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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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Copyright © 2011 Deloitte Development LLC. All rights reserved.
Copyright © 2011 Deloitte Development LLC. All rights reserved.
• Global indirect tax management
• Indirect tax technology solutions
• Tax enabled shared service centers
• Question and answer
Agenda
Copyright © 2011 Deloitte Development LLC. All rights reserved.
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
Copyright © 2011 Deloitte Development LLC. All rights reserved.
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
Copyright © 2011 Deloitte Development LLC. All rights reserved.
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
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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
Copyright © 2011 Deloitte Development LLC. All rights reserved.
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
Copyright © 2011 Deloitte Development LLC. All rights reserved.
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
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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
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Shared service centers – AP process
14
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Shared service centers – Reporting
process
15
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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
Copyright © 2011 Deloitte Development LLC. All rights reserved.
Thank you for joining
today’s webcast.
To request CPE credit,
click the link below.
Copyright © 2011 Deloitte Development LLC. All rights reserved.
Marc Hoessels
+ 32 2 600 67 10
Stephen Metoyer
+1 713-982-3314
Contact info
Copyright © 2011 Deloitte Development LLC. All rights reserved.
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Copyright © 2011 Deloitte Development LLC. All rights reserved.
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