Automation of Global Value-Added Tax and Reporting

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Tax Technology Automation of Global Value-Added Tax (VAT) and Reporting

Automation of Global Value-Added Tax (VAT) and Reporting

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Overview

VAT Technology Spectrum

– Tax Engines

– Reporting and Compliance

– Add-on Tools

VAT Technology Implementation Considerations


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Business Event

Indirect Tax Business Process Lifecycle

Each business event triggers a series of events in the indirect tax process...indirect tax does not end with "calculation"

Successful management of indirect tax relies heavily on various technology components


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The transaction data in the ERP system is the foundation for VAT compliance

Returns

Complete Transaction Data

Verify / Reconcile

data

Access to “non-

system” data

Accurate Transaction Data

Posted in accordance with Tax Law / Policy

Correct “Master

Data”

On

Tim

e

“On

Budg

et”


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What is Tax Technology for VAT?

Technology/tools used to manage VAT obligations may include:

– Tools for tax rule determination, tax rate decisions, tax amount calculation, and reporting codes based on input variables from the ERP and other source systems (i.e., “Tax Engine”)

– Technology to manage ERP tax data and workflows for reporting, compliance, customer facing documents, cash remittance, returns, etc.


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What role(s) can technology play in the VAT process?

• Getting more, less and/or better data out of source system(s)

Data extraction / transformation

• Doing things with extracted data

Data processing / management

• Includes exception reporting, graphical dashboards or a combination of both

Testing / Analysis (a.k.a. “Detection versus prevention”)

• Automating the selection of tax codes and/or consistently applying logic

Tax determination (a.k.a. “Prevention versus cure”)

• Re-presenting data in a format for filing (paper or electronic)

External Reporting

• Tools / Applications for undertaking specific tasks

Special / Single Purpose


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Tool selection – a simple example:

– Hammer Core purpose 1: Putting in nails

Core purpose 2: Taking out nails

Secondary use: Putting in screws…

“…From a 12-oz. curved-claw hammer to a Japanese hammer to a 2-lb. mason's lump hammer or a brass-headed mallet, Mario Rodriguez describes the uses of each of his favorite 13 hammers and explains why he likes them best…”

Source: http://www.finewoodworking.com/tool-guide/article/hammers-and-mallets.aspx

Selecting the Right Tools

http://www.finewoodworking.com/tool-guide/article/hammers-and-mallets.aspx

http://www.finewoodworking.com/tool-guide/article/hammers-and-mallets.aspx


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Extract / transform

Process / Manage

Test / Analyze Determine Tax

External Report

Corrections

Custom Report

Extract + Ltd Transform

eExtract Extract + Ltd Transform

Spreadsheet / Database

Ltd Transform Process + Ltd Manage

(Ltd?) Test + Analysis

Ltd Corrections

IDEA / Monarch Pro

Transform Process + Ltd Manage

Ltd Test + Analysis

Data Warehouse

Extract + Transform

Process (+ Ltd Manage)

Test + Analysis

Tax Engine / ERP Config

Analysis Determine Tax Reporting

Returns Solution

Ltd Transform Process + Ltd Manage

Ltd Test + Analysis

Returns Corrections?

iTAC Ltd Transform Process + Manage

Test + Analysis Reporting Corrections

Tax Technology Solutions Spectrum – 13 “Hammers”


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Overview


– Tax Engines


– Add-on Tools



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Native ERP

Type of VAT “Tax Engines”

3rd Party Custom

– Legal entities, tax codes, default decisions based on customer, product, vendor

– No tax rates or content

– Lacks ability to handle complexity

– Includes tax content and rates

– Standard interfaces for major ERP

– Allows for centralization of decisions and reporting

– Custom code in ERP

– Legacy systems with limited indirect tax functionality

– Non-standard integrations with other tax tools


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ERP System

Invoice

AP Clerk

Purchase Order

Requisitioner VAT Manager

Select Tax Code Change Tax Code?

VAT Process

ERP Process Without Optimized Tax Engine


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ERP System

Invoice

AP Clerk

Purchase Order

Requisitioner

Select Tax Code

VAT Process

Tax Engine

Optimizing the Tax Decision with Tax Engine

VAT Manager


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Invoice

ABC Supplier Ltd FCA

NL123456789B01

Widgets €1.000

Company details and registration set up

– Acme UK Ltd – Company 1000 UK VAT Reg’n – GB123456789

PO / Invoice details identify:

– Vendor Vendor’s “Ship From” address

INCOTERMS ≈ Place of Supply

Vendor’s Registration

– Nature of Purchase » Default to SR unless exception found

Tax engine applies rule to determine tax

– UK acquisition of goods – 20% IT & OT

How Does a Third-Party Tax Engine Work?


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ERP data elements are “mapped” to the tax engine’s equivalent

– Once “mapped,” the tax engine provider keeps the rates in line with legislative changes for supported countries

Customization is possible and, in most cases, necessary

– More complex cases require more customizations E.g., How to identify a zero rated dispatch within a chain transaction

ERP Tax Engine

tə-MAH-toh tə-MAY-toh

How Does a Third-Party Tax Engine Work?


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Overview


– Tax Engines


– Add-on Tools



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Indirect Tax Reconciliation and Reporting Tools

Native ERP tax engines (Oracle, SAP, Peoplesoft, JD Edwards, etc.)

– Limited set of pre-defined tax reports and ability to customize but only if good data available in ERP

Third-Party tax engines (Vertex, Onesource, Avalara, Taxware, etc.)

– Reports with more granular tax data available from the tax engine database/subledger

Add-On Reporting Tools (e.g., Business Intelligence, Cognos, etc.)

– Ability to develop extraction tool from an ERP system into data warehouse for reporting

Reconciliation Tools

– Compare amounts at the document level between your general ledger and your tax subledger to identify variances


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Indirect Tax Compliance Tools and Workflow

Compliance Tools

– Pre-defined and customizable tax return forms for filings

– No tax engine implementations required – data can be from any source and in basic format


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How Do Reporting and Compliance Tools Work Together?

Transforming source data to import into solution format

Mapping source system tax code to reporting solution tax code

Tax Code Tax Base VAT Gross Deductible Non-Deductible

V1 100 20 120 20 0

Box 1

Box 2

Box 3

Box 4 20

Box 5

Box 6

Box 7 100

Box 8

Box 9


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Examples:

– Different reports

– Custom reports

– “Bolt-on” to the source system

– Stand-alone transformation applications

More data:

– “De-normalization” of data to feed further calculations, analysis, etc.:

Transaction Report Vendor Master Table

Doc No Vendor No Vendor No Name Country Etc.

1000000 12345 12345 Acme Ltd GB

Data Extraction and Transformation for Reporting


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Less data:

– Filtered data, such as exception reports, to facilitate review

“Better” data:

– Often employed for converting “information” (i.e., something laid out for human consumption) back to “data”

– Usually necessary if using reports in a way not intended (i.e., to use report “data” to supplement further analysis)

Types of Reporting Data


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Example of Data


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Overview


– Tax Engines


– Add-on Tools



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Other Indirect Tax Technology Add-Ons

Workflow Solutions

– Approval workflows, calendars and assignments for the tax organization to manage returns processing

– Manage and track work papers in a central repository

VAT Registration Management

– Add-on tools to verify formats and/or validity of customer and supplier of VAT registrations


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Other Indirect Tax Technology Add-Ons

Batch Processing Testing and Simulation Tools

– Setup of large volume of transaction data and expected results validate results from tax engines

– Easy way to run a large volume of test cases in the “push of a button”

Vendor Tax Variance Reports

– Tool to compare and process variances vendor charged tax to expected tax based on setups in a tax engine


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Overview


– Tax Engines


– Add-on Tools



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Expected Benefits of VAT Automation

Manage tax risk

Save money

Improve visibility

Increase scalability/flexibility

Create a central repository of rates and rules

Expand control points for tax determination

Enhance reporting capabilities

Compliant customer facing documents


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Typical Budgets and Timeline for Tax Technology

License fees for third party vary greatly (10k annually to 250k annually)

Implementation services (excluding software costs) have many variables, but some general benchmarks for the most typical scope would be:

– Tax Process Assessment (TPA): 2-6 Weeks, 10k–40k

– Software Vendor Selection: 4-12 Weeks, 10k–40k

– Third-Party Tax Engine Implementation for US/CA: 2-12 Mos., 30k–250k

– Third-Party Tax Engine Global Implementation: 9-18 Mos., 250k–3MM

– Upgrades, reporting, compliance solutions, and add-on tools – 2–6 Mos., 50k–250k


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Identifying the “Right” Tools

Considerations

– What is the complexity, volume, and tax profile of your supply chain?

– What are the current failure modes and pain points?

Audit exposure, assessments, penalties

“Waste” of manpower on activities that are not value-add (manual processing, rework)

Risk

– What tools are already being used and are they optimized?

– What is the business case for each type of technology?

Solution cost vs. benefit

Opportunity cost of “do nothing”


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How to Prepare for a Tax Technology Project

Understand the project scope, team structure, timeline, and success factors

– Confirm and document key business trading models and tax requirements for all countries in scope

– Understand business or IT policy, schedule, budget, and resource dependencies that may impact project timeline and scope

– Identify process owners, shared services, and IT resources and confirm skillset and availability

– Define measurements for expected benefits

– Evaluate possible solutions

– Prepare business case


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Lessons Learned and Best Practices

Quality and completeness of business transaction data are critical

– Understand availability of key business data elements that are tax sensitive

VAT registrations for customers and suppliers

Address data (ship from, ship to, sold to)

Delivery terms or Incoterms

Product categories or commodity codes

In the absence of incomplete or inaccurate data, there must be a defined leader empowered to make practical decisions about tax policy within the limitations of the technology


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Lessons Learned and Best Practices

DO NOT treat indirect tax projects as a technical project but rather as a business policy and process project that requires careful change management

– Effective deployment must balance compliance, process, systems, and people

– 30% of the solution is technical; 70% is process, policy, and people

The journey is not complete at Go-Live!

– Make sure your ERP Team provides for go-live support to troubleshoot tax issues and resolve in production

– Billing and purchasing processing may look different in production compared with testing. This will impact indirect taxes


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Contact Information

Tony Chavez

Principal

Ryan

Tax Technology (Scottsdale)

[email protected]

602.567.0890

Angela Myers Director

Ryan

Tax Technology (Chicago)

[email protected]

312.980.1155

Jun Miyake

Director

Ryan

Tax Technology (London)

[email protected]

+44 (0) 20 7257 8516

mailto:[email protected]



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This document is presented by Ryan, LLC for general informational purposes only, and is not intended as specific or personalized recommendations or advice. The application and effect of certain laws can vary significantly based on specific facts, and professional advice of any nature should be sought

only from appropriate professional advisors. This document is not intended, and shall not be deemed, to constitute legal, accounting or other professional advice.

Automation of Global Value-Added Tax and Reporting

Technology

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