How tax strategy and planning runs, step by step

Tax strategy and planning starts when the head of tax takes the business plan and works out what it means for tax in every place the group operates. Local specialists shape each jurisdiction's view. A central team merges those views into one plan, and data owners keep the underlying tax records current.

The steps in order

1. Collect the business direction. The head of tax meets financial planning and analysis to obtain the strategic plan, the forecast and any planned deals. Acquisitions, new markets, refinancing and changes to the supply chain matter most here. Without this input the plan answers yesterday's questions.

1. Document the current tax position. Tax managers for each region record which entities exist, where each one files, which audits are open and what losses or credits sit unused. Existing rulings and advance pricing agreements go on the list too.

1. Scan the rules in each jurisdiction. Foreign, national, state and local specialists review enacted and pending law. Outside advisers often help where in-house knowledge is thin. Treaty changes, new minimum tax regimes and shifts in nexus rules for indirect tax tend to surface at this stage.

1. Draft a strategy per jurisdiction. Local tax leads propose positions for their territory. Typical topics include the transfer pricing method, available incentives, entity structure and how indirect tax will be collected on new sales channels.

1. Bring the drafts together. The central tax planning team combines the local proposals into a single group plan. This is where conflicts appear. A deduction claimed in one country may create taxable income in another, or a local incentive may depend on keeping activity that the business plans to move.

1. Model and optimize. Tax analysts run scenarios on the consolidated plan. They test the effective tax rate, cash tax and exposure under different assumptions, then adjust positions until the plan balances savings against risk the group is willing to carry.

1. Review risk and governance. Legal counsel and the tax risk owner check that each position has support and fits the stated tax risk appetite. Documentation gaps get flagged for the responsible tax manager to close.

1. Approve the plan. The chief financial officer signs off. Where the tax policy requires it, the audit committee or board also reviews the main positions.

1. Turn the plan into operating instructions. The tax planning lead hands assumptions to the provision team, sends cash tax forecasts to treasury and updates the compliance calendar. Business units receive guidance on any structural changes they must make.

1. Update tax master data. The tax data owner, usually working with tax technology or the ERP team, changes entity records, tax codes, registration numbers, jurisdiction mappings and rate tables to match the approved plan. If this step lags, invoices and returns keep running on the old structure.

1. Revisit when something moves. Tax leadership reopens the plan when law changes, a deal closes or results diverge from the forecast. A partial refresh starts again at the step the change affects.

Where practice drifts from the document

The written process usually shows a clean handoff from local drafts to central consolidation. In reality the central team often writes much of the local strategy itself, and local leads only comment. That matters if the change being planned assumes strong regional ownership.

Master data is the other weak point. Many groups treat it as a systems task, so it sits outside tax governance. Tax codes get created by whoever needs one quickly, and nobody reconciles them against the approved plan.

Approval can also be looser than the policy suggests. Some positions go live on the strength of an email from the head of tax, with formal sign-off arriving later or never.

Questions to ask the people who run it

• Where does the business plan actually come from, and how late does it usually arrive?
• Which jurisdictions get a full strategy, and which ones just roll forward last year's view?
• Who decides between two local positions that conflict?
• What tool holds the scenario models, and who besides the analyst can read them?
• When did a position last get rejected at the risk review, and why?
• Who is allowed to create or change a tax code in the ERP?
• How does the master data team learn that an entity has been merged or dissolved?
• What triggers a mid-cycle refresh in practice, as opposed to on paper?
• Which outside adviser holds knowledge the internal team does not?
• If the head of tax left tomorrow, which step would stall first?

Answers that differ between the central team and the regional leads are worth following up. They usually point to the handoff where the real process departs from the documented one.

APQC's Process Classification Framework® (PCF) is an open standard developed by APQC, a nonprofit that promotes benchmarking and best practices worldwide. To download the full PCF or to view definitions and measures, please visit www.apqc.org/pcf.