Integrated corporate tax management system.

Background

Change is rarely easy. Increasingly, however, corporate tax departments have been asked to make changes in their pursuit of improved, streamlined and more cost-efficient operations. During the late 1980s, Citicorp realized that its tax function needed to change, both from a process and technology standpoint. Not only were Citicorp staff resources fully used and stretched thin, but an ever-increasing compliance burden, rapidly changing technology and management's demand for greater cost efficiency had all combined to make the situation worse, and prompted Citicorp to assemble a team of tax and systems experts to address then-current tax processes and tools. Consistent with the reengineering that corporations have initiated over the years, the corporate tax advisers needed to find a way to do things in a smarter and faster way.

The Citicorp evaluation team discovered that the first step toward improved and streamlined operations involved a complete redefinition of the corporate tax department. Like most other multinational companies at the time, Citicorp organized its tax function along very specialized lines. The different compliance groups--Federal, state and international, for example--required unique organization and information systems to gather the data needed for their respective tax calculations. One negative aspect of these unique needs was a redundancy of databases throughout the tax department. This fragmented approach had become inefficient and expensive as a more global method to minimizing corporate taxes became the norm.

Citicorp responded by moving from a task-oriented tax department to a process-oriented department--one poised to address the increasing demands of business in the twenty-first century. Just as importantly, all of Citicorp's full-service tax groups--domestic, state, international, fixed asset, audit, consolidation and financial tax accounting--were given access to improved technology, allowing them to get more done, faster and at increasingly lower cost.

New technology

After a year of evaluating all the corporate tax software on the market, Citicorp replaced its use of in-house mainframe systems with the Local Area Network (LAN) version of the Tax Management System (TMS), Price Waterhouse LLP's proprietary software for maximizing corporate tax department efficiency. By embracing new technology, the tax advisers at Citicorp were able to place increased focus on how things were done, allowing the software to take care of the details. For the past three years, each group in Citicorp's tax department has used the full gamut of TMS products, thereby spending less time entering data and more time on planning and formulating tax strategy.

The most significant advantage of TMS comes from the fact that the system serves as a central data repository for all of Citicorp's U.S. and foreign subsidiary data. This centralization provides a consistent tax audit trail, eliminating the need to enter data several times throughout the compliance process. TMS has also helped move Citicorp toward its goal of a paperless environment. The system's Customized Workpapers module, in particular, enables Citicorp to reduce extraneous files by accessing all information from a central database.

Citicorp's Federal tax compliance team has streamlined its operations through the use of the Domestic Tax Management System (DTMS) module. Fully automated Schedule M's, available at all levels of the DTMS, have eliminated the need to manually input each and every journal entry, allowing the tax preparer to focus instead on quality control issues during the review process. In addition, Citicorp takes full advantage of DTMS's Provision module, which provides a "provision to return" comparison--an automatic analytical report--as each entity return is prepared. This gives Citicorp real time information on variances before (rather than after) the completion of the entire consolidated tax return. Citicorp has also customized this workpaper to automatically develop relevant items for its annual report footnote disclosure required for financial reporting.

Advanced technology has also permitted Citicorp's international and foreign tax compliance groups to do more in less time and at less cost. As with the TMS domestic module, the International and Foreign Tax Management Systems (ITMS/FTMS) databases contain centralized pools of data, critical for many purposes in addition to the basic (albeit complicated) international compliance function. Responding to information requests by the IRS and determining the optimum time to pay a dividend from a foreign subsidiary to a U.S. parent are just two examples of how TMS has streamlined Citicorp's international tax process. As a global institution, Citicorp's tax team considers a sophisticated foreign tax credit limitation module a necessity. As the return process nears completion, there are always last-minute changes in taxable income, deductions or the asset base used to apportion interest income. ITMS can recalculate and restate all allocations and apportionments by entity and by basket, saving substantial time and effort.

Throughout the Citicorp tax department, using the right technology tools has eliminated unnecessary manual effort and allowed tax advisers to spend more of their time on planning and quality control. The Fixed Asset Management System (FAMS), for instance, allows Citicorp to track domestic and overseas assets for tax compliance purposes. Maintaining fixed assets on a functional currency basis has become less of a headache with the right technology, and integrating fixed asset data into the preparation of the return is now a seamless process for Citicorp. Other useful modules include the TMS Estimated Tax module for forecasting tax liability and the Revenue Agent Review module for managing its tax audits.

Citicorp's tax department uses TMS through a LAN on 486 machines with varying processing speeds. The department also uses Lotus Notes[R] to access PW/Wire, a groupware product produced by Price Waterhouse, and other third-party tax information in a timely and efficient manner. Databases from Tax Analysts and Price Waterhouse's Washington National Tax Service provide PW/Wire users with daily access to tax legislative updates. Daily tax reports, newsletters, discussion forums and ready-to-use tax application templates are also available, making it easier for Citicorp to remain current on the latest issues.

Citicorp's tax team has found PW/Wire to be a useful tool in communicating with TMS support professionals and other Price Waterhouse personnel, which helps to maintain a continuing technology partnership between the system advisers and Citicorp's tax department. Numerous TMS-related databases are available through PW/Wire, allowing Citicorp to communicate with other corporate TMS users, to electronically post suggestions and concerns, and to receive system updates directly, eliminating the need to wait for diskettes or CD-ROMs through the mail. Citicorp also maintains a multiaccess CD-ROM tower for its library of tax information, so that its tax professionals can carry out in-depth research from their PC, or from a remote location.

By redefining its corporate tax function and by implementing state-of-the-art technology, things have changed dramatically for Citicorp. Not only has technology centralized and streamlined Citicorp's tax process, but the company's sophisticated use of available software tools has ensured value-added benefits that extend well beyond simple tax preparation. The increase in speed and decrease in time spent on tasks has added a value to Citicorp overall.

Conclusion

Clearly, the right technology can make a big difference when it comes to streamlining tax department operations. Since 1992, Citicorp has enjoyed the benefits of a centralized database of information, the freedom to carry out complex tax scenarios, and enhanced tax planning capabilities. TMS has allowed Citicorp to cope with the exploding volume of compliance resulting from the corporation's global expansion and with the increasingly detailed and complex reporting requirements resulting from tax legislation passed since 1986.

As business increases and moves globally, management of the corporate tax function becomes more complex. With the availability of central databases supported by tax management software (like Price Waterhouse's TMS), the job gets done and the corporate tax adviser is able to increase the corporation's bottom line. That is adding value where it counts most.