Session O116: Transfer Pricing, Indirect Tax and Customs Post-BEPS—Building a Business Case

Niren Saldanha, Tax Partner, KPMG LLPGisele Belotto, Tax Senior Manager, KPMG LLPDoreen Liu, Tax Managing Director, KPMG LLP

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• Niren Saldanha is a Partner in KPMG’s Indirect Tax Technology practice and leadsKPMG’s Tax Technology efforts for global deployments. Based in New York, Niren hasover 15 years experience advising multinational clients on indirect tax (Sales/Use andVAT) automation and optimization areas. Niren holds an MBA and a CPA and is amember of the AICPA.

• Gisele Belotto is a Senior Manager in KPMG’s Trade and Customs practice and leadsKPMG’s Trade technology alliance with Thomson Reuters. Based in Miami, FL Giselehas over 16 years experience in international trade matters. Gisele holds an MA inEconomic Development and is a member of OWIT, ICPA and AAEI.

• Doreen Liu is a Managing Director in KPMG’s Global Transfer Pricing Services practice and leads KPMG’s Operational Transfer Pricing technology alliance with Thomson Reuters. Based in New Jersey, Doreen has nearly 15 years experience in delivering transfer pricing planning, documentation and controversy services to clients covering a broad range of industries. Doreen holds an MBA and is a co-author of the article “Staying Ahead of the Curve: What Companies Should Consider in Preparing the BEPS Master File”, in Bloomberg BNA’s Transfer Pricing Report, November 13, 2014.

BIOGRAPHIES

•To connect the dots between Indirect Tax, Customs Duties and Transfer Pricing and their dependencies

•How do you build a compelling case for change and influence key decision makers and stakeholders?

•How can you measure the value you add to your organization?

OBJECTIVES

• Overview – Synergies in Indirect Tax, Customs and Transfer Pricing

• The benefits of collaboration• The tax function in flux• Building a business case for collaboration

AGENDA

Some or all of the services described herein may not be permissible for KPMG audit clients and their affiliates.

PRODUCT PRICE TIME LINE

Cross-Border: Goods Transaction

t0

Set Transfer Price by

Product, by Supply Chain

Customs Import Value/Clearing• Duty

• Import VAT

Goods Receipt• VAT Accrual?

• Cost of Goods

A/P Invoice• Tax

• Offset Import VAT

TP adjustment for profitability target

t1 t2 t3

DISCIPLINE CONNECTIVITY

Indirect TaxCustomsTransfer Pricing

VAT calculations

Registration

Invoicing

Cash flow

Reporting

VAT grouping

Title transfer

Formalities

Vendor contracts

Refunds

Classification

Duty payments

Free trade agreements

Incoterms

Circumstances of sale

Importer/exporter of record

Country of export & import

Bonefide sale

Import/export declarations (documentation)

Product descriptions

Exchange rate

Customs valueMethod/desired profit benchmark

Profit results

Royalties/licensing

Retroactive adjustments

Function & risk

Permanent establishment

Value chain

Entity roles & structure

Taxing complex global supply chains in a post-BEPS world

The need to manage the impact of the anti-BEPS proposals across the company’s supply chain can provide the impetus to drive interaction and collaboration among these three often-isolated disciplines. Starting from the premise that intercompany pricing is:

1) A major element in managing transfer pricing policy,

2) Used to calculate import duties, and

3) The basis for indirect tax calculations.

THE BENEFITS OF COORDINATION

Analyzing and planning the company’s intercompany pricing stands to generate more ideas, efficiencies and value than are likely to be produced when transfer pricing is considered on its own.

The resulting collaboration and integration of a company’s transfer pricing, VAT and customs teams could continue producing benefits for the company for years to come.

THE BENEFITS OF COORDINATION (CONTINUED)

TAX FUNCTION EVOLUTIONValue

• Ensuring accuracyand timeliness of financial reporting and compliance

• Managing tax riskand tax authority audits

• Controlling costs –shared services, outsourcing, etc.

• Increasing efficiency– ERP implementations, tax technology, etc.

• Delivering cash tax savings or deferral

• ETR optimization

Risk

Cost

Transparency

• Managing information for country-by-country reporting, CRD IV, etc.

• Managingreputation with a focus on tax in the media

The focus of the tax function has evolved over time as its responsibilities have increased and it has been expected to deliver more with less.

10 – 15 years ago 5 – 10 years ago Today – 5 years ago Today

WHERE ARE YOU TODAY… AND WHAT IS YOUR AMBITION FOR THE TAX FUNCTION?

I

I

I

I

I

I

I

No f ormal career dev elopment paths or training programs

Limited consideration giv en to design of the organizational model f or tax

No f ormal tax policy or tax risk management f ramework

Financial data has to be signif icantly reworked bef ore it can be used by tax

Processes are not standardized or documented and hav e unclear responsibilities

Heav y reliance on spreadsheets and low lev el of automation

Tax f unction has no specif ic perf ormance measures

Clear career dev elopment paths and training programs

av ailable

Organizational model designed to take into account tax strategy , risk

and business needs

Board approv ed and documented tax policy and risk

management f ramework

No rework of data required and data can be relied upon

by tax

Standardized and documented global processes with clearly

def ined responsibilities

High lev el of automation and range of tax technology

implemented

Tax f unction has a scorecard aligned to business objectiv es

Governance and Risk

Organizational Model

People and Capability

Process and Responsibility

Data and Information

Systems and Technology

Performance Management

I=Initial

D

D

D

D

D

D

D

O

O

O

O

O

O

O

D= Defined O=Optimized

– Current state – Future state

HOW ARE TAX FUNCTIONS RESPONDING?Organizational

ModelProcess and

ResponsibilitySystems and Technology

Data andInformation

People and Capability

Governance and Risk

Performance Management

Tax Control Framework

1. Identify Strategic Partners• How can this benefit them?

2. Why is this project so important?3. How does this project tie into strategic plan?4. What is the potential impact of not doing this

project?5. Governance of Technology

BUILD BUSINESS CASE

There are some things we have seen which are almost universally true

CREATING A COMPELLING BUSINESS CASE

Cost of doing nothing

Cost of the alternative

It is important to establish the cost to build your tax solution in your ERP or build a custom solution.

Never forget that there is almost *always* a cost of doing nothing. The status quo also has a price.

There is greater value in a solution you can use now than one you cannot take advantage of for some time.

The value of NOW

WHY BUSINESS CASES SUCCEED OR FAIL

• Based on fact and reason • Actionable• Realistic• Focused on numbers

Business cases succeed when they are:

• Based on guesswork• Too esoteric• They overpromise• Heavy on conjecture

Business cases may fail when they are:

• Make it as short as you can• Provide real examples• Make it relevant• Be bold, but reasonable

Business case best practices

IN GENERAL: COMMON BENEFITCOMMON DATA, DIFFERENT USE

Customs

Transfer Pricing Indirect Taxes• Pricing and Value• General Ledger• A/R, A/P• Goods Movements• Dates (events)• Material vs. Service• Contracts Data• Related-party

Transactions• Adjustments

• Services agreement

• VAT grouping• Tax rules and

configuration• Invoice• Indirect Tax

Rate

• AES (export)/BP (import)• Sanctioned parties• License management• Export/import documentation

• TP rules and company policy

• Incoterms• Customs and

duty rates• Product

classif ication

• Arms length analysis

Mindset and Acceptance

MANAGE EXPECTATIONS

• There are various connections among TP, Customs, Indirect Tax

• Today, most companies view and handle each area independently; compliance risk and missed opportunities

• Increased coordination and strategic planning not only can mitigate risk but also provide tangible benefits and savings

• Technology is becoming available to address the three areas more strategically

IN SUMMARY

THANK YOUSome or all of the services described herein may not be permissible for KPMG audit clients and their affiliates.

The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.

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