to no connection between workflow and deliverables and supporting documentation Integration Risk: The failure to properly link and manage the flow of information

13. Tax Risk & Process Re-engineering What factors are driving tax risk?

14. The Complexity of the Global Tax Environment External Factors Driving Tax Risk Globalization & velocity of business Increasingly complex transactions and organizational structures Heightened demand for accuracy Increased enforcement by taxing jurisdictions and regulatory bodies Drive toward currency Current and forecasted shortages of qualified personnel

15. The Complexity of the Global Tax Environment (cont’d) Internal Factors Driving Tax Risk Resource constrained, turnover, or inability to attract tax professionals Not a contributor to strategic priorities of business (reactive) Management reporting versus legal entity reporting Lack of process and technology Lack of control over data inputs Insufficient internal communication Poorly implemented or out of date planning or structures

16. The Measure of an Effective Tax Function The measure of an effective tax function is a tax function that: Effectively manages tax risk Operates efficiently Ensure compliance with tax laws and reporting requirements Provides value to the organization by minimizing the tax profile and providing business intelligence leveraged throughout the organization Can scale to accommodate future business needs Copyright 2009 – True Partners Consulting, LLC ©

17. Key Tax Risks 6% Increased regulatory 8% requirements 28% Accuracy of the tax provision Increased possibility of audit by the taxing authorities 31% Overpayment of taxes Exposure to potential penalties 27% Corporate Perspective on Tax Risk Results from TGI Tax Risk Survey, April 2009 What is the most significant tax risk facing your company today?

18. Corporate Perspective on Tax Risk

19. Corporate Perspective on Tax Risk Number of Employees in the Tax Function

20. Corporate Perspective on Tax Risk During the past 6 months, your company’s tax resources have changed how? Results from TGI Tax Risk Survey, April 2009

21. Tax Risk & Process Re-engineering What are some root causes of increased tax risk?

22. Root Causes of Tax Risk Examples of activities that can exacerbate tax risk: Decentralized tax activities Implementing new ERP systems and operational systems Mergers & acquisitions Restructuring of head office or administrative functions Launch of new business venture in a new jurisdiction Expansions & contractions Product line changes & new marketing initiatives Resource constrained tax functions

23. The Challenge A tax department which for years has been configured to minimize tax costs may not in fact be best placed to optimize performance in a more process and control-driven environment. Tax departments are no strangers to resource and staffing challenges. However, they may not realize that over-reliance on one individual or lack of access to specific skill sets may result in internal control deficiencies. Decentralization divides tax knowledge from the rest of the organization. Copyright 2009 – True Partners Consulting, LLC ©

24. The Challenge Many tax professionals come from a background which recognizes and rewards technical skill and creativity over organizational ability. Communication and negotiation skills have always been needed, but now they have to be turned outwards from the tax department. World class tax departments consider new operations and process skills to complement the high technical ability of their existing people. Copyright 2009 – True Partners Consulting, LLC ©

25. Tax Risk & Process Re-engineering How does a company effectively identify and measure tax risk?

27. ASC 450-10 (FAS 5)

30. Tax Risk – Process Design Develop risk profile incorporating: Identified risk Management’s risk tolerance Cost benefit analysis Prioritization of objectives Re-engineer tax function based on: Process mapping Requirements established in stakeholder interview process Risk profile Best practices Copyright 2009 – True Partners Consulting, LLC ©

31. Tax Risk – Tax Function Re-engineered Execute re-engineering plan: Develop formal plan Validate with key stakeholders Obtain funding Identify technology enablers Work with leadership to communicate vision Manage user acceptance of new process: Change management communication plan Deployment Training Follow-up validation of user acceptance Copyright 2009 – True Partners Consulting, LLC ©

32. Tax Risk & Process Re-engineering What are some approaches to effectively managing tax risk?

33. Approaches to Data and Workflow Management Develop data repositories – accounting and tax data stores Maintains integrity of the data for as long as tax needs it Provides a single source for all tax processes – only one version of the truth Integrated with ERP systems and other enterprise technologies Automate as many repeatable tasks as possible Allows the tax function to focus on higher value activities and less on compliance activities Implement a tax portal Single entry point for all tax function process tools and data Integrated tax processes and process documentation Single repository for all tax documentation Eliminate the use of spreadsheets for analytics through OLAP and BI tools Copyright 2009 – True Partners Consulting, LLC ©

34. Scorecards Apportionment Dashboards Financial Accounting Load Data Marts Reports Compliance Transform Staging Budgeting Analysis Extract Metadata Proven Practice Data Architecture Data Operational Systems Analytic Applications General Ledger Fixed Assets Accounts Receivable Database Management System Business Intelligence Software AccountsPayable Inventory OLAP Cubes

35. Data-Centric Tax Processes The development of a central data repository with appropriate reports, dashboards and views allows you to review and manage your data in new and novel ways: Data dashboards that provide views of multiple data sources simultaneously. Intelligent reports that indicate exception conditions Drill down to detail from multiple sources Copyright 2009 – True Partners Consulting, LLC ©

36. Integration of Tax Function –Enhance Analytic Capabilities Implement OLAP Analytics and Reports Separate data from calculations Calculations are secure and auditable Reports are standard and provide drill down Provides rapid analytics Provides integration with compliance tools Reporting and analytics available across all tax lifecycles Complete transparency to source accounting and tax data Reduced ramp up time for new personnel by eliminating the need to understand spreadsheets Allows tax to slice the data and look at the business the way operations looks at the business Provides the tax function the ability to harness the data and provide business intelligence to the rest of the organization Copyright 2009 – True Partners Consulting, LLC ©

37. Example of a Dashboard

38. Example of a Dashboard

39. Example of reports from Report Library with drill down capabilities.

40. Example of a Dashboard - Analytics

41. Example of a Dashboard - Analytics

42. Example of a Dashboard – Drill Down Capabilities

43. Example of a Dashboard - Analytics

44. Automated Workflow Tools Captures your detailed processes to reduce knowledge risk caused by loss of key personnel Built in navigation to tools necessary to perform task Built in control points and signoffs Clear visual indication of progress Copyright 2009 – True Partners Consulting, LLC ©

45. Example of Workflow Tool

46. Example of Workflow Tool (cont’d)

47. Example of Workflow Tool (cont’d)

48. Integration of Tax Function – Tax Portal Embedded tax document repository Tax data categorization and taxonomy implementation Search across projects, documents, tasks, attachments, messages Application, Project, Document Access control and Field Level Security Access Logs for SOX Compliance Embedded tax project management Assignment of tasks to tax professionals Visibility on progress on tasks and capacity of tax department Personalized (Dashboards) for customization Tax calendar for tracking filing deadlines & milestones Centralized communication & messaging Publish tax department specific content Links to internal, external web pages and tax tools Copyright 2009 – True Partners Consulting, LLC ©

49. Tax Risk & Process Re-engineering What are the latest innovative technologies that can be leveraged by a tax function?

50. Why Consider Cloud Computing? Tax Functions fall into two groups: Those that have strong IT infrastructure support and investment Those that must get along with what they have or develop inefficient alternative means to accomplish their tasks and injecting higher levels of tax risk into the organization This condition leads to a huge and growing gap between “best in class” performance and average or “typical” tax function performance Copyright 2009 – True Partners Consulting, LLC ©

51. Why Consider Cloud Computing? (cont’d) Cloud computing levels the playing field by treating technology as the commodity: Technology and technology assets provided as a utility rather than investment Cost based on consumption, not on ability to pay Spreads the cost of technology across a large number of customers Makes latest technology available to all Efficient means to deal with spikes in IT demand caused by intermittent nature of work-load within tax function Copyright 2009 – True Partners Consulting, LLC ©

52. What is Cloud Computing? Cloud computing is a general term for anything that involves delivering hosted services over the Internet Cloud computing consists of: Infrastructure as Service (IaaS) Platform as Service (PaaS) Software as Service (SaaS) Copyright 2009 – True Partners Consulting, LLC ©

53. Isn’t that just Hosted Solutions? A cloud service has three distinct characteristics that differentiate it from traditional hosting: It is sold on demand - typically by the minute or the hour It is elastic - a user can have as much or as little of a service as they want at any given time It can be configured to run any number of applications and connect to any number of networks Copyright 2009 – True Partners Consulting, LLC ©

54. Benefits of moving to the Cloud Maintain control of your data compared to hosted solutions Secure integration with your intranet No need to purchase hardware for peak demand Computing power and bandwidth scales to demand Lower technology costs Improved return on investment Copyright 2009 – True Partners Consulting, LLC ©

55. Does it fit the Tax Function? Certain characteristics of the tax function closely match the benefits of “moving to the cloud”: Computing demands of tax are not fixed and constant Tax computing demands increase and decrease in monthly, quarterly and annual cycles Tax function has the need to integrate a large number of diverse systems Accounting ERP systems Tax compliance systems Tax research services Local and “home grown” solutions Tax function has the need to store, instantly locate and use amount of data and documents Tax function has significant archiving and retrieval needs for audit management Tax function has large technology needs but typically lacks deep technology pockets Copyright 2009 – True Partners Consulting, LLC ©

56. Who is Supporting the Cloud? Microsoft Massive investment in data centers to host cloud Microsoft Azure platform Microsoft Office Live for Business Google Massive investment in data centers Google Business Solutions Amazon One of the earliest entries Copyright 2009 – True Partners Consulting, LLC ©

57. Who is currently in the Cloud? Capgemini Genetech Motorola Mobile Devices Division District of Columbia Government Hamilton Beach Fairchild Semiconductor And many more actively moving or considering a movement to cloud technologies Copyright 2009 – True Partners Consulting, LLC ©

58. The Next Generation of Global Tax Management The implementation of a tax portal and enterprise data store would position atax function to scale for growth and expanded capabilities A enterprise system would eliminate volume anddata constraints that exist within MS Access, Excel and similar applications A enterprise system would eliminate the performance issues encountered when running reports from existing transactional systems (OLTP) The addition of a workflow tool would reduce risk by automating controls around existing procedures The addition of a workflow tool would provide the means to instantly disseminate process improvements

59. The Next Generation of Global Tax Management TTFR = (FR + OR + TTR) IR By looking at tax risk in a holistic manner incorporating all components driving risk for a tax function, the next level of tax risk management can be achieved It is the proper alignment of people, process, technology within the tax function effectively integrated with all business processes that will allow an organization to achieve the next generation of global tax management Copyright 2009 – True Partners Consulting, LLC ©

60. Tax Risk & Process Re-engineering Andrea L. Gronenthal Service Line Leader & Managing Director - Chicago Phone: (312)235-3328 Andrea.Gronenthal@TPCtax.com Joseph R. Ochoa Senior Manager – Tampa Phone: (813)447-9421 Joseph.Ochoa@TPCtax.com Sara Neff Senior Manager – Chicago Phone: (312)924-3216 Sara.Neff@TPCtax.com