The Tax Cuts and Jobs Act of 2017 (TCJA) is not tax simplification, particularly for multinational corporations. The new calculations it introduced are complex, data-intensive, and extensively intertwined. In response, tax departments are already fine-tuning and adjusting their year-end estimates, calculating the ultimate impact of the changes while collating the data needed, and developing models to inform future tax planning activity.
The first step for every tax department is understanding the changes. Following are a few provisions of the TCJA that will cause specific data management challenges for the tax department:
- Corporate tax rate change – applying the correct rate when accounting for the true-up calculations related to pre-TCJA periods, and gathering additional data needed to support new disclosures required by the SEC.
- Full expensing of business assets – complicating the book vs. tax basis reconciliation needed to support deferred tax assets/liabilities.
- Limitation on business interest deduction – requiring detailed data to calculate EBIDTA/EBIT.
- Capitalization and amortization of R&D expenses – maintaining new amortization schedules to track basis differences and support the new deferred tax asset.
- Disallowance of business entertainment expenses – separating business entertainment expenses from meal expenses (which are still 50% deductible).
In addition, the tax departments of international corporations will be asked to develop data required to complete some very complex calculations related to, e.g: the switch from a modified worldwide system to a partial participation exemption system; deducting foreign-derived intangible income; calculating global intangible low-taxed income; and calculating base erosion anti-abuse tax.
Yesterday’s approach to managing data will likely not suffice to meet these complex challenges. Businesses will require greater speed, transparency, and control over data, and for many, employing tax data management technology will be a crucial step toward arming the tax department for the challenges of TCJA.
“The CFO now, more than ever, sees a role for the tax department that is much more than a tax compliance and reporting shop,” explains Nancy Manzano of the Vertex Chief Tax Office. “Now it’s all about exploring options – conducting complex scenario planning to inform strategic business decisions and carefully manage tax liability and reputation risks.”
Effective management of tax data will elevate the capabilities of the tax department, including the governance and control over data and processes. The right data management technology will allow the tax function to retain control over the data, which enables them to efficiently maintain control and governance over any new tax processes, calculations, and reporting required in response to TCJA.
Vertex offers data tax management solutions to help meet the needs of TCJA reporting. Learn more about Tax Data Management.