vat club: new erp - vat considerations

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New ERP – VAT considerations12 July 2016


Agenda

Tax RequirementsVendor selectionProof of concept Gap analysisHow to bridge gapsSoftware implementation lifecycleScalability v local granularity Master data qualityTop tips


ERP systems generally have limited functionality in relation to VAT/GST including:

What we hear and see about legacy systems

limited and finite number of tax codes and tax tables

limited exception reportinglimited automated tax determination limited controls, allowing manual overridesstruggles with cross-border requirementstax reporting currencies and use of mandated

exchange rates

manual and lengthy process to update rates and rules

inability to provide summary data for reporting in relevant format

difficulty in running reports and queriesdetailed localisation of ERP required. struggles with state and municipal taxes

The above problems are exacerbated where there aremultiple or legacy systems and multiple VAT/GST registrations.


Limitations within existing systems can lead to the following symptoms and pressure points for a business:

Symptoms and pressure points

too many spreadsheets (and an overreliance)increased manual intervention leading to

human errorregular errors in tax liabilitydeficiencies and delays in reporting increased voluntary disclosures and penaltiesdelays in input tax recovery

invalid tax invoiceslack of visibility over global compliancedifficulty in demonstrating controlsdifficulty in cash flow planningtime consuming manual changes in systems by

the IT department for every change in liability and rate.

The above pressure points often result in the tax team spending more time on compliance coupled with an increased reliance and spend on advisers and consultants.


New ERP

- Large investment by business- Significant project – investment in resource- Usually large commercial drivers – new markets or currency or

simply time for an upgrade …- Tax often late to the discussion table- This is your opportunity…..- Budget available?


New ERP – vendor selection


New ERP - Infrastructure

Cloud (hosted by vendor) v On-premise (hosted by user)

- “… the tax tail doesn’t wag the commercial dog”

- But …..

• Consider impact of sensitive information in the cloud? What jurisdiction(s) will host the data, what standards are met?

• While strategic direction of IT may be move to cloud, tax department may have different view.


Key phases of new ERP

Tax should be represented at all 3 key phases of a new ERP selection and implementation.

But also consider the more granular phases … and identify tax impact and requirements


Requirements

•Detailed analysis of what the system must do•Recreating the current system & process verses making it better•Blueprint entity master data

Design

•Detailed plan on how the system will be implemented•What data elements will be used to drive tax reporting•Blueprint required configuration

Build and System

Realization

• Configuration of ERP solution• Setup ERP by Enity, Jurisidictions and VAT registrations• Congifure tax determination rules and reporting extracts

Testing

•Smoke testing of solution•User acceptance testing (UAT) of solution

Training and Preparation

• User training• User security and roles defined• Paralell run of VAT returns to legacy systems?

Go-Live

• Sign-off of implementation• Asssistance with preparation of first return•Troubleshooting and support


Tax Requirements

• cash v accrual VAT/GST accounting

• invoice content requirements• electronic invoicing • self-billing conditions• state and municipal taxes• sales and purchase lists• granularity of customer, vendor

and material master data required to determine tax

• complexities in tax determination

• withholding taxes• taxable base• movement of own

goods• Standard Audit Files for

Tax (SAF-T)• ascertaining business

status• entities

Requirements


Proof of concept

• Create use cases• Ask vendors to confirm if meet

requirements• Proof of concept – demonstrate

required functionality• Ask for references• Ask for industry experience


Gap analysis

Blueprint the gaps … what tax requirements cannot be met in the ERP

How will these be met?- Manual process?- Outsourcing or additional hire?- Third party bolt-on technology?- Heavy localisation?- Data cleansing or enhancement?- What is the risk?


Master data quality

• Material master• how will you distinguish between products?• SKU codes• UNSPSC codes (procurement)• Goods / Services indicators

• Customer master• are addresses complete?• are addresses granular enough for tax decision (e.g. state and local)• Exemption certificates, VAT registration numbers…. Are these valid?• Where is data currently stored?• Entity structure – how are branches set up?


Master data quality

• Vendor master• are addresses complete?• are addresses granular enough for tax decision (e.g. state and local)• what about ship-from addresses?• what about branches or parent-child relationships?

• Entity master• how will these be set-up in system?• entity code by entity/branch• single entity code but “plants-abroad”? • probably not driven by tax, but should be considered in design…


Top tips

1. Get tax to the table at earliest opportunity2. Tax use case scenarios and requirements should be clearly

articulated to vendors and business3. Don’t just recreate current process … seek to improve it4. If you don’t ask, you don’t get …5. Tax data is key to successful tax determination and reporting

(consider assessment, analytics and cleansing)6. Consider impact on People, Process and Data .. Its not just

about the core technology7. Identify super-users at early stage 8. Consider cut-over period… when is go-live and when are

returns due?


Questions


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