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Oil prices are rock-solid in their volatility. Since 2000, they have reached highs of over $200 a barrel and fallen below $25—and everywhere in between—as fluctuating macroeconomic conditions, global conflicts, natural disasters, and the Covid-19 pandemic caused turmoil. As margins came under pressure, the oil and gas industry had to grapple with cost-cutting measures. As prices recovered from lows (they were around $80 a barrel in mid-2024), many companies realized the benefits of maintaining austerity measures to increase profitability.

Advanced automation is playing an increasingly important role in streamlining the processes surrounding fuel taxation. This area is highly complex but critical to business operations, so automation is the ideal solution to navigate the complicated web of rules and regulations that vary from jurisdiction to jurisdiction.

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Cost centers under scrutiny

Not surprisingly, CAPEX (Capital Expenditure) and OPEX (Operational Expenditures), which play a key role in exploration, production and infrastructure development, have historically come under the most pressure when oil prices are low.

In an oil and gas company, the finance department, including the tax department, is often viewed as a cost center and, faced with declining profitability, it is one of the first areas of the company to be subjected to cost-benefit analysis and audit.

Companies have embarked on a journey to lower costs, considering offshoring to move work that is not their core competency to low-cost countries. Tax work that cannot be outsourced is outsourced to specialized tax consulting firms. Using technology to automate processes and increase efficiency is another powerful lever they can use.

The growing need for tax automation

Many are realizing that automating processes is the only truly effective way to do more with fewer resources. When companies decide to bring previously outsourced or offshored work back in-house to regain quality control, they often face the challenge of hiring enough staff to perform these functions. At the same time, pressure to maintain “lean” operations continues. As a result, companies are realizing that the most cost-effective way to meet their needs is to rely more heavily on technology.

Not only do technology solutions help companies solve cost issues, but they can also help them manage the complexities of tax laws more effectively. A typical example of this is the automation of fuel tax compliance. This is an area where high costs and serious risks are involved, so accuracy is critical.

Businesses are at risk of paying too much or too little tax, which impacts cash flow, and they also face fines for non-compliance that can result in tens of thousands of dollars in financial losses every day. They may also face further fines, reputational damage, or potentially business interruption. Automating processes can greatly improve accuracy and reduce the risk of these catastrophic errors.

Complexity of fuel tax

There are hundreds of thousands of possible variations in tax treatment arising from just a single fuel transaction and ultimately up to 15 different tax rates typically apply. Put simply, this is because there are:

• Multiple control levels: In the United States, the oil and gas sector must navigate federal excise taxes and a variety of state and local taxes. Each of the 50 U.S. states, as well as the various municipalities within them, have their own tax regulations.
• Different types of licensing: Each state has its own rules regarding buyer and seller licenses that dictate what activities a business can engage in, from importing and exporting fuel to buying and selling within state borders. All of these activities have corresponding tax implications.
• Wide range of fuel types: The market distinguishes between different types of fuel, including different grades/blends of jet fuel, diesel and gasoline.
• Changed regulatory framework: In addition, tax rates and regulations are constantly changing as fluctuations in oil and gas prices result in monthly adjustments.

The combination of all these factors creates a complex maze in every fuel transaction. Companies that manage their compliance in-house must navigate these difficulties on their own. Tax professionals must spend a lot of time tracking regulatory updates and manually adjusting custom settings in their company’s enterprise resource planning (ERP) systems in collaboration with IT resources to make such updates.

Fuel tax compliance and digital transformation

As taxes become increasingly important for oil and gas companies, the need for digital tax transformation is becoming more urgent, say KPMG oil and gas tax industry experts.

Brad Brown
Chief Innovation Officer and National Transformation & Technology Leader for Tax, KPMG

To respond to regulatory changes and ensure compliance, oil and gas companies must fundamentally transform their tax functions. According to survey results, tax leaders say they will improve their data management to operate effectively in the new normal.

Companies must regularly re-evaluate their tax operating models to comply with new regulations and manage talent needs, budget constraints and other operational challenges. Developing scalable and flexible tax functions can help companies meet growing obligations and transform tax functions into valuable assets for the entire business.

Although tax departments are expected to be more strategic and efficient, they often lack the necessary technology tools and capabilities. Nearly 80 percent of respondents say they need data management, extract, load and transform (ETL) tools, and 60 percent say they need ERP, source systems and data warehouses to work more effectively.

According to the KPMG 2024 CTO Outlook Study, tax departments are taking these steps to leverage technology and automation:

• 44% of tax departments implement tax software solutions
• 43% integrate or use corporate financial systems
• 39% use data analysis and business intelligence tools for tax planning
• 37% automate tax compliance processes
• 30% of tax departments plan to increase their technology investments in the next 12 months

An advanced automated solution

What if, instead of this labor-intensive approach, a sophisticated automated tax engine could do all of this for you? A solution that is automatically updated with all the latest regulatory changes and uses algorithms to expertly navigate the complex web of jurisdictions, licenses and fuel types. Such a solution could greatly ease the tax compliance challenges faced by oil and gas companies and eliminate key pain points.

Thomson Reuters’ ONESOURCE platform provides advanced automation capabilities supported by world-class technology capabilities in the cloud, with a robust and comprehensive content set to ensure the right decisions are made across multiple tax types and countries.

Since manual system maintenance is not required, the use of this technology enables a leaner tax team to work more efficiently and quickly. This makes investing in automated solutions extremely attractive from a business perspective.

Additionally, tax automation ensures consistent and reliable operations, unlike temporary employees who can quit, get sick, or get tired. During challenges like the COVID-19 pandemic, a non-stop automation capability proved critical to maintaining accuracy and tax compliance. This adoption continuously reduces human errors and frees up tax teams for strategic tasks.

As oil and gas prices remain volatile due to factors such as an upcoming election, ongoing economic uncertainty, changing weather patterns and geopolitical tensions, companies can turn to technology solutions. By adopting these technologies, companies can reduce risks and costs while maintaining quality and improving their overall operations.

Learn more about ONESOURCE automation

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