Too Hard Basket

No self-respecting corporate executive or director would approve a major IT initiative without a strong business case and tangible ROI. Yet all too many of these same executives do not even consider the tax issues and implications of those initiatives, such as whether to lease or buy, locate a system domestically or abroad, and what incentives and credits might be available.

The reason is simple: Tax people and IT people are virtual strangers. There is a black hole as big as a nation between the IT experts who plan, purchase and implement systems, and the finance experts who understand the tax implications of major IT projects and underlying business processes. Yet thinking about taxes up front lets you embed critical tax requirements into future IT-system implementations that can not only reduce the company's tax burden but also help it recognize and plan for the impact of increasingly complex tax and regulatory compliance.

Analysts say a well-designed tax plan for IT systems can help a company achieve direct savings on the cost of implementation, create tax-efficient business processes and embed recurring structural tax benefits. Such an approach can also help avoid the need for expensive IT-system changes in the face of large-scale events like mergers, acquisitions, business expansions and changes to tax laws.

Yet the IDC-Deloitte survey made clear many executives either convince themselves that considering the tax implications is beyond the scope of their job or think it is being looked after by someone else. Others just put it out of mind because it all just seems too hard. So while business cases routinely contain input from several functions, according to the survey, companies are including tax professionals in just 28 percent of business cases.

Deloitte says there are multiple tax considerations related to IT purchases, with the way a company intends using its new system key to understanding tax integration capabilities. First and foremost, Deloitte says, financial systems must be designed to adequately address the company's compliance, planning and reporting needs to avoid under or overpayment of taxes. Some tax issues may be straightforward, but more often are complex in nature.

"We are aware of a number of significant implementations where transaction taxes were not dealt with properly in the programming. The outcome is that the companies have been required to pay several millions of dollars to the ATO," says Osborne.

Among typical examples of areas to be considered for tax savings, Deloitte includes: sales tax overpayment, property tax reduction, research and development tax credits, state and local training grants, tax law changes and value-added tax.

"Financial systems need to be designed and implemented to adequately address a company's compliance, planning and reporting needs," says the white paper's author, IDC research director William Roch. "Multinational companies have a major challenge in tracking the many laws and regulations placed on them by the large number of jurisdictions where they do business."

The white paper posits that a large number of tax-related issues should be included when analyzing alternatives for any major IT project.

"As with all things in life, potential tax effects can be either positive or negative. They range from straightforward concepts to complex tax considerations requiring some level of expertise to assess their impact, take advantage of the opportunity or mitigate the risk," the report says.

"Ignoring taxes can result in significant risk of non-compliance with relevant tax regulations. Not including tax considerations can wipe out millions of dollars of one-time and recurring tax savings that would otherwise contribute to the bottom line."