How tax processing runs, step by step

Tax processing starts with planning by the head of tax, moves into calculating current and deferred tax with the accounting team, and then splits into domestic and foreign return preparation. Compliance monitoring runs alongside all of it. Inquiries from authorities come last and often reopen earlier steps.

The steps in order

1. Set the tax plan and strategy. The head of tax owns this, usually with the finance director and outside advisers. They decide how the group is structured for tax, which positions it will take on uncertain items and where it carries risk. Treasury and legal are pulled in when a restructuring, acquisition or new financing changes the picture.

1. Collect the underlying data. Tax analysts request trial balances, fixed asset registers, payroll details and intercompany schedules. The general ledger team supplies most of it. Missing or late data from subsidiaries is the most common reason this stage slips.

1. Calculate current and deferred tax. A tax accountant works out what is owed for the period and then compares the book and tax bases of assets and liabilities. Differences between them produce deferred tax balances. Someone senior has to judge whether deferred tax assets are recoverable, because that call affects reported profit.

1. Record tax in the books. The financial reporting team posts the provision entries once tax has signed them off. They also prepare the tax note for the financial statements. External auditors review this work, so documentation of every judgment matters here more than anywhere else.

1. Prepare domestic tax returns. Analysts in the tax department complete corporate income tax filings, often with a compliance provider doing the bulk of the drafting. Returns are built from the provision workpapers, then adjusted for anything that changed after the books closed.

1. Handle foreign filings. Local finance staff or in-country advisers prepare returns for each overseas entity. The central tax team reviews them for consistency with transfer pricing policy and with the group position. Withholding taxes and local indirect taxes are frequently handled here too, sometimes by people outside the tax function entirely.

1. Review, approve and file. A tax manager checks each return against the workpapers. An authorised officer signs. Payments go through accounts payable or treasury, depending on how the business has divided that responsibility.

1. Monitor compliance. The tax team keeps a calendar of deadlines, tracks legislative changes and tests whether filings and payments went out correctly. In larger groups an internal control owner checks this independently. Any gap found feeds straight back into planning.

1. Respond to tax authority inquiries. When a notice, information request or audit arrives, the head of tax decides who leads the response. Analysts pull together evidence. Advisers may negotiate. Settlements and assessments then flow back into the provision and the books, which means steps three and four run again.

Where the documented process and reality part ways

On paper these steps look sequential. In practice the provision and the returns overlap, and foreign work often runs on a separate track that the central team only sees at review. Indirect taxes such as sales tax or VAT may sit with accounts payable and receivable staff who never think of themselves as doing tax work.

Handoffs cause most of the trouble. The ledger team may close the books without knowing which accounts tax depends on. Local finance may file abroad before the centre has agreed the numbers.

Questions to ask the people who run it

The answers to these usually reveal steps that no process map shows.

• Which data arrives late or needs reworking before it can be used, and who chases it?
• Where does the provision calculation actually live? Is it a spreadsheet one person maintains?
• Who decides whether a deferred tax asset is recoverable, and is that decision written down anywhere?
• When a return differs from the provision, how is the difference traced and booked?
• Which foreign entities file without central review?
• Who outside the tax team touches tax, for example in payables, payroll or sales operations?
• How are filing deadlines tracked, and what happens when someone on the team is away?
• When an authority sends a letter, where does it land first, and how long does it sit there?
• Which adviser relationships hold knowledge that nobody inside the business has?
• What workarounds exist because a system cannot produce something tax needs?

What to watch when changing it

Changes to the ledger, chart of accounts or entity structure ripple into tax before anyone notices. Bring the tax team into system and reorganisation decisions early. Protect the audit trail for judgments, since auditors and authorities will both ask for it. Moving work to a shared service centre or outside provider can work well for return preparation, but the review step and the strategic calls need to stay with people who understand the group's positions.

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.