Deloitte Indirect tax Technology

The Dbriefs Tax Operations series presents:

Global Indirect Tax

Management: The

Expanding Role of

TechnologyMarc Hoessels, Deloitte Touche Tohmatsu Member Firms LLP

Stephen Metoyer, Deloitte Tax LLP

March 24, 2011

Release for answers to polling questions

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• Global indirect tax management

• Indirect tax technology solutions

• Tax enabled shared service centers

• Question and answer

Agenda


Which of the following best describes your

role/responsibility?

• Single Country Indirect Tax

• Regional Indirect Tax

• Global Indirect Tax

• General Tax

• General Finance

• None of the above

Poll question #1

Global indirect tax management


In Europe, the trends are

more to move to E-

audits and deliver a

Standard Audit File for

tax to the authorities;

UK- Senior Accounting

Officer

NL – Tax Control

Framework

Germany – Standard

audit file for tax e-audit

Global tax management challengesIncreased scrutiny from tax authorities

In Australia, since 2010 large

businesses have been assigned a

risk rating by the Australian Tax

Office. The risk rating was derived

from extending and enhancing data

analytics and risk profiling

techniques.

In the USA, strict requirements have been enacted

to identify potential weaknesses of tax processes. In China, new regulations

require large taxpayers to

grant the tax authorities

increased access to their

internal tax risk control

systems.

In India the strategy seems to be having

more audit based controls opposed to

physical controls. Relaxation of

controls is coupled with introduction of

strict penalty provisions including

provision for prosecution.

1


Trends – Indirect tax position

Focusing Areas for Indirect Taxes

Improving working capital

Monitor indirect tax

changes

Improving internal

processes

New business

model

Leveraging new and existing

technology

2


Trends – Regulatory initiative

“The Senior Accounting Officer (SAO) of a qualifying company must take reasonable steps to

ensure that the company … establishes and maintains appropriate tax accounting

arrangements.”

Para 1(1) Sch 46 FA 2009

Taxes and Duties covered:

• Corporation Tax

• VAT

• Sales & Use Tax

• PAYE

• Insurance Premium Tax

• Stamp Duty Land Tax

• Stamp Duty Reserve Tax

• Petroleum Revenue Tax

• Customs Duties

• Excise Duties

Tax Control Framework

COSO model

“the significant and growing problem of

international non-compliance with national tax

requirements.”

3

OECD


Burning issuesWhat is the biggest burning issue in global indirect tax management?

The burning issue survey was conducted at the 2010 Deloitte Global Indirect Tax Conference

in Paris on 20 March 2010. This year’s conference was attended by around 300 businesses

and Deloitte indirect tax specialists from around the world.

The central theme of the conference was “Emerging into Clarity: Managing Indirect Tax in the

new commercial environment”, and the conference was focused on dealing with indirect tax in

a market that is starting to recover from the recent downturn.

4

24%

28%

28%

10%

5%5%

System & process issues

Juggling too many competing priorities

Insufficient time or resource

Managing compliance

Implementing the VAT Package

VAT rate changes (0%)

Other


ERP field Observed errors

1 Organizational structure ERP cannot cope with multiple VAT registrations. Making it impossible to report VAT for legal entities having different

VAT numbers.

2 General Master Data The vendor, customer and material master do not contain the required legal VAT information (e.g. VAT numbers of

vendor or customer).

3 Tax Codes Overlap of coding or unclear use of the tax codes. No clear translation of the business transactions into tax codes.

4 Tax logic – AR Use of standard setup does not allow complex transactions, supply of services, etc.

5 Tax logic – AP There is only a limited coverage of the standard tax code determination possibilities on AP side.

6 Intercompany transactions No transfer documents are drafted for cross-border intercompany shipments of goods.

7 Specific Indirect Tax flows Businesses are not aware that specific configuration of the ERP system is needed to cover specific VAT flows such

as triangulation, drop shipments, commissionaire structure, chain transactions and intra-company VAT transfers.

8 Invoicing Not in line with legal requirements (VAT ID numbers, exemption articles, currency, sequential numbering, etc.).

9 Tranfer pricing Transfer pricing adjustments still remain a manual process.

10 Intrastat reporting Difficult to reconcile with VAT because the logistic modules form the basis for the Intrastat report.

11 Tax return, Tax books Manual intransparent process leading to errors.

12 European Sales Listing Due to incorrect settings of the tax codes and customer master data, ESL data in ERP can be incomplete.

13 Reconciliations No reconciliations between VAT, Intrastat, ESL, financial statements and other reports are performed. External tools

are available, however limited to certain systems.

14 Withholding Taxes Withholding taxes are not driven by the system and remain a manual process.

ERP integration issues

5


In terms of day to day effort, my role is best described as:

• Indirect tax (sales, use, value added tax) compliance

• Customs & global trade compliance

• Customs & global trade advisory & compliance

• Wider tax advisory & compliance

• Broader financial responsibility

• None of the above or not applicable

Poll question #2

Integration with ERP systems


The history of indirect tax technology

Tax policy hard-coded

into DOS-based systems

Tax software

introduced with

limited

functionality

Client server based relational

database tax softwareOpen architecture

enhances tax

functionality

1970 1980 1990 2000 2010

Development of ERP

functionality

Cloud computing

based tax solutions

6


Leading indirect tax systems

• Solution – Vertex® O

Series 6.0

• Single technology

platform and database

• Integrates tax processes

with ERP and BI systems

• Enhanced tax reporting &

analysis functionalities

Solution - Sabrix Application

Suite

Sabrix Application Suite

includes software for sales

tax, use tax and value added

tax automation

Provides integration with

major ERP systems

including SAP®, Oracle®,

and PeopleSoft

Solution - Taxware

Enterprise 8.0

Data editor functionality

was recently added to

Taxware Enterprise

Obtained Oracle®

validation with JDE,

PeopleSoft and Oracle®

Financials for both SUT

and TWE in 2010

Announced TWE adaptor

for SAP® in 2010

• Version – R12

• E-Business Suite Tax module

• Enhanced tax handling on freight

• Enhanced handling of tax on

intercompany movements

• Version - ECC 6.0

• Contains tax procedures for many

countries

SAP® Oracle®

Vertex® ADP Taxware Sabrix –Thomson Reuters

7


Tax engine system components

• Vendors maintain databases of current

sales and use, VAT, GST, and HST

rates and rules

• Vendors provide monthly content

updates allowing tax departments to

shift their focuses to strategic planning

Tax Rates & Rules

Taxability

Indirect Tax

System

Nexus Management

Tax Rates & Rules

Jurisdiction Identification

Taxability

Certificate Management

• Allows tax

departments to

set up unique

taxability rules,

dates, exemptions

Jurisdiction Identification

• Digital imagine

solution

• Automates validation

and application of

customer exemptions

Certificate Management

• Address validation

functionality

• Zip+ 4 and postcode

precision

Nexus Management

• Provides

functionality

allowing tax

departments to

easily manage tax

‘footprint’

8


Web Browser

Tax engine system architecture

ERP Systems

Customer Order& Invoice Systems

Other Systems

Financial Systems

Interface (XML or JavaTM)

Tax Rate & Rule Database

JurisdictionDatabase

TransactionDatabase

Reporting Database

Certificate Database

Web

Servic

e U

ser

In

terfa

ce

U.S. Sales & Use Tax Rules & Rates

Global Indirect Tax Rules & Rates

Certificates & Forms

Tax Engine

9


ERP indirect tax capabilities

Pros & Cons - Indirect Tax Capabilities of ERP Systems

SAP®

• Transaction tax calculation tightly

integrated within SAP® functional

modules

• Country-based tax procedures

• Each tax procedure contains different

condition types to define variables in tax

calculations

• Built-in tax tools to handle internal

solutions

• Established component to communicate

with external tax systems

Oracle® E-Business Tax

• Indirect tax determination is integrated with

other Oracle® E-Business suite modules

through a single interface

• Reporting buckets – regime, tax, jurisdiction

& status

• Available taxes – tax zone & tax rate

• Tax rules – tax condition sets

• Tax determinations data – party, process,

product & place

• Rules possesses – synthesize data to

calculate taxes

• Cons

• Insufficient capability for handling more complicated taxability decisions

• Often require integrated tax software (Tax Engines) in countries with complex tax regimes

• Pros

• Native ERP tax functionality limits external tax system software licensing costs

• Overall system architecture less complex

10


Technology Evolution – Just the start

Governance

Process

Technology

• Across Geographies

• Across Business Segments

• Standardization

• Tax

• Business

• Tax Decisions

• Content

• Reporting

• Business Integration

Identify

Indirect

Tax Risk

Indirect Tax

KPI’s

Business

and Tax

Process

Offshore

Automate

Tax

Calculation

Standard Tax

Technology

Maintenance

11


Critical tax considerations

System Architecture Tax Determination ProcessTax Reporting

Requirements

• Business efficiency

• Support legal tax requirements

• Support multiple set of Books (US GAAP, Local GAAP, etc)

• Inventory locations

• Mirror the organizational structure

– Including VAT registrations

• Each transaction must receive the correct tax treatment for Accounts Payable, Accounts Receivable, Intercompany, etc

• Sufficient data elements need to be incorporated into the logic to support complex scenarios (e.g. delivery terms, ship from, bill to etc)

• The ERP should support appropriate tax reporting including:

– Invoice production

– Return preparation

– VAT accounting (sales and purchase ledger)

– Customs declarations

– Intrastat reporting can also be supported in Oracle®...

• The output should meet legal requirements for content and format including currencies, languages, etc

• Statutory reporting needs

12


Challenges & opportunities

Challenges

Standardization and Centralization of

Processes

• Capture cost savings

• Emphasis put on both tax compliance risk and

overall management of global tax liabilities and

a growing interplay of tax and finance

processes

Greater Use of Technology

• The exclusion of tax people from the

centralization process makes the collection of

basic financial data for preparation of tax filings

a complex exercise

New regulatory requirements

• Request to tie compliance processes more to

strategic risk management and redefine how

the tax function should operate

• Significant uncertainties in tax accounting rules

and interpretations in different jurisdictions

Opportunities

Processes

• Revisit established Tax processes to see what

can be standardized further and managed

efficiently in the Tax Center of Excellence

Technology

• Embrace a global ERP roll-out by taking an

active part in effectively re-using data to support

implementation of more streamlined, integrated

and automated processes

• Integrating data into a common tax technology

platform to automate data collection, and to

centralize access and re-use data across

multiple tax activities

Tax function as a Strategic Partner

• Tax teams could strive to become more of a

strategic advisor to the business. By teaming

with finance, Tax can, for example, engage

more easily with the CIO/CFO about how to

become intrinsically involved as key members

of the decision support team.

13


How do you currently calculate indirect tax on business

transactions?

• Tax policy configured in ERP system

• External tax software integrated with ERP

• Varies based on jurisdiction

• Manually using offline tax matrices

• Other

• Unsure

Poll question #3

Tax enabled shared service centers


Shared service centers – AP process

14


Shared service centers – Reporting

process

15


In the area of indirect tax, what is your most challenging

priority during the next year?

• ERP implementation or upgrade

• Implementing new tax technology

• Enhancing your processes and procedures

• Better understanding of indirect tax governance

• All of the above

• Other

Poll question #4

Question and answer

Join us May 19 at 2 PM ET as our Tax Operations series presents:

Tax Department Analysis: Leveling the Playing Field


Thank you for joining

today’s webcast.

To request CPE credit,

click the link below.


Marc Hoessels

+ 32 2 600 67 10

[email protected]

Stephen Metoyer

+1 713-982-3314

[email protected]

Contact info

mailto:[email protected]

mailto:[email protected]


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