Tech Q&A: Tools for tax

How does a GP decide if a new tax tool is worth the cost? Crowe Horwath’s Rebecca Jordan and Will Ault look at the possibilities

Given the sheer wealth of technology dedicated to the tax process these days, what are some of the most promising tools out there?

Will Ault: For private equity firms, especially larger GPs required to report to multiple jurisdictions with a wide variety of investors, there’s a big opportunity with the tax compliance and filing packages, and most of these firms use some type of filing software.

But there are new areas where providers have made real advances. For one, they’ve become quite good at tracking the depreciation of assets, which is a thankless task that still needs to be done. Many software packages will have this option as part of their offering. Then there’s technology to track and identify R&D credits for those companies with research and development divisions which can yield substantial rewards.

We still find plenty of companies using Excel spreadsheets to calculate their quarterly tax provisions, when the reality is that the technology out there can make a real difference. And lastly, some of the biggest improvements have been in automating tax processes.

Even if a GP is keen to employ some of these new tools, what are some common mis-steps they may make in implementing them?

Rebecca Jordan: In my experience, it’s easy to lose track of the pain point that prompted a client to invest in that technology in the first place. These are powerful systems that can do a lot of different things, but it’s key to remember the pain points this new system was meant to address, and see if that new offering has improved them.

WA: Too many GPs are willing to let vendors off the hook when it comes to post-implementation testing of these new offerings. There should be tests by experts after the implementation to ensure that the system delivers on its promise before they agree to that three-year licence.

What are the tax issues that technology still can’t address?

RJ: By its nature, tax compliance can involve a lot of repetitive work and automation can do a lot to relieve that burden. But when there’s a need to interpret data, for instance analysing the terms of a partnership agreement, it’s time for an actual expert to step in and make that judgment call.

WA: GPs should not expect the technology to replace human review of new transactions and new situations that the technology can help identify. In an ideal world, that new technology is set up with expert tax counsel, so that the tool reflects the unique priorities and preferences of that firm. These are sophisticated tools, but they also need to be tailored to a firm’s given situation. No matter how automated a process gets, there will still be anomalies and those are when that expert steps in and counsels on how best to handle it.