Author: Grégory Ponce is a Senior Principal Product Manager at Anaplan.
Managing deferred taxes during financial consolidation can often feel like a complex and daunting task. Between varying local tax rates, complex accounting base differences, and the constant need for accuracy, consolidation teams need a robust and automated system.
Fortunately, Anaplan FCR (Financial Consolidation and Reporting) comes equipped with a powerful, automated deferred tax calculation engine. Today, I want to walk you through how this feature works from an end-user perspective, from the initial setup to integrating tax rules directly into your consolidation rules.
1. Setting the foundation: Countries, rates, and formulas
Before the system can calculate anything, it needs to understand the geographical and temporal context of your entities. The setup in Anaplan FCR is highly intuitive and revolves around three main pillars:
🌍 Countries configuration
Deferred tax calculation is inherently tied to local tax administrations.
- ISO code implementation: All existing countries are pre-implemented in the system using standard ISO codes.
- Selective activation: You don't need to load unnecessary data. Each country can be activated individually based on your group's footprint.
- Reporting units: A quick reminder for users: ensure that the country attribute is accurately applied to each reporting unit in your hierarchy!
📊 Tax rates input schedule
Tax rates aren't static. Anaplan FCR provides a dedicated input schedule to manage this seamlessly.
- Users can define specific tax rates for each active country.
- The system handles multiple maturities: you can input Short-Term and Long-Term rates, as well as forward-looking rates for upcoming years (Y+1, Y+2, Y+3, etc.).
- Just like countries, each specific tax rate can be easily activated or deactivated as tax laws evolve.
🧮 Tax formulas
Once the rates are in the system, you define the calculation formulas (e.g., pulling the [ST_Tax_Rate]). These formulas act as the bridge between your raw tax rates and the actual calculation logic.
2. Building your tax rules
With the foundation set, you can start creating tax rules. A tax rule tells the system exactly where and how to apply the tax formulas.
When you build a tax rule in Anaplan FCR, you define five key parameters:
Parameter | What it does |
|---|
Audit | Picks up the target Audit Trail for the deferred tax booking. |
Account | Selects the target Account (e.g., Deferred Tax Liability). |
Movement | Identifies the target Movement (e.g., Business Acquisition, Closing). |
Tax formula | Links to the specific tax formula to be applied. |
Sign | Defines whether the calculated amount should be posted as a positive (+) or negative (-) value. |
These rules can then be seamlessly incorporated into your broader consolidation rules whenever relevant.
3. Real-world example: Neutralization of regulated provisions
To see the true power of this automation, let's look at a concrete example: calculating the deferred tax following the neutralization of a regulated provision.
When you neutralize a regulated provision, you create a difference between the accounting basis and the tax basis. In our scenario, the accounting basis becomes lower than the tax basis, which must automatically generate a deferred tax liability.
Anaplan FCR's rules engine effortlessly handles all variations of this restatement: allocations, reversals, mergers, and reclassifications.
Deep dive: The business acquisition movement
Let's zoom in on the Business Acquisition (BAC) movement. The initial rule generates an offsetting entry in retained earnings to neutralize the regulated provision. To calculate the deferred tax effect of this booking, we simply map our "Tax Rule" column to the relevant logic.
Because we need to track both the Group and Non-Controlling Interests (NCI) shares, we use two distinct Tax Rules:
- Reg.Prov.BAC GRP (Group Share): This rule triggers an impact on the DT_NRG000 audit trail. It posts to the "Deferred tax liability" account for the Business Acquisition movement, offset against "Retained Earnings Group". The underlying repartition is intelligently set to "Group part".
- Reg.Prov.BAC NCI (Minority Share): Similarly, this rule impacts the DT_NRG000 audit trail and posts to the "Deferred tax liability" account. However, it automatically offsets against "Retained Earnings Minority", with the repartition set to "Minority part".
The takeaway
By defining your countries, maintaining your tax rate schedules, and smartly mapping your Tax Rules, Anaplan FCR completely automates the deferred tax side of complex consolidation restatements. It ensures accuracy, provides a clear audit trail, and saves consolidation teams hours of manual spreadsheet calculations.
Have you set up automated deferred tax rules in your Anaplan FCR environment yet? Feel free to share your experiences or ask questions in the comments below!
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