A real problem for the tax manager is when the CEO drops in and asks for the tax impact of opening a business in a new tax jurisdiction, acquiring a competitor, legislative changes, or other related questions. The usual result is a massive scramble to model the changes on a spreadsheet. Not only does this rush basis cause errors, but it also interferes with the timely scheduling of work in the tax department (which needs to issue lots of tax returns all year long). In addition, some tax queries involve such a large number of variables that they are extremely difficult to model on a spreadsheet at all.
A possible solution is the use of tax modeling software. An example is the Income Tax Management Suite, which is produced by Liquid Engines, in Sunnyvale California. This web-based software allows users to analyze a great many variables at once and provide the most optimized solution. It does so by integrating a company’s structured data into a centralized tax database, and then using a tax rules database and calculation engine to answer user queries. The software is available in different versions for both multi-country and multi-state modeling. Here are some examples of the tax-related decisions that the software is designed to support:
- Best location and legal entity structure for a new operation
- Best method of apportionment
- Dividend planning and repatriation
- Legislative changes
- Mergers and acquisitions
- Net operating loss utilization
- Restructuring decisions
- Transfer pricing schemes
- Utilization of foreign tax credits
This type of software is expensive, since it involves the creation of a centralized tax database for modeling purposes. Consequently, this software may be out of your price range if your company is not in the Fortune 1000.