It was important, given rising scrutiny, and the need to implement an efficient and organizationally-aligned approach, to harness the power of automation and leverage corporate IT investments the company was making and had already made. Increasing efficiency and mitigating risk would require centralized, highly accessible strategies and processes in order to eliminate dependency on a small number of individual “knowledge heroes” scattered across departments. Microsoft’s financial and tax leadership wanted a comprehensive global view of TP with replicable, standardized and formally documented processes together with an appropriately designed control and governance environment. In July 2014 Microsoft’s earnings release included the following statement: “Tax provision adjustment of $458 million, or a $(0.05) per share impact, in the fourth quarter of fiscal 2014 related to adjustments to prior years’ liabilities for intercompany transfer pricing that increased taxable income in more highly taxed jurisdictions (“Adjustment to Prior Years’ Taxes”)”. The particular challenge the client faced - a common one - was that while corporate tax liability is driven by statutory legal entity results, the design of the systems and surrounding processes was geared towards a consolidated/managerial view. The operational challenges were further compounded by the need to align these complex manual processes with the organization’s quarterly financial reporting cycle. And while highly competent staff were assigned to the task, the fragmented and siloed nature of the end to end process led to inevitable inefficiencies and risks. Cycle time was slow with frequent holdups. The mechanisms for data collection and review lacked clarity, a major challenge was that the specific data needs of tax had not been incorporated in the original design of the enterprise systems. Intercompany execution - the process by which transfer prices of goods, intangibles, and services among enterprises under common ownership are calculated, monitored, invoiced, booked and reconciled - relied on an enormous volume of complex spreadsheets. Navigating an increasingly complex and highly scrutinized regulatory environment, while undergoing a business model transformation, created significant challenges for Microsoft’s intercompany execution. Not because things were at a stand-still, but precisely because they were already in motion. Was achieving a global of view of intercompany execution in sight?
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