Publish Date

Apr 20, 2021

Understanding and Communicating Tax Law Changes in Analytics and Visualization

A&M Tax Advisor Weekly

With the constant change in the global business environment, tax functions are continuously asked to “do more with less.” To comply with new reporting requirements, many companies are utilizing older aftermarket or “bolt-on” solutions and spreadsheets to manually aggregate data and perform calculations. As changes in tax reporting requirements multiply, these problems are exacerbated.

As an example, the CARES Act contains additional reporting requirements in order for companies to carry back net operating losses (“NOLs”). Under the Act, unless a company makes an irrevocable election not to carry back NOLs, it must provide reporting for tax years beginning after December 31, 2017, and before January 1, 2021, for each of the five years preceding the year of the loss. While this change provides potential opportunities for companies to access cash via tentative tax refunds, it also puts tax departments in a bind. In order to comply with this provision, tax departments are forced to spend large amounts of time collecting and manipulating data.

Tax data analytics and visualization can help tax departments address these tax requirements and present tax executives and stakeholders with opportunities to leverage in-depth insight into their data to make strategic tax planning decisions. Data analytics and visualization can also add significant value to the tax return and provision preparation process by allowing the reviewer to dynamically drill down to supporting detail instead of looking at lines on tax return/tax provision reports, spreadsheets, and workpapers. Similarly, other tax areas, such as transfer pricing and indirect taxes, can also benefit from the power of analytics. For example, during the periodic compliance reporting process, the tax reviewer can easily choose whatever metrics they would like to examine (such as sales and use tax and transfer pricing).

Most tax departments already have data analytics and visualization tools available to them through existing licensing arrangements (e.g., Microsoft Power BI, etc.). These tools can be deployed to change the traditional approach of manually organizing and analyzing data in Excel. Once streamlined, the identification of opportunities related to the CARES Act or any new proposed tax rules is much simpler.

Going back to the example of NOL provision in the CARES Act, these tools can support an effortless assessment of the advantages of carrying back NOLs to a 35% tax year, along with the implications of tax credits, and compare that with carrying the NOLs forward to a year with lower tax rates, where the utilization of NOLs is limited to 80% of the taxable income. Modeling multiple scenarios is a fast, automated process.

The use of data analytics and visualization tools allows tax professionals to be “proactive” rather than “reactive” by, for example:

Automating data processing under different scenarios for tax planning purposes and shifting from repetitive and low value-added activities to high value-added activities to help organizations make informed decisions;
Providing simple and easy to understand data visualization and dashboards for management reporting purposes;
Identifying data anomalies to enable informed decisions and to quickly answer questions;
Reducing the effort required to aggregate and manipulate data to perform calculations;
Providing the ability to drill down into various reporting levels (e.g., entity, company, and jurisdiction);
Performing year over year comparative analysis;
Producing immediate results and the ability to create ad-hoc reporting.

Another wave of changes to current tax law are likely, given the priorities of the Biden Administration. Potential changes include an increase in corporate tax rates and AMT rates, changes to U.S. taxation of international operations, changes to payroll taxes, and many more. Any or all of these changes will dramatically increase the data management requirements for tax departments. Employing tools that make efficient data analysis and visualization possible can allow taxpayers to proactively assess the impact of these changes and help the tax department make smarter, real-time decisions to improve business performance and drive strategy.

A&M Tax Says

Every tax department is different; however, they all share the need to manage and utilize data. These requirements are dramatically affected by recent and future tax law changes. To better help manage these requirements, A&M has developed visualization accelerators to help tax departments adopt the tools already available to them. By visualizing key performance indicators to highlight opportunities and bring more value to the organization, these accelerators can drive more insights from data to support timely and informed decisions. If you have any questions about these services, please reach out to our Tax Technology and Automation group.