Different regulators and authorities ask for various reports that don’t necessarily correspond to the structure of the company’s enterprise resource planning (ERP) system. Sometimes they want the same data presented different ways, but often the required data comes from various sources. As a result, companies and their advisors, like us, spend a fortune in time and money doing manual manipulations at regulators’ request, mostly in spreadsheets.
This demand for total transparency about a large, complex company’s financials is always most intense when governments are under stress.
Echoes of the financial crisis
Because natural resources are also national resources, mineral extraction requires more explicit government permission than other business activities, and securing that government permission requires public satisfaction that the mining company is paying its “fair share” of tax. This has always been the case, but during the global financial crisis, almost every nation dependent on natural resources debated or implemented increases in taxes on mineral extraction.
The industry responded with a raft of “social contribution reports.” This documentation of their contributions to society serve a purpose, but governments often focused on the fact that the numbers in them often diverged from what appeared on the companies’ tax returns.
Since profitability in this highly capital-intensive industry is heavily scrutinized, tax controversy is always looming. All this adds up to mining and metals companies needing the “single source of the truth” to satisfy a growing number of stakeholders more than any other sector of the economy. But how does the industry get there?
The digital revolution presents us with a solution
Advanced digital technologies like robotic process automation (RPA) are enabling us to imagine a path to more simple and complete transparency. As a global organization, we begin by performing the exact same data manipulations the client already performs, but we use RPA, particularly for indirect or other transactional taxes. Companies enjoy the ability to speed up the production of the multiple reports with which they are familiar.
A critical element of calculating taxable income is depreciation for mining and metals companies. There is now the ability — through digitalization — to help support every depreciation claim much more precisely, even checking depreciation schedules against real data. Digitalization and big data enable us to narrow the gap between real life and statutory presumptions.
Executive management now expects the tax function in the mining and metals sector to help reduce cost, improve productivity and reduce the risk around what’s called “social license to operate” — that is, government and community approval to continue operating.
The next generation of improvements is coming from our Tax, Technology and Transformation (TTT) team, which has been building approaches that shortcut those difficult data extractions. For example, a tool might search for “repairs” in all client data, including in the ERP system, the fixed asset register and in unstructured data such as email.
By analyzing both the qualitative and quantitative aspects of this data, a more precise and accurate tax reflection of that expense can be determined. This is a massive technological leap, and the opportunity to do different things is extraordinary.
A true “single source of tax truth” will require more digital progress in private sector tax functions and probably some adjustments in government reporting requirements. But mining and metals companies understand the special role they play in national economies, to government, the community and their shareholders.
Digital tools can help accurately articulate to government authorities and communities that their natural resources are being extracted in a way that’s economically beneficial to all of society.
This article was originally published in Tax Insights on 16 April 2018.