Grant Thornton - Global Tax Automation Talkbook

Global indirect tax automation A suite of technology solutions to improve VAT/GST compliance

Indirect tax automation | November 2014

© 2014 Grant Thornton UK LLP. All rights reserved.

Contents

Section Page

The context: global indirect tax environment 3

The problem: existing systems 4

The problem: symptoms and pressure points 5

Suite of solutions 6

Rule and rate determination using tax engines 7

VAT return compliance: in-house 8

VAT return compliance: outsourced 9

Global compliance management 10

ERP implementation or upgrade 11

Process weakness and compliance risks 12

How Grant Thornton can help 13

Why Grant Thornton? 14

Contacts 15


© 2014 Grant Thornton UK LLP. All rights reserved. 3

The context: global indirect tax environment

Global footprint and international supply chain

requiring multiple VAT/GST registrations

Regulatory pressures to demonstrate controls

eg SEC ruling in Highland Hudson case

Pace and quantum of tax rule

changes eg the EU 'VAT package'

New VAT/GST regimes eg

Malaysia GST in April 2015

and proposed GST in India,

VAT in Egypt and UAE

Penalty regimes focused on behaviour,

systems and controls eg UK

Increased co-operation between tax

authorities eg MOSS and VIES

Senior accounting officer rules eg UK

More sophisticated audits using data interrogation

e.g. Australia

Standard audit file requirements (SAF-T)

Frequency of tax rate

changes eg US sales tax

New invoicing requirements eg

EU Invoicing Directive 2013

Increased administrative requirements

eg e-filing of returns, sales lists

Changes to reporting requirements eg

proposed standardised EU VAT return

Tax Control Frameworks e.g.

Netherlands and Singapore

BEPS

Taxation of the digital economy



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

4

The issue: existing systems

limited and finite number of tax codes and tax tables

limited exception reporting

limited automated tax determination

limited controls, allowing manual overrides

struggles with cross-border requirements

tax 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 queries

detailed localisation of ERP required.

struggles with state and municipal taxes

The above problems are exacerbated where there are

multiple or legacy systems and multiple VAT/GST registrations.



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

The problem: symptoms and pressure points

too many spreadsheets (and an overreliance)

increased manual intervention leading to human error

regular errors in tax liability

deficiencies and delays in reporting

increased voluntary disclosures and penalties

delays in input tax recovery

invalid tax invoices

lack of visibility over global compliance

difficulty in demonstrating controls

difficulty in cash flow planning

time 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.



There is no 'one size fits all' automated indirect tax solution.

Instead, there is suite of solutions available (from different software solution providers and consultants) which are each designed to relieve specific

pressure points in the global VAT/GST compliance process. This talkbook is designed to set out the pressure points at each stage of the VAT/GST

compliance cycle and the various options at a high level to help facilitate an impartial commercial discussion around tax automation and technology

solutions.

6

Suite of solutions

Workflow

management tools

VAT return

compliance tools

Tax engines ERP tax

optimisation

Data mining and

interrogation

Outsourcing

Technology shouldn't be deployed in isolation and instead it should be implemented alongside best practices as part

of a wider tax control framework, encompassing Technology, People, Process and Data..



Pressure point

Difficulty in determining and charging the correct rate of VAT/GST to

charge due to:

multiple VAT/GST registrations

large and varied product file/SKUs

global customer base

mixture of B2B and B2C supplies and need to validate registrations

complex place of supply rules and difficulty identifying taxable situs

complex transactions due to supply chain or business model

limited tax codes within ERP

frequent VAT/GST rate changes

IT having to be involved in changes to tax codes leading to delays

complexity in jurisdictions with state and municipal taxes

certain customers having exemption from tax

7

Rule and rate determination

Solution

Tax engine – a third party solution which bolts onto the ERP,

billing systems or middleware that will, based on the information

sent to it (registrations, business status, customer status, nature of

goods/services, tax nexus etc), determine the relevant VAT/GST

rate and instruct the system to charge that rate (along with any

required detail eg VAT number/invoice narrative).

Rates, rules and other information eg invoicing narrative or

jurisdictions, are maintained by the third party provider in the engine

database and regularly updated (automatically if cloud hosted or

through accepting regular updates if hosted locally).

Tax engine solutions include ONESOURCE indirect tax

determination and Vertex O-Series.



Pressure point

Difficulty in preparing and submitting VAT returns due to:

multiple VAT registrations

too many spreadsheets

manual process with multiple adjustments

exchange rate calculations required

multiple ERP/billing systems

key transaction data held in different systems

lack of audit trail or transparent process

standard VAT return file to be submitted.

8

VAT/GST return compliance: in-house

Solution:

VAT/GST return compliance tool – a third party standalone

software tool which allows users to import multiple data files from

different systems, and a VAT return is automatically generated based

on the transactional data flowing through to the relevant boxes.

The solution can provide additional functionality such as VAT

number validation and exception reporting, identifying possible

errors before a return is finalised and filed. The solution provides

additional transparency and controls by limiting human intervention.

In certain jurisdictions, VAT returns can be filed online direct from

the software. Businesses that currently outsource their VAT

compliance may wish to carry out a cost-benefit analysis of bringing

compliance back in-house using compliance tools.

Solutions include Vertex Indirect Tax Returns, ONESOURCE

indirect tax compliance and Avalara IVAT.



Pressure point

Multiple VAT returns prepared by one or more providers – outsourcing

the problem but not necessarily providing the solution to:

lack of audit trail

manual process

reliance on spreadsheets

time spent on preparation or review

cost of compliance

increasing shift to e-filing of returns.

9

VAT/GST return compliance: outsourced

Solution:

Outsourcing using a VAT return compliance tool – outsourcing

VAT compliance to a third party provider using a third party

standalone software tool. The provider can import multiple data files

from different systems which are provided by the business, and a

VAT return is automatically generated based on the transactional

data flowing through to the relevant boxes.

By using functionality such as VAT number validation and exception

reporting, the provider can identify possible errors before a VAT

return is finalised and filed. The solution provides additional

transparency and controls by limiting human intervention. The

compliance process is streamlined and can produce greater

economies of scale, often leading to a reduced per-return fee. VAT

returns can generally be filed online direct from the software.

Grant Thornton Netherland's pan-European VAT compliance

centre uses iVAT and Grant Thornton US's North American sales

tax compliance centre in the US uses Vertex Sales Tax Returns.



Solution:

Workflow management tool – a third party solution that allows a

user to define different workflows for tax and accounting processes,

therefore automating the processes. A workflow management tool

can provide a dashboard, showing a tax calendar and traffic light

status of required filings. Review and escalation processes are

automated, whereby email notifications can be automatically

generated when each task is completed or delegated. A dashboard

allows a high level view of the global compliance picture, allowing a

head of tax or indirect tax director to view upcoming deadlines, real-

time status updates and VAT/GST payable or receivable by

jurisdiction or registration.

Workflow management tools include ONESOURCE workflow

manager, and Quickr.

Pressure point

Difficulty in maintaining visibility of global indirect tax compliance

due to:

multiple VAT/GST and sales tax registrations across globe

mixture of in-house, outsourced and co-sourced compliance

multiple teams across different locations and time zones

manual review and escalation process

workpapers held locally

no single report for tax cashflow planning

lack of single tax filing calendar

no single blueprint of current registration footprint , processes and

process owners

no single standard operating procedure or process for compliance

10

Global tax compliance management



Pressure point

Limitations in VAT/GST functionality within a newly implemented or

upgraded ERP solution due to:

limited IT budget made available for tax design and set-up

IT consultants often failing to understand complexity of global

VAT/GST requirements

incorrect conditions and rules set-up

insufficient reporting capabilities

limited localisation for country specific requirements

lack of requisite granularity of customer, vendor and material master

data required to determine tax

constraints on currency and foreign exchange rates

lack of awareness or understanding of core native functionality

insufficient training and identification of super users

11

ERP implementation or upgrade

Solution:

ERP tax optimisation – ensuring the VAT/GST functionality of

the ERP system is set up correctly and optimised. This may include

adding additional tax codes. ERP optimisation would also include

localisation of the ERP system, ensuring the system is correctly set

up to meet local country compliance requirements. Where tax

requirements can 't be met within the native ERP, People, Process

and Technology should be evaluated as possible solutions to gaps.

It is worth investing the time, effort and resource into the tax set up

of an ERP to ensure scalable best practices are in place, for example:

common naming conventions for tax codes

tax sensitive GL accounts

automated tax determination

clean and complete master data

granular tax reports

standard operating procedures

tax control framework implemented

super users identified and trained

VAT/GST number validation



Pressure point

Concerns over possible historic VAT/GST errors which may be

indicative of wider weaknesses and deficiencies in systems, processes

and data.

This creates risk due to:

frequent errors and disclosures to tax authorities

inconsistent tax determination and policy

inability to demonstrate controls

increasing use of diagnostic tools and date-mining by tax authorities

12

Process weakness and compliance risks

Solution:

Data mining and interrogation tool – a third party solution

deployed to identify systematic errors and historic but slicing and

dicing transactional data and running exception tests.

IDEA is a powerful analysis and interrogation tool that can be used

to data mine VAT data. The solution was initially developed by

Grant Thornton member firms, and is now used by tax authorities

including HM Revenue and Customs (HMRC) for UK VAT audits

and investigations. A VAT module with a series of exception tests

(which can be replicated for use in multiple jurisdictions) has also

been developed. IDEA can also identify cash saving opportunities eg

unrecovered input tax from 'hidden VAT' on AP.



We can assist our clients with:

impartial discussion of possible solutions

business case development

solution scorecard and vendor selection

facilitation of introduction to solution providers

arrange demonstration of solutions.

tax technology strategy and roadmap

data analytics and interrogation

13

How Grant Thornton can help

We can also assist with every stage of the

implementation process, including:

project management

analysis & develop requirements

gap analysis

tax research

classification and taxability of goods/services

design and data compilation

system integration, configuration and realisation

testing and debugging

training and preparation

go-live and post-production support

We can also provide outsourced compliance:

locally produced returns by Grant Thornton International member firms

pan-European VAT returns centrally

North American sales tax returns centrally

Global VAT/GST compliance outsourced locally but coordinated

centrally by our Global Reporting Solutions teams



Grant Thornton has helped a variety of clients define their

international indirect tax policies (VAT, GST and sales

taxes) both within their ERP systems, as well as in a third

party tax engine like Vertex O-Series and ONESOURCE

(both of which we have received specialist training and are

certified implement of their indirect tax solutions).

However, we provide impartiality and are product agnostic, focusing on

providing a solution to the relevant pressure point – enabling a genuine

commercial discussion about pressure points and solutions.

Grant Thornton's international network of member firms brings both

the technical skillsets as well as the VAT/GST technical experience to a

single project team. Our technical experience is critical in understanding

the systems and their functionality and to design a comprehensive

interface for each solution which minimises redesign and changes for

future country rollouts. Our VAT/GST and technical skillsets are

essential for understanding our clients' requirements and configuring the

solution to ensure indirect tax compliance across the various countries

in which the business operates.

Why Grant Thornton?

14 14



Email [email protected] or please contact the following individuals:

Contacts

Alex Baulf

Associate Director

Grant Thornton UK LLP, London, UK T +44 (0)20 7728 2863

E [email protected]

Greg Rosser

Managing Director

Grant Thornton LLP, Houston, USA T +1 832 476 5050

E [email protected]

15

Mark Rems

Partner

Grant Thornton LLP, Philadelphia, USA T +1 215 701 8849

E [email protected]

Rich Hofrichter

Partner

Grant Thornton LLP, Charlotte, USA T +1 215 701 8849

E [email protected]

Economy & Finance

Grant Thornton - Global Tax Automation Talkbook