ca-agb-philippines-localization blueprint.doc

Localization Business Blueprint for AGB-Philippines

The Nielsen Company

SAP Finance Globalization


July 2010

Version 1.0

Nielsen Confidential


DOCUMENT RELEASE NOTICE

Notice No.:

Customer: ABG NMR (Philippines) Inc.

Project: Financial Transformation

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Localization Blueprint for AGB-Philippines

1.0 Localization Blueprint for AGB-Philippines

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Abbreviations and Acronyms

The following abbreviations and acronyms have been used in this document:

Abbreviation/Acronym Description

AA Asset Accounting

ABAP Advanced Business Application Programming

AP Accounts Payable

APC Acquisition & Production Costs

AR Accounts Receivable

AUC Asset Under Construction

BDC Batch Data Communication

BU Business Unit

CI Cleared Items

CO Controlling

CWIP Capital Work In Progress

EWT Extended Withholding Tax

F&A Finance & Accounts

FA Fixed Assets

FI Financial Accounting

FSV Financial Statement Version

GAAP Generally Accepted Accounting Principles

G/L General Ledger

HR Human Resources

ISO International Standards Organization

MIS Management Information Systems

MM Materials Management

P & L Profit & Loss

PCA Profit Centre Accounting



PS Project Systems

QC Quality Control

SAP Systems, Applications and Products

SD Sales & Distribution

SLM Straight Line Method

PHP Phillipino Peso

USD US Dollar

VAT Value Added Tax

WBS Work Breakdown Structure



Contents

LOCALIZATION FOR AGB-PHILIPPINES...........................................................6

REQUIREMENTS / EXPECTATIONS............................................................................6

GENERAL EXPLANATIONS.................................................................................................6

EXPLANATIONS OF FUNCTIONS AND EVENTS........................................................6

SPECIAL ORGANIZATIONAL CONSIDERATIONS....................................................................7

CHANGES TO EXISTING ORGANIZATION PROCESSES..........................................................7

DESCRIPTION OF IMPROVEMENTS......................................................................................8

MASTER DATA:.................................................................................................................8

SOLUTION IN SAP............................................................................................................9

DESCRIPTION OF FUNCTIONAL DEFICITS..........................................................................20

APPROACHES TO COVERING FUNCTIONAL DEFICITS........................................................20

INTEGRATION/INTERFACE CONSIDERATIONS.....................................................................20

REPORTING REQUIREMENTS............................................................................................21



LOCALIZATION FOR AGB-PHILIPPINES

REQUIREMENTS / EXPECTATIONSObjective of the SAP Finance Globalization initiative is to have robust business processes which can be implemented universally across the Nielsen group. However, these global processes need to be adapted keeping in mind the following aspects of localization applicable to each country:

Language Local standards (Decimal Notation, Date Format, …) Cultural norms (Doc. in local language) Legal requirements

GENERAL EXPLANATIONSIn order to meet regulatory and statutory requirements for Philippines, Nielsen global processes will be adapted as such; the impact of the following areas will be covered below from localization perspective:

Country specific controls

o General Controls

o Local Chart of Accounts

o Handling of Multiple GAAPs

o Specific Master Data controls

Asset Accounting

Taxation

Banking

Language requirements

Reporting requirements

EXPLANATIONS OF FUNCTIONS AND EVENTS

Country Specific Controls

Each country has certain standards/cultural norms/ legal requirements which are different from other countries. This may include amongst other things date format, decimal format, Postal code, currency etc. These aspects are part of country localization. Therefore Global Processes need to be adapted keeping in mind the localization requirements for respective countries.



Asset Accounting

Local laws (GAAP) and taxation requirements govern the valuation and depreciation requirements which are in addition to the Global GAAP requirements. Though global business processes will be adopted by each entity yet these local aspects would need to be considered for any impact on Asset Valuation/ Depreciation.

Taxation

Tax laws vary from country to country which means no standard process can be adapted for tax processing globally. Since all aspects of taxation whether chargeability or reporting varies at country level, due consideration is given to these aspects. There are various types of taxes involved like Input/output tax, Withholding tax, Final Tax, Expanded Withholding Tax. Tax which would be charged on the entity’s Profits is not in scope. Corporate Income Tax, Deferred Income Tax - Asset, Deferred Income Tax Liability, Payroll Tax would also not be in scope. These have to be handled manually outside SAP.

Banking

This component is used to handle accounting transactions in relation to banks. It includes the management of bank master data, cash balance management (check and bill of exchange management), and the creation and processing of incoming and outgoing payments. It is possible, to define all country-specific characteristics, such as the specifications for manual and electronic payment procedures, payment forms or data media.

Reporting

Reporting needs vary from country to country owing to differing statutory and regulatory requirements. These reports could be required for taxation/statutory/regulatory authorities or relates to banking set up.

SPECIAL ORGANIZATIONAL CONSIDERATIONSNone

CHANGES TO EXISTING ORGANIZATION PROCESSESAsset:

Henceforth all fixed assets acquisition and retirements and depreciation calculation would be accounted and calculated in SAP.



Taxation:

Tax calculation is based on Tax codes defined in SAP. Reporting would be based on Tax codes

Payroll Account Postings:

Payroll process should change to post the data directly in SAP through upload via payroll interface. A new payroll account postings upload format will be used to upload account postings to SAP.

Accounts Payable:

Vendor invoices would be directly entered into SAP directly.

DESCRIPTION OF IMPROVEMENTSAsset:

SAP Asset Accounting provides for the configuration of individual Depreciation Areas to meet the needs of Asset Valuation in line with multiple GAAPs. Based on the configuration parameters defined in the system via Depreciation Keys, SAP will calculate the values for the specific depreciation areas, thus meeting the requirements for multiple GAAPs. Also it provides for inflation accounting in Assets which will take care of the country requirement.

Banking:

Bank statement should be in either MT 940,BAI2 or any other SAP uploadable format for automatic bank reconciliation. If the format is not available/is not supported by the bank then reconciliation would be performed manually and outside SAP.

Master Data:

A centralized and unified master data which will allow the business units to view / share customers, vendors, etc. across the region and globally.



SOLUTION IN SAP

Country specific controls

General Controls

The following are the general controls applicable to Philippines:

Language key is EN ISO code is PH Postal code length is 4 digit Tax number is 000-284-017-000V Decimal format 1,234,567.89(rounding off to 2 digits) Date format is MM.DD.YYYY Country currency is PHP (Philippines Peso)

Company Code

Philippines will have following Company code

CoCode CoCode Name (Short)1892 AGB NMR Philippines, Inc.

Local Chart of Accounts

The Global Chart of Accounts meets all Philippines’s specific mandatory statutory local requirements. Local Chart of Accounts is not required to be defined for Philippines.

Financial Statement Versions

One Financial Statement Version at global level is available to meet the global requirement. In order to cater to the Country specific reporting requirement for Philippines, separate financial statement version has been created.

Handling of Multiple GAAPs

There is no requirement for maintaining additional ledgers apart from US GAAP. Hence

there would be one ledger which would be in line with US GAAP viz.

Ledger 0L for US GAAP



Foreign Currency Valuation

Foreign currency translation at transaction level would be driven by the System rates viz corporate rates maintained or can be entered by the users manually at the time of transaction. For Client billing, the average global rates would be used. For Revenue recognition the average global rates would be used.

Year end valuation needs to be done at government provided rates for preparing

financial statements. Monthly revaluations will be done using the corporate rates.

Separate Foreign Currency Valuation Method would be created which would valuate the

foreign currency open items for the Year end at government provided rates. However,

revaluation at government rates would be done only if there high fluctuation from the

global rates.

Specific Master Data Controls:

Following Master Data controls will be required:

Accounts Receivable and Accounts Payable Master Data

TAX ID NUMBER – Tax Number 1 where the VAT registration number of the Vendor/Customer would be provided.

The credit period for Vendors and Customers can be maintained in SAP according to the agreement with vendors and customers.

Vendor advance payments are applicable and hence Special GL indicator which is provided at global level can also be used for Philippines. However, as per the global process Customer advance payments would not be managed through Special GL indicator and would be accounted as On account payment.

Bank Master Data

In PHILIPPINES, the Bank account number length is of 10 - 13 digits and the SWIFT no is of 8 characters.

Asset Accounting

The Nielsen Company’s (TNC) Asset Accounting processes have been defined at a global level which will be implemented uniformly across the Nielsen Group.

In order to meet requirements for differing carrying amounts/ depreciation terms, a Chart of Depreciation will be defined at the country level which will be assigned to all Company Codes within that country.

A Chart of depreciation will be used to manage legal requirements for the depreciation and valuation of assets (through Depreciation Areas). Each depreciation area represents a specific type of valuation.



For Philippines, the CoD will have the following depreciation areas:

Depn. Area Depreciation Area Description Ledger Assignment

01 US GAAP Valuation Area 0L

31 Group Currency Valuation Area

Note:

In Asset Accounting, there will be multiple depreciation areas that can be set up to cater to the parallel ledgers in the General Ledgers.

Key points to consider are:

The leading ledger (US GAAP) will be assigned to depreciation area 01.

The beginning and end of the fiscal year in Asset Accounting will be identical to the ledger in general ledger accounting because the depreciation values in the G/L accounts would otherwise be mapped incorrectly.

For Low Value assets (LVA) the value is recorded at nominal value and depreciated over one month.

In Financial Accounting, in addition to the local currency of the company code, USD will be defined as the parallel currency, which is the currency used in consolidated financial statements. By doing so, the asset values will be updated in Financial Accounting in parallel in USD as well in the same accounting document as the amount posted in local currency.

Since the settings of the company code are transferred for the leading ledger, the leading ledger is also managed in these parallel currencies as well as the local currency in this case.

Depreciation calculation for assets is controlled by Depreciation key which is specified at the Depreciation area level in Asset Master Record.

In US GAAP depreciation is calculated on monthly basis. For acquisition the depreciation starts from the month after purchase and for disposal, the depreciation ends the month before the sale/disposal of the asset. Depreciation calculation for Philippines would be in line with that for US GAAP.

The following depreciation keys will be defined at the chart of depreciation level:

Additional Depreciation Key would be configured to track the Low value asset. This would have 100% depreciation charged on the month of Purchase. This is to cater to the requirement to track the low value asset. For purchase of the low value asset, this



depreciation key would be attached which would depreciate the asset during the month of purchase.

Depn.

Key

Depreciation Key

Description

Depreciation Calculation

method

Depreciation Calculation

Frequency

01PH Depreciation Key for

US GAAP Area

Straight Line Method Monthly

02PH Depreciation Key for

Low Value Asset

Straight Line Method 100% Depreciation during

the month of Purchase.

Requirement for Asset Accounting:

Pls refer to this file.

Taxation

Introduction

In Philippines, the tax procedure applicable is TAXPH.

In Philippines, VAT applies on the supply of goods and services.

VAT - Overview

Value added tax or VAT, is broadly a consumption based tax chargeable on all public and private consumption, i.e. on goods and services supplied to the consumer.

In the case of imported Goods or services, there would be no VAT applicable on the import value of goods.

For import of software the VAT is applied on the total amount i.e., the VAT is added to the invoice amount and claimed with government. This VAT is also eligible to be claimed as adjustment against other normal VAT sales. The VAT paid to the government on the import of the Software would be reported as Output VAT and the credit available against the import is reported as Input VAT. These tax codes would be input manually during the entry of the Vendor invoice and would be available in the report.

Goods exported abroad or sold to other countries will be subject to 0% value added tax if the remittances of invoices are foreign currency.



Input Tax

An Input tax is a tax that is charged by the vendor on purchases of goods/services rendered.

VAT applies to the following transactions

The supply of goods or services made in Philippines by a taxable person; The importation of software from outside Philippines.

In Philippines, the following rate of VAT currently apply:

The standard rate at 12% should have the option to change in the future

Input Tax (also known as Credit VAT) is usually recovered by being deducted by output VAT tax (also known as Debit VAT) which is VAT charged on services and sales sold.

Example:

When posting an incoming invoice with the sum of PHP 1,000 and with the tax amount of PHP 12% (12% percent tax), the following entry gets posted:

Entry while acquiring service

Account Debit Credit

Expense 1000Input tax 120Vendor 1120

Brief classification of the Input Tax to be reported are as follows:

1. Domestic Purchase of Services2. Purchase of Capital Goods amounting to PHP 1 Million and above (Aggregation

of monthly purchase of Capital Goods)3. Purchase of Capital Goods amounting to less than PHP 1 Million (Aggregating of

monthly purchases of Capital Goods)4. Software imported from foreign countries.

All the above transactions are VAT relevant at the rate of 12%. The credit can be claimed for all the transaction(Please refer Deferred input tax of exceptions) at the time of accounting of Input tax.

Output Tax

An Output Tax is a tax levied on sales of goods/services to customers. Output tax represents a tax liability.



Brief classification of the Output Tax to be reported are as follows:

1. Domestic Sales of Services – 12%2. Zero rated sales(Export sales)3. Exempt VAT Sales

The liability for Output tax arises at the time of receipt of amount from the Customers.

Example:

VAT: 12%

Entry while selling service


Customer 1120Revenue 1000Output Tax 120

Deferred Input Tax

Input tax claimed is deferred on purchase of Capital Goods if aggregate amount for the month is PHP 1 Million and above. The VAT credit can be claimed for 5 years or the life of asset whichever is less.

Scheme of entries accounting of deferred input tax.

Once the capital goods purchase is done, the input VAT pertaining to the purchase of capital goods would be charged to the Input VAT account.


Fixed Asset Holding

1000

Input VAT 120Vendor 1120

This would be capitalised as deferred Input Tax asset after transfer to Fixed asset holding account. The Capitalisation would happen only if the aggregate amount of purchase of fixed asset during the month is PHP 1 Million and above.


FA Holding 120Input VAT 120



Account Debit CreditIntangible Asset 120FA Holding 120

The above Intangible asset in the Philippines financial statements would be shown under the head deferred Input VAT.

Monthly amortisation would be run and would be charged to Profit and loss account.

Account Debit CreditAmortisation Expense

120

Intangible Asset Credit Availed

120

There would be a monthly transfer from the Profit and Loss account to the Input VAT account.

Account Debit CreditInput Tax 120Amortisation Expense

120

The following would be the tax code with tax rates that would be provided. In case of any

legal change in %, we have an option of changing it in SAP through Support Control

process.

Tax

Code

Description Nature of VAT Percentage Deductible or Non

Deductible

12% Output VAT Output Tax 12% Deductible

12% Deferred VAT Deferred Output Tax 12% Deductible

0% Export VAT Output Tax for Exports 0% Deductible

Output VAT 0% Non

exports

Output Tax Non Exports 0% Deductible

Output VAT Exempt Output Tax Exempt Exempt

12% Input Input Tax 12% Deductible

12% Input on Capital

Goods

Input Tax 12% Deductible

12% Input on Capital Input Tax 12% Deductible(Deferred



Goods amounting to

PHP 1 Million and

above.

credit)

12% Input tax applicable

for Non Residents

Input Tax 12% Deductible

Reporting of VAT is done monthly and quarterly using Form BIR 2550-M & 2550-Q. The data is encoded in Government Software and filed with a file enclosed in the EFPS (Electronic File payment system). There is a requirement to develop this file which is output from the Government Software.

Withholding Tax

In Philippines, tax is required to be withheld on the following:

Rates of Withholding taxshould have options for non-standard withholding tax rates, e.g.

utilities (electricity)

Expanded Withholding Taxes from Nielsen Payment to Suppliers Rate(%)

Goods 1%Services 2%Rental 5%Consultant, total contract < P750k p.a. 10%Consultant, total contract > P750k p.a. 15%

Final Withholding Taxes from Nielsen Payment to Suppliers Rate(%)

Dividend payment(Singapore Parent Company) 15%Payment to non-resident individual not engaged in business 25%Final tax foreign, without tax treaty/ITAD ruling 30%Final tax foreign, without tax treaty/ITAD ruling(Royaltyagreement with US) 10%

Expanded Withholding Taxes from Client Payment to Nielsen Rate(%)

Services 2%Consultant, total contract < P750k p.a. 10%Consultant, total contract > P750k p.a. 15%

For WHT on Consultants (both Vendors & Customers) separate WHT types would be defined for 10% (< P750k p.a.) & 15% (> P750k p.a.). Business would have to select the respective WHT types in Vendor/Customer master based on applicability

WHT receipt on dividend since is below the line cannot be calculated by SAP and would be accounted manually.



During Vendor invoicing WHT are accounted for at the time of recording of invoice. WHT is deducted by customers at the time of payment to Nielsen. Accounting for WHT for Customer is done at the time of receipt of Payment by Nielsen.

Example:

Withholding Tax rate: 2%

Input VAT: 12%

During Vendor invoice posting.


Expense 1000VAT Input Tax 120WHT Payable 20Vendor 1100

Example:

Withholding Tax rate: 2%

Output VAT: 12%

During Customer Invoice posting.


Customer 1120Output VAT 120Revenue Holding Account 1000

During Accounting for Customer Receipts.


Bank 1100WHT Receivable Account 20Customer 1120

WHT Certificate would be issued to the Vendor by the business. Certificate would be

printed from SAP. Hence the certificate would be developed and would be used for

printing. Form 2307 would be issued to Vendors. The Certificate can be printed either on

a quarterly basis or per invoice.

Monthly Return for Withholding taxes is submitted through EFPS (Electronic File

payment System- The official website of the government). This would be continued after



moving forward in SAP. The data for encoding the file would be provided from SAP.

Withholding tax codes not available would be created on need basis after due scrutiny.

Official Document Numbering

In Philippines, The format and number series of the invoice is approved by local

authorities.

The vendor pre-numbered invoice number needs to be captured in reference.

Official document number is relevant only for Invoice and Credit memo documents.

Official Receipt

Official Receipts are issued to Customers for payments by Transfer, Cheque and Cash.

This at present is filled in manually and would continue to be issued manually. The

Official Receipt number which is issued to the Customer would be stored in the reference

column of the receipt document. The format and number series of the official receipt is

approved by the local tax authorities.

Banking

Banking includes management of bank master data, creation and processing of incoming and outgoing payments, Bank Reconciliations etc . It is possible to freely define all country-specific characteristics, such as the specifications for manual and electronic payment procedures, payment forms, or data media (DME).

Master Data

House Banks (banks at which legal entities holds its accounts) will be created in the system in order to run the payment program and to enable the upload of electronic bank statements. The House Banks will be defined under a House Bank ID.

In addition to the bank details, the actual accounts that legal entities have at its Bank will be defined. An Account ID, which is unique per house bank, will be defined.

There are 3 master records relating to Bank Master.

1) Bank Key: Defined at client level which contains address of the Bank account.2) House Bank: This is the Bank Branch which is attached to Bank key.3) Account ID: This is the type of account you maintain for combination of Bank key

and House bank.



The following are the list of House Bank accounts pls use this file for AGB NMR Philippines, Inc. Listed below is for the Nielsen Philippines.

Entity TYPE Bank Account Number SWIFT CODE CurrencyAGB NMR (Philippines) Inc PHP

Payment Methods

Incoming Payments: Cheques, Wire transfers, Domestic transfers

Outgoing Payments: Transactions are encoded directly in bank's HSBCNet for foreign vendors and

affiliates. For tax payments, it is encoded directly to EFPS (Electronic Filing & Payment System of government for local tax payment) which links automatically to designated bank account for tax payment.

Domestic Payments are made through Cheques.

Payment by Cheques

Payments are made by cheques also. Pre-numbered cheques are available which are used for making payments. Cheques at present are printed by the business. However, business would change the process to printing of cheques by HSBC bank. This being the case the file would be uploaded into the HSBC portal for them to print the cheques. Hence this file which would be uploaded into HSBC portal would be developed from SAP.

If the process change does not happen within the migration to SAP, the cheques would be issued manually and cheque number would be recorded in SAP.

Bank Reconciliation Process

Presently, Bank reconciliation has been done manually.

It has been proposed that Electronic Bank reconciliation would be done through SAP, unless the bank provides the statement in MT940 or BAI2 format. Else manual bank reconciliation will be done outside SAP.

Petty Cash Journal

There is a need to have petty cash journals. Petty Cash Journals are needed to be maintained in PHP. Cash advances are given to employees up to a maximum of 1000 PHP.



Transaction handled through Petty Cash are:

Payments

1. Advances to Employees/Surveyors2. Office Expenses(available for input with VAT)

Receipts

1. Replenishment of Petty Cash from Bank2. Excess Cash returned by Employees/Surveryors

DESCRIPTION OF FUNCTIONAL DEFICITSNone

APPROACHES TO COVERING FUNCTIONAL DEFICITS

None

INTEGRATION/INTERFACE CONSIDERATIONS

INTEGRATION REQUIREMENTS

These have been covered in Global Business Blueprints for respective Modules

INTERFACE REQUIREMENTS

Taxation:

A file for input and output tax VAT return filing which needs to be filed in government EFPS site has to be developed.

WHT Certificate issued to Vendors needs to be printed from SAP. Hence Certificate needs to be developed. Form 2307 is the form available that would be developed and would be printed and would be issued to Vendors.

A file for both Customer and Vendor Withholding taxes has to be developed for uploading in the government EFPS site. This is presently done manually and a separate file has to be developed for this. Banking:

No specific requirement.

Payroll Account Postings:



For payroll postings update into GL accounts the details would be provided in SAP upload format and the same will be uploaded in SAP.

Accounts Payable:

Invoices will be entered manually and tax calculation will be performed in SAP. Interface requirement such as Operational Performance and Management System is out of scope of this implementation.

REPORTING REQUIREMENTS

Taxation and Other Reporting:

S.NoReports

Requirements Language Requirement will be met by1) Return for Tax on

Sales and PurchasesEnglish SAP Standard Report

2) Generic Withholding Tax reporting

English SAP Standard Report

No other development needed for reporting requirements and hence the standard global reports would be used.pls refer to various taxation forms submitted

Note:

For Philippines, all the standard reporting requirements would be in English language. Dunning, Customer Account Statement and Customer Ageing report would be in English and there would be no requirement for additional developments for these reports.


ca-agb-philippines-localization blueprint.doc

Documents

localization requirements

country localization

localization perspective

statutory requirements

nielsen global processes

robust business processes

abg nmr philippines

revision description