Remember how taxes were treated in your finance classes? A constant, plugged in at the end, before you calculate the ROI and make a decision.  That might work in the classroom, where the worst result is a bad grade. But not when there’s real money at stake. Ignoring taxes until the end of a business decision can cost your company money, depress your ROI and lead to the wrong business decisions.
The wrong response to complexity It’s hardly surprising that many business decisions are made on a pre-tax basis. Tax rules, even for a single business line in a single jurisdiction, can be complex. Multiply that complexity by the number of business lines — and the different countries, states and cities that they may operate in — and you’ve got a complex system of rules that few can decipher. Another complication: The most appropriate decision for a business line isn’t always the same as the most appropriate tax decision for the enterprise. Balancing the tax impact of a decision on a business unit versus the entire enterprise can be tricky and even contentious at times. So it’s no wonder that many decision makers either ignore taxes or simplify them to the point of irrelevance. They assume a standard rate of, say, 40%, and multiply the results of the “real” analysis by a constant. But adjusting with a constant is no different than using a pre-tax number. In many companies this is where the tax analysis ends. In others the tax team often isn’t even brought into the picture until the last minute — usually after the decision has already been made. Consequently, by the time your tax specialists are consulted, it may be too late to be of any value. Avoiding the complexities of tax can lead to costly mistakes. Giving tax specialists a proactive role can pay off handsomely. Consider them as more than just compliance technicians. They can be a source of untapped value potential. Too little, too late Consider the case of a manufacturing company that was evaluating sites for new European operations. The decision came down to three locations in different countries, all roughly equal from a pre-tax viewpoint. Management made the final choice, but didn’t consult with their tax specialist team until after the deal was done. Bad move. Turns out they picked the very worst of the three from a tax perspective, ending up with a two percentage point increase in their effective tax rate — two points of gross margin down the drain. And because their tax specialists weren’t consulted until the last minute, there was no turning back. Space had already been procured, employees hired and contracts signed. It’s not just cross-border tax issues that can take a bite out of profit. You can have the same problem in the U.S. Consider call centers or other shared support services. The business case for such service centers can be powerful. However, getting tax specialists involved can make it an even sweeter proposition. Your tax specialists can help you evaluate incremental opportunities to create value by identifying and negotiating job development and training credits with local tax authorities. Virtually every business decision has tax ramifications. Although your tax specialists should not be put in the position of being gatekeepers or a roadblock to efficient operations, a collaborative approach can tap into hidden value. By providing your tax specialists with a more timely and transparent view into business decisions, you will find that the earlier they get involved, the more they can contribute. Using tax savings to pay for new spending There are even more dramatic ways that tax specialists can add value. Consider your IT initiatives. Most tax departments have planning opportunities that they are not able to implement due to data and systems constraints. That’s usually because these systems are often designed without considering tax requirements. But you may be able to unlock more value in your IT spending by getting the tax specialists involved in the design of these systems. You might just find that your unlocked tax savings alone can justify the cost of the project. There are a lot of ways that your tax specialists can be a source of value rather than merely serving a compliance function. But you can’t utilize them if you don’t get them out on the front lines. Out of the back room It isn’t always easy to get tax specialists involved. While business managers don’t spend much time thinking about taxes, tax specialists don’t always think like investors either. As a finance professional, it’s your job to help close the gap. That means making sure your tax department has a seat at the table. It means having your tax specialists spend more time with business line decision makers, even if you need to drag them along. Get their help to build after-tax business cases on major initiatives. Make sure they’re involved — or at least present — in the key planning meetings. This approach will also help develop your tax specialists by exposing them to broader finance and business initiatives. The days of a tax specialist focusing only on filling returns and meeting deadlines are gone. The new breed of tax specialists combines the technical knowledge and detail-oriented mindset required for tax work, but can also communicate well with the rest of the finance team as well as senior management. These people aren’t easy to find — but they’re worth their weight in gold. Tax has traditionally been a back-room function. Investment thinking has traditionally ignored detailed tax implications. These are traditions that should be broken. To get your finance department up to speed, get your tax specialists in front of the organization and working collaboratively with other managers. You can no longer afford to make tax an afterthought. In short: Get your tax specialists involved with the business at the front end of major decisions. Evaluate every business case on an after-tax basis. Consider using after-tax measurements to assess management performance. And make tax planning a priority. The result may be a huge improvement in your bottom line. This publication contains general information only and Deloitte Consulting LLP is not, by means of this publication, rendering business, financial, investment, or other professional advice or services. This publication is not a substitute for such professional advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified professional advisor. Deloitte Consulting LLP, its affiliates, and related entities shall not be responsible for any loss sustained by any person who relies on this publication. | 
