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

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Agenda Global indirect tax management Indirect tax technology solutions Tax enabled shared service centers Question and answer

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Poll question #1Which 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

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Global indirect tax management

Global tax management challengesIncreased scrutiny from tax authoritiesIn 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 Europe, the trends are more to move to Eaudits 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 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

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.

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Trends Indirect tax positionFocusing Areas for Indirect Taxes

Leveraging new and existing technology New business model

Improving working capital

Monitor indirect tax changes Improving internal processes

2

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Trends Regulatory initiativeThe 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 OECD

Tax Control FrameworkCOSO model

the significant and growing problem of international non-compliance with national tax requirements.3Copyright 2011 Deloitte Development LLC. All rights reserved.

Burning issuesWhat is the biggest burning issue in global indirect tax management?5% 5% 24% 10%

System & process issues Juggling too many competing priorities Insufficient time or resource Managing compliance Implementing the VAT Package VAT rate changes (0%) Other

28% 28%

The burning issue survey was conducted at the 2010 Deloitte Global Indirect Tax Conference in Paris on 20 March 2010. This years 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.4Copyright 2011 Deloitte Development LLC. All rights reserved.

ERP integration issuesERP field1 Organizational structure

Observed errorsERP cannot cope with multiple VAT registrations. Making it impossible to report VAT for legal entities having different VAT numbers. The vendor, customer and material master do not contain the required legal VAT information (e.g. VAT numbers of vendor or customer). Overlap of coding or unclear use of the tax codes. No clear translation of the business transactions into tax codes. Use of standard setup does not allow complex transactions, supply of services, etc. There is only a limited coverage of the standard tax code determination possibilities on AP side.

2

General Master Data

3 4 5

Tax Codes Tax logic AR Tax logic AP

67

Intercompany transactionsSpecific Indirect Tax flows

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

89 10 11 12 13

InvoicingTranfer pricing Intrastat reporting Tax return, Tax books European Sales Listing Reconciliations

Not in line with legal requirements (VAT ID numbers, exemption articles, currency, sequential numbering, etc.).Transfer pricing adjustments still remain a manual process. Difficult to reconcile with VAT because the logistic modules form the basis for the Intrastat report. Manual intransparent process leading to errors. Due to incorrect settings of the tax codes and customer master data, ESL data in ERP can be incomplete. 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.

5

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Poll question #2In 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

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Integration with ERP systems

The history of indirect tax technologyCloud computing based tax solutions

Client server based relational database tax software

Open architecture enhances tax functionality

Tax software introduced with limited functionality

Development of ERP functionality

Tax policy hard-coded into DOS-based systems

19706

1980

1990

2000

2010

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Leading indirect tax systemsSAP Version - ECC 6.0 Contains tax procedures for many countries

OracleVersion R12 E-Business Suite Tax module Enhanced tax handling on freight Enhanced handling of tax on intercompany movements

Vertex Solution Vertex O Series 6.0 Single technology platform and database Integrates tax processes with ERP and BI systems Enhanced tax reporting & analysis functionalities

ADP Taxware 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

Sabrix Thomson Reuters 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 PeopleSoftCopyright 2011 Deloitte Development LLC. All rights reserved.

7

Tax engine system componentsTax Rates & Rules 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 Jurisdiction Identification Address validation functionality Zip+ 4 and postcode precision

Taxability Allows tax departments to set up unique taxability rules, dates, exemptions Certificate Management Digital imagine solution Automates validation and application of customer exemptions

Nexus Management Provides functionality allowing tax departments to easily manage tax footprintJurisdiction Identification Tax Rates & Rules Taxability

Nexus Management8

Indirect Tax System

Certificate Management

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Tax engine system architectureERP Systems Customer Order & Invoice Systems Financial Systems Other Systems

Interface (XML or JavaTM)

Tax Engine

Web Service User Interface

Tax Rate & Rule Database

Jurisdiction Database

Transaction Database

Web Browser

Certificate Database

Reporting Database

U.S. Sales & Use Ta