Finance: Is Your Tax Department Lost in the Cloud?

June 2, 2014
Senior executives have basically no idea as to if or when their tax department will begin using cloud technology to its full extent. And that could be costing their companies a lot of money.

In a recent survey of senior level industry executives conducted by consulting firm KPMG, nearly two-thirds (64%) say their companies are currently utilizing cloud technologies in some capacity. And yet, almost the same amount of respondents (63%) have basically no idea as to when their tax department will begin using the cloud to its full extent. And that could be costing their companies a lot of money.

"There continues to be a significant disconnect between the tax department and business operations and the C-suite when it comes to getting tax involved early on with cloud business decisions," says Steven Fortier, a KPMG principal and co-leader of the firm's Cloud Tax Initiative. "The outcome is that cost savings, such as tax credits and other incentives related to the cloud, are being missed while the potential for reputation risk and tax liabilities, including hefty penalties down the road, is increasing."

For instance, an overwhelming majority of respondents (92%) say they have not taken advantage of existing statutory credits at the state and local tax levels for cloud investment. The remaining 8%, at least, are taking advantage of R&D credits available at the state and local level.

Part of the problem, according to KPMG's analysis, is that finance executives seem to be "out of sync" with their companies' expectations for cloud technology, as a separate study of technology leaders indicated a much higher level of optimism when it comes to the cloud driving innovation in products, services and processes. Tax departments in particular are more likely to be cautious due to the risks inherent in doing business in the cloud, and thus are less likely to invest in infrastructure to support tax data.

The most significant tax issue, according to respondents, is correctly identifying tax obligations and filing the right forms.

"When it comes to cloud strategy, tax can add a tremendous amount of value if engaged early in the decision-making process," observes Reid Okimoto, managing director in KPMG's State and Local Tax practice and co-leader of the firm's Cloud Tax Initiative. "Early investment by tax can result in increased cost savings, greater return on investment and enhanced risk management across the enterprise. Finding ways for tax to add value to the overall cloud business strategy should be 'Job One' for well-run tax departments."

As Okimoto sees it, companies should closely evaluate their infrastructure investment in the cloud. Not only would such scrutiny help them benefit from tax credits and incentives, but they'd be in a better position to adapt to ever-changing legislation and regulations, particularly reporting and compliance requirements.

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