Automation of Global Value-Added Tax and Reporting

1
Tax Technology
Automation of Global
Value-Added Tax (VAT)
and Reporting

Automation of Global Value-Added Tax (VAT) and Reporting
2
Overview
VAT Technology Spectrum
– Tax Engines
– Reporting and Compliance
– Add-on Tools
VAT Technology Implementation Considerations

3
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

4
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”
OnTime
“OnBudget”

5
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.

6
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

7
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

8
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”

9
Overview
– Tax Engines
– Add-on Tools

10
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

11
ERP
System
Invoice
AP Clerk
Purchase
Order
Requisitioner
VAT Manager
Select Tax Code Change Tax
Code?
VAT
Process
ERP Process Without Optimized Tax Engine

12
ERP
System
Invoice
AP Clerk
Purchase
Order
Requisitioner
Select Tax Code
VAT
Process
Tax
Engine
Optimizing the Tax Decision with Tax Engine
VAT Manager

13
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?

14
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?

15
Overview
– Tax Engines
– Add-on Tools

16
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

17
Indirect Tax Compliance Tools and Workflow
ComplianceTools
– Pre-defined and customizable tax return forms for filings
– No tax engine implementations required – data can be from any source
and in basic format

18
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

19
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

20
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

21
Example of Data

22
Overview
– Tax Engines
– Add-on Tools

23
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

24
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

25
Overview
– Tax Engines
– Add-on Tools

26
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

27
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

28
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”

29
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

30
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

31
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

32
Contact Information
Tony Chavez
Principal
Ryan
Tax Technology (Scottsdale)
tony.chavez@ryan.com
602.567.0890
Angela Myers
Director
Ryan
Tax Technology (Chicago)
angela.myers@ryan.com
312.980.1155
Jun Miyake
Director
Ryan
Tax Technology (London)
jun.miyake@ryan.com
+44 (0) 20 7257 8516

33
© 2015 Ryan, LLC. All rights reserved. All logos and trademarks are the property of their respective companies and are used with permission.
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

Recommandé

Recommandé

Contenu connexe

En vedette

En vedette (8)

Dernier

Dernier (20)

Automation of Global Value-Added Tax and Reporting