EY Global Indirect Tax Symposium 2016

20–22 April 2016

Digitization of the taxfunction

Page 2 Digitization of the tax function

PanelFrank CambieBelgium

Steve PattonUnited States

Andre HengstGermany

Isabelle RauchBoehringer Ingelheim

Susanne ReiterAdidas

Page 3

Agenda

Digitization of the tax function

► Trends

► External drivers

► Internal drivers

► Team impact

VATand GST changes

Argentina1 July 2015: taxpayers required to issue e-invoices

Brazil1 January 2016: sales of software in SãoPaulo are subject to state VAT on the totalsales price (previously, it was twice thevalue of the carrier medium)SurinamePlans to introducea VAT system havebeen postponed until further notice

Costa Rica2016: VATsystem to beintroduced to replace sales tax

Puerto Rico1 April2016: VATsystem tobe implemented

CanadaCurrently considering GST obligations fornonresident e-commerce businesses

Japan1 October 2015:consumption tax applies to the provision ofdigital services providedfrom overseas to Japanesecustomers

New Zealand1 October 2016:subject to theregistration threshold,foreign suppliers of“remoteservices” must register andaccount for VAT

South Korea1 July 2015: VATapplies to e-services purchased fromabroad

GCC2018: member states are expected to introducea VATsystem

Russia1 January 2017: planning to apply VAT to e-servicesprovidedby overseas companies to Russian customers

EgyptConsidering introducing VAT system toreplace generalsales tax regime

Kenya1 August 2015: allVAT returns mustbe filed electronically

Namibia1 January 2016: VATregistrationthreshold increased to NS500,000(from NS200,000)

Tanzania1 July 2015: nonresident suppliers oftelecoms and e-services are required toregister

São Tome and Principe2017: expected to introduceVATsystem

Australia1 July 2017: GSTapplies to e-servicessupplied by overseas business toAustralian customers1 July 2017: low-value importsthreshold to be abolishedChinaMid 2016: VATto be extended to realestate and property, financial andinsurance services, and lifestyleservicesUntil 31 December 2016: cross-border e-commerce pilot is being conducted inHangzhouIndiaLate 2016: proposed introduction ofnew indirect tax regimeconsisting ofcentral GST (CGST) and state GST(SGST)Indonesia1 July 2016: mandatory use ofe-invoices by all taxpayers

Poland1 January 2016: new VAT Act implemented

Romania1 April2016: substantial changes apply to Form 394 thatdetails supplies and acquisitions

Slovak Republic1 January 2016: cash accounting introduced1 January 2016: scopeof reverse-chargemechanismextended to all goods supplied by nonestablishedtaxpayersSwitzerland1 January 2017: certain overseas businesses sellinggoods ordered online to Swiss customers will becomeliable for Swiss VAT

FinlandVAT registration threshold increased to EUR10,000 (from€8,500)

Iceland1 January 2016: foreign businesses providing certaintravel-related goods and services are required to registerfor VAT, subject to theregistration threshold

UK1 January 2016: use and enjoyment provisions apply torepairs madeunder UKinsurance contracts1 February 2016: domestic reversecharge introduced forwholesale supplies of electronic communication services

Italy1 January 2016: new penalty regimeintroduced for VAT reverse chargemechanism violations

Denmark1 January 2016: increased controlsregarding distance sales of goodsand e-services supplied to non-taxable persons

France1 January 2018: newcertificationrequirements for IT accountingsystems and cash registers takeeffect

Azerbaijan1 January 2016: VATregistration threshold increased toAZN200,000 (from AZN120,000)

Belarus1 July 2016: allVAT payers must issue VAT invoiceselectronically

Czech Republic1 January 2016: newcontrol report required to befiledelectronically with VAT returns

Hungary1 January 2016: new rules introduced relatingto theobligation to issue tax invoices and input tax deductionrights

Kazakhstan1 January 2016: use of e-invoices mandatory for certainVAT payers involved in internationaleconomic activities1 January 2017: use of e-invoices mandatory for allVATpayersKosovo1 September 2015: VATregistration threshold decreased toEUR30,000 (from EUR50,000)1 September 2015: overseas persons who operate inKosovo through a permanent establishment are required toregister, regardless of turnoverLatvia1 January 2016: reverse-chargemechanism applies tomobilephones, tablets, integrated circuit devices andvarious timber used as wood fuel

Spain1 January 2017: newreporting system forinvoices expected to comeinto forceBelgium1 January 2016: new taxpoint rules apply

Page 5

SAF-T captures data from a number of areas stored in a typical business accounting or ERP system:

Content of SAF-T

General ledger • Journals

Accountsreceivable

• Customer master files

• Invoices

• Payments

Accountspayable

• Supplier master files

• Invoices

• Payments

Fixed assets • Asset master files

• Depreciation and revaluation

Inventory • Product master file

• Movements Source: OECD Guidance for the Standard Audit File – Tax, Version 1.0: Appendix 1:SAF-T OVERVIEW BLOCK DIAGRAM

Standard Audit File for TaxContent

Digitization of the tax function

Page 6

E-invoicing in Latam

Digitization of the tax function

E-invoicing is not adopted

Excluded from analysis

E-invoicing is optional

E-invoicing is mandatoryLow e-invoicing regulatory adoption

• E-invoicing is not adopted.• In some countries, legislation has been introduced but not actually

adopted.

High e-invoicing regulatory adoption• E-invoicing is mandatory for companies meeting certain federal

standards.• The minimum requirements for meeting this benchmark are dropping

every year, such as lower revenue figures.• Strict legislation across countries dictates specifics of what must be

reported; legislation does not vary widely by country.

Medium e-invoicing regulatory adoption• E-invoicing is optional.• Taxpayers should comply with local and federal regulations, but these

vary by country in terms of strictness.• Invoices may be issued electronically.

Page 7

Business partners

Materials andproducts

Tax rates

Trading conditions

Employees

Calculation schemes

II.Transaction data

VAT determination

Transfer pricing

Customs values andreporting

Wage tax

Withholding tax

III.Reporting

VAT

GL: International. GAAP vs.local GAAP

Customs

Intrastat

Listings for cross-bordertrade

Hidden data Known output

I.Master data

Operational monitoring barriers for tax function

Digitization of the tax function

Page 8

Numbers tell the story in Mexico

Digitization of the tax function

100% ofnew taxpayersregister online

5.4 millioncompanies andindividuals issueelectronic invoicesevery day

20.6 millione-invoices areissued daily 292,813

companieshave communicationwith the tax authoritythrough the digitaltax mail

JULY 2016 is the beginning of e-audit and automated refunds

Page 9

Digital government in Mexico

Digitization of the tax function

Level 1: e-fileCompanies use standardizedelectronic form for filing taxreturns. Other income data isfiled electronically and matchedannually.

Level 2: e-accountingCompanies submit accounting or othersource data to support filings in a definedelectronic format at a defined frequency.

Level 3: e-matchCompanies submit additional accountingand source data, and the Governmentaccesses additional data and begins tomatch data across tax types, potentiallyacross taxpayer jurisdictions..

Level 4: e-auditCompanies’ level 2 data is analyzed bygovernment entities and cross-checked withfilings in real time or near real time to preventfraud and unintended errors, and to map thegeographic economic ecosystem.

Governments send taxpayers electronic auditassessments with a limited window torespond.

Level 5: e-assessGovernment entities use submitted datafrom corporate entities to assess tax withoutthe need for tax forms.

Taxpayers have a limited window oftime to audit government-calculated tax.

Page 10

Snapshot of digitization of Mexico

Digitization of the tax function

Corporate incometax Global trade

Automatedinformationexchange

Use ofe-invoicing

Use of dataanalytics/risk

enginesFuture state

►E-filing required;maintain andsubmit electronicaccounting records(EARs) for eachtransaction.

►Almost all taxobligationsconductedelectronically.

►Must e-reportrelevanttransactions(financialderivatives, transferpricing, etc.).

►Must e-fileamended returns.

►Taxpayers’ accessweb services toconsult anddownload theinformation ofcustomsdeclarations.

►VAT credits ofcertifiedcompanies arecontrolled online inreal time.

►Allcommunicationsbetweenauthorities andtaxpayers is donevia tax mail.

►Taxpayerinformation isexchanged withtax authoritiesfrom countrieswith treaties andagreements.

►Taxadministratorsmay collaboratewith othergovernmentagencies.

►E-invoicing ismandatory withvalidation by thetax administration.

►Taxpayers mustmaintain EARsand submit themelectronically on amonthly basis.

►Digital tax receiptsfrom e-billingreconciled withaccountingrecords.

►Taxpayers selectedfor inspectionbased on digital/electronicinformation.

►Audits can beconductedelectronically.

►Pre-filed individualand small businesstaxpayer VAT returnsforthcoming.

►Committed toimplementing theOECD’s AutomaticExchange ofInformation form bythe end of 2017.

►Specific partiesobliged to file OECDBase Erosion andProfit Shifting(BEPS) country-by-country (CbC)report.

Page 11

Do you know what the Mexican tax authorities are doingwith your digital data?

Digitization of the tax function

q Analysis in real timeq Analysis of 100% dataq Electronic audits

Predictive models(i.e., networkanalysis)

Business rules todetectdiscrepanciesBenchmarking

betweencompanies

2015/162013

20092004

Page 12

The future of tax analytics and reporting

Real-time analytics:►Analyze business operations using huge volumes of detailed information

while business is happeningMultipurpose, in-memory technology:► Instantly explore and analyze all transactional and analytical data in real

time from virtually any data source, not just SAPAdaptable, powerful analytic models:►Create flexible views that expose analytic information at the speed of

thoughtExtensive, source-agnostic data access:►Add external data to analytic models to incorporate data from across the

entire organization

Digitization of the tax function

Page 13

Questions

Digitization of the tax function

EY | Assurance | Tax | Transactions | Advisory

About EYEY is a global leader in assurance, tax, transactionand advisory services. The insights and qualityservices we deliver help build trust and confidence inthe capital markets and in economies the world over.We develop outstanding leaders who team to deliveron our promises to all of our stakeholders. In so doing,we play a critical role in building a better workingworld for our people, for our clients and for ourcommunities.

EY refers to the global organization, and may refer toone or more, of the member firms of Ernst & YoungGlobal Limited, each of which is a separate legalentity. Ernst & Young Global Limited, a UK companylimited by guarantee, does not provide services toclients. For more information about our organization,please visit ey.com.

© 2016 EYGM LimitedAll Rights Reserved.

EYG no. 00975-162GBL

ED none

This material has been prepared for general informational purposesonly and is not intended to be relied upon as accounting, tax, orother professional advice. Please refer to your advisors for specificadvice.