What is Tax Data and why does it matter?

Fonoa recently organized a webinar to discuss the challenges of managing tax data in large digital enterprises. This insightful session emphasized the critical importance of tax data in ensuring compliance with legal requirements and enhancing operational efficiency. The webinar featured experienced professionals who shared their perspectives on the difficulties encountered in tax data and outlined the benefits of having a team dedicated to tax data management. Additionally, they offered guidance on initial steps for individuals interested in establishing such a team, aiming to simplify the complex issues surrounding tax data.

A summary is provided below.

The Panel

Our in-house tax specialists, Rob van der Woude and Alexander Kobakhidze, were joined by experienced speakers from leading technology companies (Uber, Booking, and Nitt & Huff).

Jenny Nittman studied English literature and moved directly into international indirect tax upon graduating in 2003. After seven years of consulting on cross-border VAT compliance and tax determination in SAP, Jenny transitioned in-house where she worked on global indirect tax advisory, policy and technology. Her carer has taken her across several leading companies, including eBay, PayPal and Amazon. In September 2022, Jenny co-founded Nitt & Huff where she leverages her extensive experience and assists large multinational enterprises with indirect tax projects.

Ha Pham is a Chartered Accountant with 12 years of International experience (working out of Australia, Ireland, the Netherlands, and the UK). Ha’s main specilalisation is Tax Technology with a focus on Data, Analytics and Automation. Today she is a Tax Manager in the Tax Data Strategy team at Booking. Before joining booking, Ha led a team of data scientists at Uber where she worked as a TaxTech Manager for five years. In the past, Ha also worked with Vodafone and DTCC.

Oleh Fedusiv is a tax lawyer with an LLM in international tax and has spent 15 years in taxes. He has a Big 4 background where he interacted with various branches of tax law, including direct taxes, indirect taxes, and transfer pricing. Since 2019 he has been working with Uber. Oleh is best described as a “tax generalist” - he analyzes the tax impact (all taxes) of the products Uber introduces in his region. While not in the tax data function, he regularly interacts and works with this dedicated team at Uber.

How do tax data professionals view tax data?

Tax data encompasses a wide range of information. There are various ways you can view data.

Some separate data into transactional vs master data:

1. Transactional data: changes from one transaction to another;
2. Master data: relatively static (customer and vendor information, tax-related details like tax ID numbers and tax rates).

Others distinguish data between internal and external sources.

1. Internal sources: The company can influence the quality (e.g. transactional data) for internally produced data. This often has a higher bar for quality, as companies can implement various processes and checks to ensure it’s correctly recorded and stored.
2. External sources: The same should apply to externally produced data (customer and vendor information), but businesses will typically have limited influence over the quality/accuracy of such data.

Having clean, accurate, and accessible tax data to meet compliance requirements was crucial. Some teams can spend more than 50% of their time wrangling data to prepare it for tax compliance purposes.

In summary, the panellists emphasized that tax data is a foundational element of tax compliance and strategy, requiring careful management to ensure accuracy, compliance, and operational efficiency.

What are the common issues encountered with tax data?

The discussion on the challenges in handling tax data highlighted three main issues: poor data quality, data fragmentation and access, and the lack of user-friendly technology for tax teams to use.

• Poor Data Quality: This encompasses inaccuracies, incompleteness, and lack of validation in the tax data (including data gaps). It's often due to data not being appropriately collected at the source or lacking necessary validation checks. This can lead to significant downstream problems, such as incorrect tax filings and audit difficulties.
• Data Fragmentation and Access: Tax data is often scattered across various systems within an organization, making it challenging to access and compile the necessary information efficiently. This fragmentation hampers the ability of tax professionals to gather a comprehensive view of the data, leading to inefficiencies and increased potential for error.
• Lack of User-Friendly Technology: There's a noticeable gap in technology solutions that are both comprehensive and easy to use for tax teams. The available tools often do not fully meet the specific needs of tax data management, forcing tax professionals to resort to manual processes or makeshift solutions that are not optimized for their requirements.

What are some consequences of not managing tax data properly?

There are several consequences of not managing tax data properly:

• Incorrect VAT Reporting: Mistakes in VAT reporting due to inaccurate or incomplete data can lead to audits by tax authorities. If errors are found in a sampled tax return, tax authorities may investigate other returns, potentially leading to a comprehensive audit covering several years.
• Invoicing Issues: Poor data quality can result in invoicing errors, such as incorrect VAT calculations or including VAT on cross-border invoices where it shouldn't be. This affects compliance and can impact cash flow and profitability since the business might incur the cost of incorrectly charged VAT.
• Operational Inefficiencies: A significant amount of time and resources may be spent on preparing data for tax reporting due to initial poor data quality. This inefficiency can divert resources from other value-added activities.
• Compliance Risks and Penalties: Errors in tax data can lead to non-compliance, resulting in fines, penalties, and reputational damage. This is particularly critical in jurisdictions with stringent reporting requirements and aggressive enforcement.
• Business Impact from Onboarding Frictions: Implementing rigorous data collection processes, while essential for compliance, may create friction during customer or vendor onboarding, potentially leading to churn or loss of business.
• Domino Effect: Incorrect configuration/data error if not detected earlier, can have a domino effect on all transactions at a big scale (especially at a high-volume company) and is much harder to remediate.

What are the benefits of a dedicated tax data team?

The benefit of a dedicated tax data team centres around providing expertise and support in managing tax-related data efficiently and effectively. There are several key advantages:

• Expertise in Handling Tax-Specific Data Needs: A dedicated tax data team understands the unique requirements and complexities of tax data, enabling them to manage, analyze, and leverage this data more effectively than general data teams might. You do not need to explain or train the team on taxes each time you ask a question.
• Faster Responses: These teams are familiar with tax rules and tax data sets meaning that less involvement is required from core tax professionals leading to faster and more accurate responses.
• Operational Efficiency: These teams identify tax issues significantly faster than unspecialised teams who may not be aware of tax-technical nuances (e.g. VAT or transfer pricing rules).
• Reduced Dependency: Dedicated tax data teams reduce dependency risk on other departments that are not exclusively focussed on tax needs and may be prioritised on other work.
• Better Accessibility: Dedicated tax data specialists will have better access to data enhancing the quality of tax data and making it more accessible to the tax function, which is crucial for timely and accurate tax reporting.
• Enhanced collaboration: Dedicated tax data teams bridge the tax function and other parts of the business, ensuring that tax data considerations are integrated into broader business processes and decision-making.

In summary, a dedicated tax data team brings specialized skills and focus to tax data management, offering significant benefits in compliance, efficiency, and strategic tax planning.

For newcomers focusing on tax data, where should you start?

For newcomers focusing on tax data, the panel suggested identifying and addressing the main pain points in your current tax data processes. Here’s a summary of the “low-hanging fruits”:

1. Identify Recurring Pain Points: Specifically, focus on recurring issues that your tax function faces, such as challenges with VAT reporting, invoicing errors, or data discrepancies. Addressing these issues can yield immediate, scalable improvements in efficiency and compliance.
2. Addressing Data Quality and Compliance: Start with ensuring the data used for tax compliance purposes is accurate and complete. This foundational step reduces the risk of errors and penalties in tax filings.
3. Streamlining Tax Reporting Processes: Look into automating and optimizing tax reporting processes to reduce manual efforts around data gathering and cleansing. This speeds up reporting and enhances accuracy.
4. Focus on Input Data Quality: Start upstream to ensure the input data is accurate and complete. This approach reduces errors in downstream processes.
5. Engage with the Business Early: Early engagement with other business units can help ensure that tax considerations are integrated into business processes, improving the quality of tax data from the start.

By focusing on these areas, tax data newcomers can significantly improve their organization's tax data management, leading to better compliance, efficiency, and strategic decision-making.

Further Reading and Next Webinars

If you want to learn more about this space, consider connecting with the speakers on LinkedIn. Alternatively, feel free to contact Fonoa.

Here are a few more content pieces related to the tax data topic:

• The Essential Guide to Tax ID Validation
• Tax Master Data: A critical component of any tax departments future success
• Tax Master Data: Challenges and Solutions

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