Taxing Times

The tax function, so often overlooked during the IT procurement process, results in IT frequently leaving tax savings on the table. Here are some steps CIOs and CFOs can take to hold on to those cost savings

Deloitte tax partner Jim Morrison recently consulted to a fitness group that had gone through a consolidation process without properly identifying its underlying intellectual property. The failing made the Australian Tax Office six million dollars richer at the group's expense.

Chances are you have been guilty of similar sins of omission that have cost your company big dollars, possibly without anyone - especially you - being the wiser. The good news is that you can mend your ways, and in so doing, make your CEO and CFO truly love you.

In fact your company might stand to gain a small fortune if you consult with your tax accountants during the technology purchase process. Taxes come into play on a raft of IT initiatives, from decisions over whether to lease or buy, to ones about the location of the new system. Reaping all the tax benefits allowed by law can put you in the bosses' good books, help you offset a project's costs or, in some cases, even pay for the new IT campaign.

Yet a recent survey by Deloitte Consulting LLP and IDC (US) of CFOs and major IT purchasers suggests that because less than 30 percent of companies are consulting with their tax department early enough, many may be passing up millions of dollars worth of savings or even exposing their company to massive liabilities. The survey found IT executives were less likely to include tax groups than any other functional group in the company in the initial part of the acquisition process, particularly during business case development. One company indicated that it would be surprising for taxes to be considered in any but the most visible project.

"Perhaps explaining the glaring omission of tax experts, most executives voiced their belief that either there are no tax implications or that taxes would not materially impact the IT acquisition justification process. However, these common misconceptions can and often do create a self-fulfilling prophesy," the resultant IDC white paper Factoring Tax Savings into the IT Acquisition Process notes.

Against all stereotypes, it seems to be the smaller organizations that have a better handle on the tax implications of their IT purchases - possibly because the CFO remains either closely linked with the management of the IT function or is at least acutely aware of every IT project under way in the organization. Deloitte Consulting partner Peter Bars says in his experience, in these smaller organizations the CFO starts asking questions about the tax implications early, whereas in larger organizations such considerations are more likely to be "delegated down the chain, [because] the CFO may not be directly involved in the management of IT".

"I think one of the things that's really clear is that to be effective the tax people have to be brought in early," Bars says. "Often a project will be started or get onto the radar and the finance people or the tax people are brought in towards the end of the process rather than at the start of the process. It's much more effective to have the tax guys in at the start of the process where they can provide input and start structuring things appropriately, rather than at the end when a lot of commercial negotiations and decisions have been made."

Deloitte Tax partner Stuart Osborne agrees that getting the tax people early is a good thing. "The tax efficiencies that can be driven by getting the tax people involved early can effectively reduced the payback time on the software implementation, which makes it possibly inherently more likely that the whole project will get approved in the first place," he says.

Join the CIO Australia group on LinkedIn. The group is open to CIOs, IT Directors, COOs, CTOs and senior IT managers.

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