Lack Of Tax Planning During IT Purchases Costing US Firms Millions

by Leroy Baker, Tax-News.com, New York

10 March 2005

US companies may be foregoing millions of dollars in tax savings due to a lack of tax planning when it comes to new technology acquisitions, a recent survey has concluded.

The poll of more than 200 senior IT and finance executives conducted by IDC Research and Deloitte Consulting revealed that only 30% of respondents consulted with their tax department when making important technology purchases.

However, by ignoring both domestic and foreign tax considerations, US firms may be losing out on potential long and short-term savings, the researchers have pointed out.

In addition, firms that fail to educate themselves fully regarding the tax implications of IT purchase decisions may also run the risk of not fully addressing compliance and tax reporting requirements. This could lead to possible breaches of tax law in foreign jurisdictions and ensuing fines and penalties, according to Deloitte.

"The bottom line is companies are leaving money on the table and, at the same time, potentially increasing their risk of tax non-compliance," noted Raffi Markarian, a principal with Deloitte Tax LLP's ERP Integration Services practice.

"Major IT purchases, such as an SAP implementation, are often expensive undertakings; in many cases tax savings could significantly offset the total cost of ownership and accelerate the return on investment,” he added.

Deloitte points out that there are multiple tax considerations related to IT purchases. Financial systems must be designed to adequately address the company's compliance, planning and reporting needs to avoid under or overpayment of taxes. Typical areas that need to be considered include sales tax overpayment, property tax reduction, research & development tax credits, state and local training grants, tax law changes and value added tax.

The emergence of Sarbanes-Oxley and HIPPA regulations have also made IT acquisitions increasingly complex.

IDC’s William Roch noted that: “Financial systems need to be designed and implemented to adequately address a company’s compliance, planning and reporting needs.”

He added that: “Multinational companies have a major challenge in tracking the many laws and regulations placed on them by the large number of jurisdictions where they do business.”

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