How fuel tax compliance can be automated by oil and gas companies
Discover how advanced automation solutions like Thomson Reuters’ ONESOURCE can streamline tax compliance, reduce costs, and enhance efficiency in the oil and gas industry, ensuring accuracy and strategic focus amid fluctuating prices and complex regulations.
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Oil prices are nothing if not consistent in their volatility. Since 2000, oil prices have fluctuated from above $200 per barrel to below $25, with everything in between. This is due to macro-economic conditions that have changed, natural disasters and the Covid-19 Pandemic. Oil and gas companies had to cut costs when margins were squeezed. Many companies have seen the benefit of staying trim as prices rose from the lows. (Around $80 per barrel by mid-2024). This area is highly complex, yet critical for business operations. Automation is the ideal solution to navigate the intricate web of rules and regulations that differ from jurisdiction to jurisdiction. This area is highly complex, yet critical for business operations, making automation the ideal solution to navigate the intricate web of rules and regulations which differ from jurisdiction to jurisdiction.
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Cost centers under scrutiny
Unsurprisingly, CAPEX (Capital Expenditure) and OPEX (Operational Expenditures), which plays a key role in exploration, production, and infrastructure development, have historically come under the most pressure when oil prices are lower.
In an oil and gas company, the finance department, including the tax team, is often viewed as a cost center. Cost centers are often the first to be scrutinized when profitability is reduced. They can also use technology to automate their processes and increase efficiency. When companies decide that they want to bring back previously outsourced or off-shored work to regain quality, they face challenges with adding enough staff to support this function. The push to maintain “lean” operations continues. As a result, companies recognize that the most cost-effective way to meet their needs is to rely more heavily on technology.
In addition to helping companies address cost concerns, technology solutions can also empower companies to manage tax complexity more effectively. Automating motor fuel taxes compliance is one example. This is an area where high costs and serious risks are involved, so accuracy is essential.
Companies face the risk of overpaying or underpaying taxes, impacting cashflow, and could incur fines for non-compliance that can lead to financial losses of tens of thousands of dollars daily. They may also face other financial penalties, reputational damage or even business interruptions. Automating processes can significantly improve accuracy and reduce the risk of these catastrophic errors.
Motor fuel tax complexity
There are hundreds of thousands of possible permutations of tax treatment emanating from just one single fuel transaction, and ultimately, up to 15 different tax rates will typically apply. This is because:
Multiple layers of taxation:
The oil and gas industry in the U.S. must navigate federal excise tax and a variety of state and local taxes. Each of the 50 U.S. states, as well as various municipalities within them, has its own set of tax regulations.
Diverse licensing types:
Each state has its own rules regarding buyer and seller licenses, which dictate what activities a company can engage in, from importing and exporting fuel to buying and selling within state lines. All these activities have associated tax implications.
Wide variety of fuel types:
- The market differentiates between various fuel types, including different grades/blends of jet fuel, diesel and gasoline.Moving regulatory goalposts:
- Moreover, tax rates and regulations are changing all the time, as fluctuations in oil & gas prices have triggered monthly adjustments.Combining all these factors creates a complex maze for every fuel transaction. Companies that manage their compliance internally must navigate these difficulties independently, with tax professionals dedicating substantial time to track regulatory updates and manually adjust custom settings in their organization’s Enterprise Resource Planning (ERP) systems in conjunction with IT resources to make such updates.
- Fuel tax compliance and the digital shift
- As tax moves higher up the agenda for oil and gas companies, the need for digital tax transformation is becoming more critical, say the KPMG professionals in the oil and gas tax industry.
Tax leaders recognize the importance of keeping pace with technology and investing in advanced capabilities, such as GenAI, to boost efficiency, quality, and enable tax professionals to focus on more strategic tasks to unlock valuable insights.
Brad Brown
Chief Innovation Officer and National Transformation & Technology Leader for Tax, KPMG
Responding to regulatory changes and ensuring compliance will require a massive shift in how oil and gas companies currently manage their tax function. According to survey findings, tax leaders say they will improve data management to operate effectively in the new normal.
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Organizations need to frequently reassess their tax operating models to stay compliant with new regulations and manage talent needs, budget limits, and other operational challenges. Developing scalable and agile tax capabilities can help organizations meet growing obligations and transform tax functions into valuable assets for the entire enterprise. |
While tax departments are expected to be more strategic and efficient, they often lack the necessary technological tools and capacity. Nearly 80 percent say they will require data management, extract, load and transformation (ETL) tools, and 60 percent say they need ERP, source systems and data warehouses to operate more effectively.
According to the KPMG 2024 CTO Outlook Study, these are the steps tax functions are taking to leverage technology and automation:
44% of tax functions are implementing tax software solutions
43% are integrating or leveraging enterprise financial systems
39% are using data analytics and business intelligence tools for tax planning
37% are automating tax compliance processes
30% of tax departments plan to increase their technology investment in the next 12 months
- An advanced automated solution
- Instead of this labor-intensive approach, what if a sophisticated automated tax engine could do it all for you? This solution would be automatically updated to reflect the latest regulatory changes, and use algorithms to navigate the complex webs of jurisdictions, fuel types, and licenses. Such a solution could greatly alleviate the tax compliance challenges oil and gas companies face and ease significant pain points.
- The ONESOURCE platform from Thomson Reuters provides advanced automation functionality supported by best-in-class technology capabilities in the cloud, with a robust and expansive content set that ensures the right decisions are taken across multiple tax types and countries.
- With no manual system maintenance required, leveraging technology in this way enables a leaner tax team to work more efficiently at a faster pace. This makes the investment in automated solutions extremely compelling from a business standpoint.
- Additionally, tax automation provides consistent and reliable operations, unlike temporary employees who may quit, fall ill, or tire. During crises like the COVID-19 Pandemic, uninterrupted automation was crucial to maintaining accuracy and compliance. As oil and gas prices continue to fluctuate due to factors such as an upcoming election and ongoing economic uncertainty along with changing weather patterns and geopolitical tensions. companies can find comfort in technology solutions. By adopting these technologies, businesses can reduce risk and expenses while maintaining quality and enhance their overall operations.
Learn more about ONESOURCE automation
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